For a clique latched to the sleek EV market, lithium stocks sure have been on a rocky road. After a few years when soaring EV sales had investors prizing all things lithium, lithium prices dropped more than 80% from their 2022 peaks. Shares of lithium mining companies fell with them. Lithium stocks began to rebound in August, cuing investors for a possible new drive – or maybe, a dangerous ride.
The rebound in lithium stocks got underway when the world's largest miner of the metal, Albemarle, revealed plans to cut production and spending. Smaller peer Arcadium Lithium quickly followed. The moves stirred hopes that lithium supplies would soon revert closer to current demand. They quickly reversed the share-price declines of Albemarle and Arcadium. Other stocks also turned higher, including Lithium Americas, Sociedad Quimica and Lithium Argentina.
Enthusiasm For Lithium Mining Stocks
Investor enthusiasm built further in early October, when the mining world's second-largest enterprise, Rio Tinto, sealed a $6.7 billion deal to take over Arcadium. The acquisition will make Rio a top lithium supplier. In short, the mining giant is moving to solidify its position when lithium prices are near cyclical lows.
But does that signal a cyclical upturn for lithium stocks? A balanced analysis suggests caution until the lithium price outlook is much clearer. And like most serious events in the mining industry, that could take awhile.
Rio Tinto's Arcadium buyout and other capital investment plans put its total bet on lithium at about $10 billion. That's a hefty wager at a time when oversupply has ravaged the market, and as slowing demand for electric vehicles and China's economic woes are taking a toll.
But Rio Tinto's bet — one supported by some leading market observers — is that lithium prices have bottomed.
The Right Time For Lithium Stock Buyout?
That view is not universal. But Rio Tinto Chief Executive Jakob Stausholm told analysts on Oct. 9 that the company has been "patiently studying the sector for a long time" to "enter the market and develop a lithium business of relevance and scale."
"Now is the right time to acquire a premium lithium business," Stausholm said. He added that while the price for Arcadium is a 90% premium to the share price before the deal became public, it's "actually a discount if you go to the beginning of the year or you go a year back."
Stausholm believes lithium prices and demand will increase over the next 10 years.
"What really matters is that the cost curve kicks in and gives the right cost — the right price over the next decade or so. And we are very confident about that. We have spent a lot of time analyzing this," he said.
Lithium Prices Are Down But Not Out
Rio Tinto made its $6.7 billion move as lithium carbonate prices fell to the lowest level since March 2021. Slipping demand for electric vehicles in China led to oversupply. Auto producers pushed for lower costs across the supply chain, with batteries being the most expensive component in that chain.
The global energy transition and demand for electric vehicles sent lithium demand into overdrive throughout 2022. Prices for the energy-savvy metal hit record highs. Producers rushed to add capacity and investors took lithium stocks for a dizzying ride.
Prices remained elevated across 2023. This year, supply got ahead of demand. As a result, lithium-ion battery prices fell to near record lows. Lithium-ion battery cell prices dropped to $66.5/kWh in September, down about 20% in 2024, according to Benchmark Mineral Intelligence.
As lithium prices tumbled, lithium stocks also crashed. That led Arcadium Lithium to merge in early 2024 with Livent and Australian lithium miner Allkem.
Albemarle Chief Executive Kent Masters told the Financial Times in August that the company was paring back to operate "within the cost structure and the supply chain that we can compete at the pricing that we see today, and if it stays that way long term, that's what we're planning for."
At its August low, lithium stock Sociedad Quimica was down 47% this year. Albemarle was down 50%. The two stocks are now down 40% and 32%, respectively, as of Thursday's close.
Exchange traded funds covering the space have also booked losses. The Global X Lithium & Battery Tech ETF and Amplify Lithium & Battery Technology ETF have fallen 15% and 11%, respectively, this year.
The Coming 2030s Lithium Price Boom
The outlook for the current oversupply varies as demand, fueled by electric vehicles and stationary energy storage, gradually improves. But industry views suggest that the rebound in lithium stocks may be premature, relative to any recovery in lithium prices.
Market watchers for now widely agree that global lithium demand will improve, but slowly. By the end of the decade, estimates put demand at 3 million to 3.5 million tons, up from 1.3 million to 1.5 million tons in 2024.
At that point, suppliers will have to kick into gear to meet demand. Benchmark Mineral Intelligence estimates that between 2030 and 2040, total lithium upstream capital expenditures will have to double from $94 billion to $188 billion.
Also during that decade, investment in batteries will need to grow more than 200% to $686 billion.
"This market is going to be undersupplied by the end of the (current) decade," Arcadium Lithium Chief Executive Paul Graves said on Oct. 9, "particularly when prices stay where they are today."
