Image Source: Pixabay

It is almost set in stone that governments worldwide will push out gasoline-powered vehicles. The European Union (EU) has set a 100% zero-emission car sales starting from 2035. California joined the trend with the same deadline. Even sooner, the UK has set a 2030 deadline.

The gasoline-to-EV trend is perhaps the most telling in Norway. This oil-rich country has the highest percentage of EV sales globally, having broken the record in 2022, with nearly 80% of new car sales in the electric category.

For stock investors, the trend outlines a new resource resurgence. Companies in charge of extracting lithium for car batteries are poised to become the new oil barons. 

By 2025, global lithium supply is set to outpace demand, according to BMI, Fitch Solutions research division. In their report, China alone, the world’s largest lithium processing nation, will have a 20.4% YoY lithium demand up to 2032, compared to only 6% supply growth. 

The pressing question is, which companies are best positioned to keep up with the rising lithium demand? But before getting into that, let us remind ourselves why we are seeing lithium stocks decline this year. 

Lithium Stock Dip Despite Forecasted Demand?

Lithium demand may be forecasted to outpace supply in the long run, but global inflation has done much to deplete consumer resources. With excess US savings returning to pre-lockdown levels, it is no wonder Tesla had to cut EV prices multiple times this year aggressively.

Additionally, EVs still essentially belong in the luxury car category, averaging at $53k per car as of September 2023. This is why hybrids continue to outsell EVs this year, at 1.4 million vs 1.2 million respectively, per GlobalData. And why both Toyota and Ford are doubling down on hybrids instead.

Combined with recessionary concerns, investors have turned to selling off risky assets such as lithium stocks. In September, global lithium-ion cell prices dropped under $100 per KW/h for the first time in two years. 

(Click on image to enlarge)

Year-to-date, lithium ion battery cell prices are down -25.9%. Image courtesy of Benchmark Mineral Intelligence

Lithium stocks followed suit, opening a window to buy them at a discount ahead of a likely resurgence. After all, given that batteries constitute the priciest EV part, cheaper mass-market hybrids will serve as a bridge from gasoline to full EV.

Albemarle Corporation (NYSE: ALB)

Headquartered in Charlotte, North Carolina, Albemarle has been the leader in the extraction and processing of lithium and bromine alongside other materials critical for electronics, energy storage, and construction.

Having spread its mining operations from the US to Chile, Australia, and Brazil, Albemarle pushed the envelope this year. In August, the company started to build its direct lithium extraction (DLE) facility in Arkansas. DLE technology tends to double the extraction rate over time as the next step of lithium extraction from brine, without evaporation. 

“We have access to the brine and access to the infrastructure. We’re well positioned to take advantage of that.”

Albemarle CEO Kent Masters

Additionally, the leading lithium supplier partnered with Caterpillar this September as the main supplier for Caterpillar’s battery-powered machinery. To that end, Albemarle will use the Kings Mountain lithium site in North Carolina as the first-ever zero-emissions mine.

In the meantime, the company reported better-than-expected earnings in Q2 2023. Albemarle ended with a $650 million net income, a significant growth from $406.8 million the year prior. Regarding lithium sales via its Energy Storage division, Albemarle more than doubled sales, at $1.76 billion. 

Refinitiv analysts expected $4.44 per share, while ALB delivered $7.33 earnings per share. However, like the battery prices, ALB stock is down -23% year-to-date, rallying over the week at +5.7%. It is now considered a heavily oversold stock, trading 89.3% underestimated fair value.

Piedmont Lithium Inc. (Nasdaq: PLL)

Also centered in North Carolina, this development-stage company oversees the Piedmont Lithium Project. It is one of the largest lithium deposits in the US, estimated at 100 million tonnes of lithium ore. Its byproduct is lithium hydroxide, set to become the leading resource for Tesla EVs.

As components of lithium-ion batteries, lithium hydroxide gives them higher energy density, faster charging, and longer lifespan. Piedmont’s Tennessee facility for lithium hydroxide production is scheduled to come online in 2025 and is expected to produce 30,000 metric tons per year (tpy). 

By 2026, Piedmont’s total output is estimated at 60,000 tpy. For comparison, lithium hydroxide US production in 2022 was 17,000. 

To align itself with sustainability goals, Piedmont will use the innovative Metso:Outotec process, which reduces sodium sulfate waste. To further the goal of becoming the leading lithium hydroxide supplier in North America, Piedmont recently invested 19.9% equity in Vinland Lithium.

Vinland manages the equivalent of the Piedmont Lithium Project, but dubbed Killick Lithium Project, in Newfoundland, Canada. Down -21.37% YTD, PLL stock can be considered a very early stake in the lithium market with its own risks and rewards.

Livent Corporation (NYSE: LTHM)

This global supplier of lithium has its roots in the very first lithium-ion battery offerings. Under the FMC Corporation in the early 1990s, it supplied Sony Electronics with camcorder batteries. In October 2018, Livent completed its initial public offering (IPO) from FMC, focused on lithium operations in Chile, Argentina, and the US. 

As vertically integrated, Livent’s business model spans from mining to refining across all major lithium ore byproducts: butyllithium, lithium carbonate, and lithium hydroxide. The company significantly increased its operating profit margin at 44% while ending its latest net income growth at 50.33%. 

Likewise, Livent has one of the lowest debt-to-equity ratios, at only 14.7%. In May, Livent announced the merger with Australian lithium miner Allkem. If finalized by the end of 2023, valued at $10.6 billion, the deal would create one of the world’s top five lithium mining operations. 

Of the three lithium stocks, LTHM shares have surged the most this week, at 7.44%, but are still in heavily undervalued territory.

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