In today’s post want to discuss investing in Lithium, its recent performance and whether it could be something to buy right now.
Investing in Lithium, really comes down to one question in my opinion: do you believe that Electric Vehicles (EVs) will become popular over the next decade. In other words, in the United States EVs are less than 10% of cars on the road right now, will that increase to 40% or 50% in the next decade?
Before answering the question, it’s important to have a general understanding of what Lithium is used for, its price history and some of the challenges of mining it.
(Should you buy copper?- read here)
As most of you know already, Lithium is used in Electric Vehicle car batteries. It’s estimated that an average EV uses 8 kilograms of Lithium (That’s around 17 pounds). In 2022, the world produced 113,000 tons of lithium.
The price of lithium has been down big since it peaked in 2022. It’s down around 80% since then. This is due to the EV market really struggling the last few years in the US. Many lithium plants have closed or postponed new plants due to the decline in the EV market. Piedmont Lithium layed off 27% of its workforce as the decline in Lithium prices really hurts the business.
Generally speaking, it’s believed that there is more than enough Lithium in the world now to support the EV market. The concern though is the Lithium would need to be mined quickly to meet demand. Lithium is a finite resource, meaning it can only be used once, but one thing I find interesting around Lithium is many speculate we will make EVs much more efficient and hence we won’t need as much Lithium. This is why many believe supply won’t be an issue.
A few final things to say about Lithium is that the mining for it has challenges to say the least. Lithium mining uses thousands of gallons of water per minute and it goes without saying that groundwater can become contaminated. There’s quite a bit of risk how Lithium mining can hurt the environment.
Coming back to the Original question, should you invest in Lithium?
Not giving financial advice here, but I tend to believe it’s not as rosy and a given as many people say. Surely, it’s dropped quite a bit, but that doesn’t guarantee it will climb to the records set in 2022. And I think this for a few reasons.
The consumer demand for EVs still isn’t there and doesn’t look like it will arrive in the next few years. Yes, some people want EVs or hybrids, but the percentage of them on the road will likely not increase too dramatically. This leads me to believe that Lithium won’t really increase substantially in price and that the price in 2022 was really based on potential.
The second reason is the threat of Chinese EVs coming to the states. I did a post on this (Read here) on this topic, but essentially Chinese automakers have a much more inexpensive EV that has many of the American companies sweating. Even if EVs become more popular, who’s to say consumers don’t start buying Chinese EVs? The price of Lithium wouldn’t really benefit that much if Chinese EVs take over the US. That’s because the Chinese EVs already control the whole supply chain for making batteries.
(Will we mine metals from the Moon?- read here)
One other reason if that an alternate process might get developed for making batteries. It might not require much lithium or any at all.
We see there are some weaknesses in Lithium. These are just my thoughts and not financial advice.
