CA - Lithium Americas: An Unloved Market Makes Attractive Entry Point
2024-07-16 11:19:44 ET
Summary
- Fear has swung the lithium pendulum to the oversold side.
- Financing is Lithium Americas' final hurdle before construction.
- Lithium Americas' production is currently slated to start in late 2027 - early 2028.
- The patient investor could be rewarded given current price levels.
Why are Lithium Stocks Down?
Market sentiment has turned overtly negative on the majority of lithium and electric vehicle ((EV)) companies. Most people, including myself, have been asking the question; why? There are a few points that come to mind and seem to track with the current sentiment:
- LCE spot pricing has come down from its unsustainable high of >$80,000/ton. For those who follow the industry, this was expected. However, the sustained decline has surprised most. The majority of lithium is produced from brine or spodumene. Lepidolite is another source for lithium. While lepidolite is considered to be high on the cost curve for production, it has not stopped lepidolite producers from ramping up production. In China, lepidolite production has doubled in the past two years and currently is the largest source of lithium in the country. For those who are familiar with the Global Lithium Podcast, the producer, Joe Lowry, recently put out an article that I think perfectly sums up the current state of affairs. The short version, China, and the major EV producers, is purposely propping up lepidolite production to keep the downward pressure on lithium spot pricing. The consequence of doing so results in delays and cancellations of western powers from entering the market, which further solidifies China’s grip on lithium, and ultimately the electric vehicle market. It is the best piece of literature I have read that makes any logical sense as to what is currently going on and is a breath of fresh air from the mainstream media grasping at straws and providing their “expertise” on the matter. Sarcasm aside, I strongly encourage others to read it and provide their thoughts on the matter.
- Lithium demand was ‘slightly’ overhyped and the current downward revisions are viewed in a very negative light. This likely won’t be a popular answer with many, but it is one of the topics that needs to be addressed. Back in 2019 and 2020, individuals and analysts were saying electric vehicles would take over the roads by 2030 and predicting automakers would be producing vehicles by the millions in 2025. I do not disagree with the trends that are occurring. ((EV)) adoption is up, affordability is improving, and some of the anxieties that previously plagued individuals are showing signs of progress. However, some of the predictions were pretty off base. Tesla is nowhere near the 5 million mark that some were calling for. In 2023, they produced 1.845 million vehicles , that number will likely rise in 2024, but I have serious doubts of them hitting 5 million in the next 1.5 years.
- For mining companies, particularly those who are pre-production, low lithium prices lead to delays in investment which tends to cascade into further issues and ultimately delays production. Thacker Pass has been feeling this effect since last year. Lithium Americas ( LAC ) expected this to be finalized in late 2023, but is struggling to seal the second tranche as well as the DOE Loan. I suspect it has something to do with the current depressed share price, but that is just speculation.