Lithium: The stocks to watch amid soaring demand

Market trader analysing data

Why is lithium so popular?

The current demand for electric vehicles has turned lithium into one of the most valuable commodities of all. The surge of interest has focused a number of traders’ minds on the companies that unearth this precious mineral. 

And it’s not just lithium mining that appeal to traders; many other companies quoted on stock markets are big in lithium without being involved in extracting or refining the ore. 

The latest data around interest in cars entirely driven by electric power, thus operating only on rechargeable batteries full of lithium, is compelling.

How many electric cars are being sold? 

Global sales of electric cars accelerated rapidly in 2020, rising by 43% to more than 3m, despite overall car sales slumping by a fifth during the coronavirus pandemic.

Market leader Tesla sold almost 500,000, followed by Volkswagen. Total sales of electric cars more than doubled in Europe, pushing the region past China as the world’s biggest market for them.

Equally, we should consider projected growth. According to a report by Deloitte, analysts agree the demand for lithium will double or potentially triple by 2030. It foresees exponential growth in electric vehicles driven by a global focus on achieving net-zero carbon emissions while improving their value and user-friendliness.

How much lithium will be mined in the future?

The by US Geological Survey says batteries account for about 70% of lithium consumption worldwide, followed by ceramics and glass (14%).

The global lithium-ion battery market value is expected to reach about $46 billion by 2026 from $4 billion in 2020, according to Global Insights Inc. That represents a compound annual growth rate in the order of 13.7%.

In early 2020, analysts had been concerned about the lithium industry amid falling prices and a supply glut. At the same time, demand for electric vehicles appeared to level off in 2019. However, 2020’s strong figures, alongside fresh interest from new players like Apple, Tencent, Intel and Alphabet, changed the complexion of the market once again. 

Between December 2020 and February 2021, the price of lithium price surged about 70%.

Lithium batteries require up to 300g of lithium per kWh, which means they are only one-third the weight of lead-acid batteries, while also benefiting from a longer charge. They are the clear no. 1 choice for many types of electric vehicles. Beyond cars, all those funny little motorised/hybrid scooters and bikes you see darting about tend to be powered by a lithium battery.

And there are additional uses too: the element is also prevalent in smartphones, smartwatches, and a whole range of must-have modern gadgets.

What is the demand for lithium in the US and China?

Anyone keen to go long on lithium stocks would hope for soaring demand from the two biggest global economies, the United States and China. 

What is interesting is that while commanding 40% of the world’s total GDP, these two countries have been notably slow at adopting environmental improvements. Intriguingly, however, they are more interested in electric vehicles than other green measures.

The Chinese government has particularly ambitious targets, aiming for a fifth of new car sales to be electric by 2025. In 2019, EVs commanded only 5% of the market. China may not quite get to its stated goal, but even if it gets close – and the early signs are good - that will be some achievement

Meanwhile, President Biden has committed to replace the federal government’s 650,000 petroleum-powered vehicles with electric vehicles. The German maker VW wants half its newly sold vehicles in the US to be electric and BMH has similar plans.

Lithium stocks: Some options to consider

Lithium stocks are a popular choice for traders. Some companies develop batteries, others concentrate on extracting the mineral while others are involved in the research and development side.

The five companies listed below, all trading on the New York Stock Exchange, are chosen because they represent different aspects to the wide gamut of lithium-related ventures in the corporate world.

1. Energizer Holdings, Inc (NYSE: ENR)

The everyday household battery supplier stocks a bit of everything: lithium, alkaline, carbon and silver oxide options. On February 1, 2021, the company announced a quarterly dividend of $0.30 per share of common stock, payable on March 11, 2021, to shareholders of record on February 19, 2021.

Mario Gabelli’s GAMCO Investors has a particularly large stake in ENR, one that it boosted in Q4 of 2020.

2. Johnson Controls, Inc. (NYSE: JCI)

Based in Cork, Ireland, this company manufactures fire, HVAC, and building safety equipment. The United States Department of Energy recently contracted JCI to build domestic manufacturing capacity for advanced batteries for hybrid and electric vehicles. JCI offers a dividend yield of 1.85%.

A number of leading hedge funds flocked towards JCI at the end of 2020. At the start of the year, Diamon Hill Capital reported: “We continue to believe the stock is trading at a significant discount to our estimate of intrinsic value and that the new management team has an attractive opportunity to grow that intrinsic value over time through continue operational improvements and shrewd capital allocation.”

3. Quantumscape Corporation (NYSE: QS)

A start-up company backed by Bill Gates and Volkswagen, this company develops solid-state lithium-metal batteries for electric vehicles. Around $2 billion of its shares are held by hedge funds. 

The company’s stock has been under selling pressure this year because it remains firmly in the research and development phase and still does not yet generate any revenue. Forbes notes QuantumScape isn’t the only company developing solid-state batteries. Japanese giant Toyota expects to unveil a functional prototype with a solid-state battery before the end of 2021 and the company also appears to hold the most patents in this particular niche sector.

4. Livent Corporation (NYSE: LTHM)

Based in Philadelphia, this company was formed as a spin-off from FMC Corporation when the latter, which has produced insecticides since the 19th century, chose to concentrate on its core offering.

Livent has a core advantage of having secured long-term arrangements with clients long before the new wave of start-ups tried to muscle in on the scene. It produces and distributes lithium compounds and offers lithium products for applications in batteries, agrochemicals, aerospace alloys, greases, pharmaceuticals, polymers, and various industrial applications. Livent serves customers worldwide.

5. Albemarle Corporation (NYSE: ALB)

This S&P 500 constituent, based in Charlotte, NC, is practically a household name among mining companies. More than a third of its 2020 revenues came from lithium.

Now the largest provider of lithium for electric vehicle batteries, it is also a big miner of raw lithium, sharing its market domination with FMC Corporation and Chile’s  Sociedad Química y Minera. This trio produces just over half of the world's lithium and lithium storage products, while the other half is produced by China.

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