Lithium Stocks: Gauging The Cyclical Price Trough
Tom Moerenhout, professor and critical minerals lead at Columbia University's Center on Global Energy Policy, says lithium demand hinges on green technology and electric vehicles.
"We're expecting by the end of the decade a threefold increase in total demand, and we're expecting a four- to fivefold increase of the green tech part of that," Moerenhout said. "The growth sector for batteries is the biggest and, from that, it's mostly electric vehicles."
Demand has ebbed since China's EV subsidies ended in 2022, Moerenhout notes. He sees the industry as between two growth waves. The second wave will unfold as infrastructure projects that are currently bottlenecked, mostly EV charging developments, come on line.
But the trough between the two will not be brief. Moerenhout agrees with other experts who see the lithium glut continuing through the end of the decade. He projects the market will then shift to a lithium deficit in the early 2030s, as EV and green-technology infrastructure projects take more serious hold.
From a lithium mining industry perspective, which tends to look at least a decade ahead, Rio Tinto timed perfectly its acquisition of Arcadium.
"It was a brilliant move," Federico Gay, principal lithium analyst for Benchmark Mineral Intelligence, told IBD.
"This is the right moment for mergers and acquisitions," Gay said. "The companies that are in lithium production, they don't have any capital because prices are 60% down on the year."
Where Is Lithium Mined?
The U.S. relies on imports for more than 25% of its lithium, and produces just 2% of world supply. The bulk of supply comes from Australia and Chile.
Meanwhile, China dominates the world's refining capacity for lithium. It also accounts for about 75% of global lithium-ion battery production, according to the International Energy Agency.
The U.S. is anxious to tighten up its supply chain, and automakers want U.S.-sourced lithium to help their EVs qualify for tax incentives.
While Albemarle halted its expansion plans in Australia in July, it slowed its effort to reopen the Kinds Mountain Mine in North Carolina. In late October, Ioneer's Rhyolite Ridge lithium mine in Nevada.
California's Imperial Valley is thought to hold vast lithium resources. Warren Buffett's Berkshire Hathaway Energy joined Occidental Petroleum in a joint lithium mining venture in the area. Berkshire is a large shareholder in Occidental.
In October a U.S. Geological Survey-led study estimated between 5 million and 19 million tons of lithium reserves are located beneath southwestern Arkansas. If commercially recoverable, the amount of lithium present would meet projected 2030 world demand for lithium in car batteries nine times over, according to the report.
The U.S. Gigafactory Boom
Australia-based Ioneer, the company behind the Rhyolite Ridge Lithium-Boron Project in Nevada, plans to protect roughly 719 acres designated as critical habitat for the wildflower there. Mine construction is planned for 2025 with production slated to begin in 2028, producing lithium for around 370,000 vehicles a year for more than two decades.
Ioneer has already agreed to supply lithium from the mine to companies including Ford, Toyota and Panasonic. Ford will purchase roughly 34% of the mine's annual lithium output during its first five years of operation.
The majority of U.S. lithium battery supply growth comes from foreign-owned projects, according to Benchmark Mineral Intelligence. Five of the 10 new battery gigafactories expected to come online by 2029 are mostly foreign-owned, and they account for more than 60% of new supply in that time frame.
A total of 23 new gigafactories have been added to the pipeline since August 2022. That brings the total number of manufacturing sites in the U.S. to 40, according to Benchmark's Gigafactory Assessment. The total planned capacity for 2030 has risen by 537 gigawatt-hours to 1,290.6 gigawatt-hours.
Who Mines Lithium In The U.S.?
For companies with stable cash on hand, this is the time to dive into lithium, according to Benchmark Mineral Intelligence's Gay.
Exxon Mobil has already made its lithium play. The oil giant in late 2023 announced plans to become the leading lithium supplier for electric vehicles by 2030. It aims to produce enough lithium to make more than 1 million EVs a year.
Exxon targets its first lithium production for 2027. It paid Galvanic Energy $100 million for rights to 120,000 gross acres in the Smackover formation in southern Arkansas. The company plans to brand the product Mobil Lithium.
Exxon is not the only U.S. energy giant eyeing EV diversification. Chevron Chief Executive Mike Wirth has said the company is also looking into lithium. And in early October 2023, Chevron Technology Ventures, the oil company's venture capital arm, invested in Electric Era, a high-speed EV charging startup.
In addition to Buffett's Berkshire Hathaway-Occidental joint venture, Tesla broke ground in 2023 on a lithium processing facility in Texas, part of the company's moves to vertically integrate more of its own supply chain.
In October, Lithium Americas and General Motors also announced a joint lithium extraction venture. GM agreed to put up $625 million and acquire a 38% stake in northern Nevada's Thacker Pass mine. In March, the Department of Energy announced it would provide $2.3 billion to help develop the site.
