Even though lithium prices have given back more than 87 per cent since November 2022 because of overproduction, falling EV sales and robust subsidies from the Chinese government, the International Energy Agency forecasts demand for the metal growing by 10 times by 2050 driven by the EV and battery markets, supporting a long-term allocation in lithium stocks.
EV sales in 2023 ended 3.5 million units or 35 per cent higher than 2022, representing a more than 600 per cent increase since 2018. The global lithium battery market, for its part, is set to surpass US$180 billion by 2032. It’s riding a more than 14 per cent compound annual growth rate, a full 40 per cent higher than the S&P 500’s average annual return.
These tailwinds have driven lithium demand to a current average of 250,000-300,000 tons of lithium carbonate equivalent per year – or half of the world’s total lithium supply in 2021 – tracing a potentially long-term trend investors can capitalize on through exposure to top lithium stocks in the space.
This trend, further supported by bullishness from the likes of Nature, Sprott and BloombergNEF, is in its earliest stage, as evidenced by global fossil fuel consumption falling by only 3.8 per cent from 1995 to 2022 despite trillions in clean energy investments, according to the Fraser Institute, maximizing your exposure to the upside should you identify key catalysts supporting a long-term investment. Here are five to guide your due diligence:
Five catalysts towards a long-term investment in lithium stocks
- Projects that embody decisive moves away from China’s approximately 80 per cent leadership position in lithium refining, affording it an outsized role in controlling prices and hence the forecasts for lithium stocks all over the world.
- Miners positioned to benefit from the proliferation of tariffs on Chinese-made EVs, including up to 100 per cent in Canada and the United States and 38 per cent in the European Union.
- Depressed stock prices driven by short-term uncertainty in the lithium market stemming from lingering inflation and geopolitical tensions, with no discernable decrease in asset or operational quality.
- Leadership in low-cost production, which is a highly differentiating factor when it comes to lithium. According to the Center on Global Energy Policy at Columbia University, “capital costs for new processing facilities in Australia can be 2.5 times larger than they are for facilities in China.”
- Technological innovators in the areas of recycling and direct lithium extraction, facilitating lower costs and more attractive environmental profiles on the road to the United Nations’ goal of net-zero global emissions by 2050.
While our reliance on fossil fuels has decades to go before meaningfully decreasing, the dangers of climate change make the development of lithium resources an essential component of our future selves and their quality of life.
This means lithium investors have a long runway ahead to put their money to work, incentivizing the treatment of short-term dips in the metal’s price as opportunities to buy stocks below fair value, subject to due diligence, serving to enhance compound interest over the long term.
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(Top photo of an electric vehicle assembly plant: Adobe Stock)