Lithium demand isn't expected to let up anytime soon as EV penetration keeps rising. EV manufacturers are bettering technology, cost, and efficiency to compete with internal combustion engine vehicles. Therefore, it isn't surprising that investors want a piece of the pie. So, how do you invest in lithium, and what are the best lithium stocks to buy now?
Lithium has gained significance in recent years due to its widespread use in electric vehicles, which are widely thought to be the future of mobility. In 2020, lithium prices slumped due to the coronavirus-driven slowdown. So far, 2021 is proving to be a good year for the metal. The price of lithium carbonate, which is one of the compounds used by battery manufacturers, has seen a growth of 135 percent between December 2020 and August 2021.
Many EV producers including Tesla and NIO have disclosed their plans to increase their production in the short term and long term. The lithium demand has been growing steadily and now over 50 percent of the lithium produced is used in batteries—up from 14 percent in 2019.
Are lithium stocks a good investment?
Many people argue that valuations of lithium stocks have reached levels that aren't justified by their fundamentals. They think that a wave of supply is coming from leading producers, which are priced for perfection at the moment and could result in a downside. While that might be true, it's still a good strategy to keep adding these names to your EV portfolio on dips. Nobody is denying their long-term potential.
In its base case, IHS Markit expects the size of the lithium market to more than double in 2025 from the forecast level in 2021. According to The Wall Street Journal, lithium has a better claim than most commodities to be the “new oil.”
Best lithium stocks to follow
One broad category to get exposure to lithium is lithium mining stocks. Among these, Albemarle is the world’s largest lithium producer. It raised $1.5 billion in February to further fund its expansion. The company expects a steep jump in its 2022 earnings due to lithium demand.
Piedmont Lithium is another leading Australia-based lithium producer. It signed a five-year agreement with Tesla in October 2020 to supply high-purity lithium ore mineral to the EV pioneer. The deal represents nearly one-third of Piedmont’s annual output from its North Carolina deposits.
Livent Corp. is a lithium miner based in Philadelphia. Livent Corp. signed an agreement with Tesla to increase the volume of its supply in 2021 and analysts expect the partnership to extend through 2022. Livent is mainly focused on battery-grade lithium. If there's an explosive EV boom, as forecasted, it could be one of the major beneficiaries too.
South American lithium corporation Sociedad Quimica y Minera de Chile has increased its lithium investments lately. SQM is profitable with lithium assets in both brine (Lithium Triangle) and rock (Western Australia) forms.
Lithium Americas is still in the pre-production stage but it's making progress toward production at its Caucharí-Olaroz project, which is scheduled to achieve its first production by mid-2022.
Other small lithium producers include Orocobre, Pilbara Minerals, Galaxy Resources, Bacanora Lithium, and Lithium Americas.
EV battery stocks for lithium exposure
Although not direct, EV battery manufacturers give an indirect exposure to changes in lithium prices. For example, QuantumScape has been one of the favorite Wall Street bets for the development of solid-state batteries for EVs. Microvast, the manufacturer of lithium-ion batteries for commercial and specialty vehicles, could be another good bet in this space. It has strong customer relationships with industry leaders like Gaussin, FPT Industrial, Oshkosh Corporation, and a leading German luxury sports car company.