What Else Is Lithium Used For?
CFRA analyst Emily Nasseff Mitsch said the EV market and the lithium market go hand in hand, with electric vehicles and plug-in hybrids currently dominating lithium demand.
"It's very significant," she said.
The battery segment makes up roughly 85% of lithium demand while 15% goes to industrial uses, according to Benchmark Mineral Intelligence. Of that, around 80% of the battery segment is for electric vehicles.
The industrial market for lithium includes metallurgical uses, glass and ceramics, lubricants and pharmaceuticals.
How Lithium Batteries Are Used
As recently as 2015, industrial uses made up more than 60% of total lithium demand. But with the emergence of EVs, that total percentage withered to 15% in 2024, even as the total tons supplied remained relatively steady, according to Benchmark Mineral Intelligence.
Within the battery segment, about 15% goes to energy storage systems. Around 5% goes toward the portable battery market.
The portable battery market is made up of cellphones, laptops and the burgeoning electric hand-tool market, which includes lithium-ion powered chain saws, lawn mowers, leaf-blowers and more. A decade ago, the portable battery market made up about 100% of battery segment demand, according to Benchmark's Gay.
An average smartphone uses a few grams of lithium per unit compared to many kilograms for electric vehicles. China, South Korea and Japan make the vast majority of lithium-ion portable batteries, according to Benchmark Mineral Intelligence.
EVs Will 'Determine Lithium Prices'
With EVs dominating the current lithium demand picture, lithium prices hinge on electric vehicle sales.
"It's really the electric vehicle market," Columbia University's Moerenhout said, "that is going to determine lithium prices moving forward."
Gay notes that energy-storage demand has grown, and demand for portable batteries is "reliable." He agrees, though, that neither is substantial enough to drive lithium prices.
He generally sees little risk of demand squeezing lithium supplies, at least in certain sectors. However, "when things get heated, as happened in 2022, there probably will be lack of materials for some of these uses."
Gay adds that pharmaceutical companies, which represent about 1% of total demand, can afford the higher prices. But niche industries like ceramics may not be able to absorb such increases.
"When prices are high, some of the industrial uses will probably look for replacements," Guy said.
If lithium prices increase, Moerenhout adds, larger stationary-storage developers could switch to other technologies, such as sodium-ion.
Is Now A Good Time To Buy Lithium Stocks?
For investors eyeing lithium stocks, waiting may be wise.
The projected long-term demand for the metal has kindled investor interest in lithium stocks. Rio Tinto and analysts see lithium pricing rebounding along with EV demand in the coming decade, but nothing is certain.
"I've been wrong in the past," CFRA's Nasseff Mitsch said. "I thought lithium had bottomed out in June, but it kept going down."
Moerenhout is also cautious.
"People always say, 'People who are smart about oil prices do not predict oil prices.' And I think we're getting to the same thing for lithium," he said. "People who are smart about lithium prices don't predict lithium prices."
Investors might want to keep some lithium stocks on their watchlists, but avoid buying them right now. The uncertain lithium price outlook in the near term is just one of several reasons.
Lithium Americas and Lithium Americas (Argentina) are low-priced stocks, which are generally more risky. Neither is up and running yet with operations generating revenue. Arcadium is both low-priced and has agreed to a takeover, suggesting little upside.
Albemarle and Sociedad Quimica y Minera de Chile (Chemical & Mining Society of Chile) both are bigger, more diversified companies assigned to chemicals-related groups by IBD. But like the others, they have low Relative Strength ratings, indicating they have underperformed most of the market. Albemarle, for instance, has an RS rating of 25, showing 75% of stocks have outperformed it in the past 12 months.
Lithium stocks also have low IBD Composite Ratings, which rate them on a 1-99 scale against all other stocks based on important fundamental and technical factors.
To find the best stocks to buy now, investors can check out IBD's lists of good stocks to invest in or review successful stock investing strategies.
Lithium Stocks To Watch In November 2024
| Company | Symbol | Price | 2024 % Chg | RS Rtg | Composite Rtg | |
|---|---|---|---|---|---|---|
| Albemarle | 99.93 | -31% | 25 | 27 | ||
| Arcadium Lithium (since 1/4) | 5.38 | -21 | 85 | 61 | ||
| Lithium Americas | 4.09 | -36 | 77 | 35 | ||
| Lithium Americas (Argentina) | 3.25 | -49 | 17 | 10 | ||
| Sociedad Química y Minera | 37.68 | -37 | 17 | 11 | ||
*Data as of Nov. 7. Click on symbol for more IBD data and insights. |
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Please follow Kit Norton on X @KitNorton for more coverage.
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