How to Invest in Lithium

Governments are scrambling for it, automakers need it to survive and the future of the energy revolution is dependent on securing this critical element.

The element everyone needs more of is lithium. And fortunes are being made for those who are able to identify ways to gain exposure to it.

Lithium prices have more than tripled the past year. And despite gloom and doom predictions from outfits like Goldman Sachs, high lithium prices are the new norm and not abating anytime soon. 

Before we get into the different ways to profit from this megatrend, let’s get into what lithium is, what it’s used for, where does it come from, how much is produced every year and why lithium is so sought after?

Gerardo Del Real explains how to invest in lithium.

Why Is Lithium a Good Investment?

Lithium is essential in everything from cell phones and laptops to glass and ceramics. 

But the biggest growth driver is its use in battery technology – like the batteries of electric vehicles – and charging infrastructure that is set to continue to surge.

In 2020, electric vehicle (EV) sales jumped by 43% to more than three million vehicles, despite a pandemic-induced drop in overall vehicle sales. EVs accounted for 4.3% of global sales overall, up from 2.5% in 2019.

The World Economic Forum’s Global Battery Alliance report — A Vision for a Sustainable Battery Value Chain in 2030 — predicts demand for lithium-ion batteries will grow 14-fold by 2030, driven almost entirely by the electric mobility market. 

By 2030, passenger cars will account for the largest share (60%) of global battery demand, followed by the commercial vehicle segment with 23%. Energy storage will make up most of the remainder of demand.

The global market for electric vehicles (EVs) is rapidly expanding and that demand is expected to result in a $300 billion market for lithium-ion batteries by 2030. An average EV contains 20.7 kg of lithium.

Lithium-ion battery value chain provides revenue opportunities of $300 billion by 2030

Bloomberg New Energy Finance (BNEF) predicts almost 60% of new vehicle sales will be electric by 2040. Lithium-ion batteries currently make up more than 90% of the stationary battery power market, according to BNEF.

BNEF projected global Li-ion - all markets

Experts predict that lithium supply will need to increase by a factor of 10 over the next 10 years. By 2020 we’ll need at least 234 new lithium mines just to keep up with projected demand.

According to Benchmark Mineral Intelligence, spodumene sold for $4,994 a tonne in October 2022, up from $415 in January 2021.

Graph showing that the price of lithium has surged.

Benchmark Intelligence – a staple in the critical metals research space – predicts lithium has to scale by a factor of 20 by 2050 in order for automakers to meet their current stated goals.

Think about this. Benchmark believes that by 2040 all the lithium that was mined from the 42 mines that are active right now in the world last year will be enough for one month of supply in 2040.

The demand is astounding. So lithium mining stocks are going to be a good investment for nearly two decades to come.

Where Does Lithium Come From?

With 9.2 million tons, Chile has the world’s largest known lithium reserves. Next up is Australia (5.7 million tons), Argentina (2.2 million tons) and China (1.5 million tons). The total global reserves are estimated at 22 million tons.

According to data from the United States Geological Survey, the United States has a total of 750,000 tons of lithium reserves, which means the U.S., and North America as a whole, has a lot of catching up to do. 

China is the largest lithium refiner globally and ranks among the top lithium producers in the world, outproducing the United States by more than a factor of 15 in 2020.

So where's all the supply going to come from? The answer to that question presents a compelling lithium investment opportunity.

Investing in Lithium

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In the past 12 months there have been 19 material lithium deals announced totaling over $4 billion.

Investing in Lithium

The 19 deals are double the number in the 12 months preceding it with S&P Global citing the deal value increasing ninefold.

With Chinese lithium companies leading the way in the lithium space there will need to be substantial dollars spent to begin to narrow the gap.

For decades, China has secured and developed the best assets leading to a battery metals supply chain that the rest of the world envies.

Production of many energy transition minerals today is more geographically concentrated than that of oil or natural gas.

In its World Energy Outlook 2022 report, the International Energy Agency said the country accounted for roughly 60% of the world’s lithium chemical supply. China also produces three-quarters of all lithium-ion batteries, according to the IEA.

The United States alone will need 500,000 metric tons per year of unrefined lithium by 2034 just to power EVs, but it currently accounts for only 1% of global lithium production.

The United States will need to invest $175 billion for battery production in the next three years if it hopes to narrow the deficit. Unlike traditional mining, the urgency to establish a critical metals supply chain independent of China has overwhelming bipartisan support. 

Horrible Economic data

Lithium Investment Incentives

Enter the comically named Inflation Reduction Act which, ironic name aside, is actually an impressive and necessary piece of legislation.

The legislation aims to reduce carbon emissions by roughly 40% by 2030 and has a goal of eventually having a net-zero economy 

The package includes $386 billion of climate and energy spending and tax breaks – mainly for new or expanded tax credits to promote clean energy generation, electrification, green technology retrofits for homes and buildings, greater use of clean fuels, environmental conservation, and wider adoption of electric vehicles.

This is all to make the transition of cutting greenhouse gasses and achieving a net-zero economy by 2050 a reality. 

The government will fund 20 companies across 12 states to strengthen US independence in the new electric age, spur job growth and lower costs.

The government will fund 20 companies across 12 states to strengthen US independence in the new electric age, spur job growth and lower costs.

Funding of $2.8 billion has been pledged by Washington, while an added $6.2 billion has been promised by the 20 companies named as recipients. It is only the first phase of funding. The money will be used to build and expand facilities to extract and process lithium, graphite and other lithium battery materials

While government funding and support is an important factor in advancing the lofty goals, there is also an abundance of private capital behind the megatrend.

Lithium Companies to Invest In

Tesla (NASDAQ: TSLA) CEO Elon Musk – among others – recently commented that the company may need to take direct stakes in lithium explorers and producers. Musk also announced the company would be building a gigafactory in Texas.

LG Chem announced plans to invest $3.2 billion to build a cathode production facility in Tennessee. The company is targeting 120,000 tonnes of cathode production a year by 2027. If it succeeds, this would more than double the potential cathode production of North America.

It’s not just the US. 

Canadian Prime Minister Justin Trudeau said he plans on spending C$400 million of taxpayer money to build 50,000 electric vehicle charging stations. The Canada Infrastructure bank just announced the launch of its C$500 million zero-emission vehicle (ZEV) Charging and Hydrogen Refuelling Infrastructure Initiative (CHRI). 

The goals of the initiative are to reduce transportation sector greenhouse gas emissions by accelerating the private sector’s rollout of large-scale ZEV chargers and hydrogen refueling stations, spur the market for private investment and support economic opportunities.

According to the president of the Canadian Vehicle Manufacturers Association, Canada will need four million charging stations by 2050, 80 times higher than the 50,000 currently targeted.

Whether you agree with the politics or the motivation behind it, the investment dollars are very real.

Vale (NYSE: VALE), the largest nickel miner in the world, has announced plans to build a nickel sulfate facility just outside of the city of Trois-Rivières. A place many are now referring to as “Quebec’s Battery Valley.”

Posco (NYSE: PKX) is building a $400 million factory to produce cathode material for EV batteries.

GM (NYSE: GM) has partnered with Posco on the cathode material factory. It also secured lithium supply from Livent (NYSE: LTHM), a partner in Nemaska Lithium, which is expected to supply the material for the GM deal. 

This in addition to a recent agreement with mining giant Vale to secure a significant portion of its nickel sulfate from the upcoming new factory.

Governments are committing capital, corporations are spending billions. Speculators that know where and how to allocate capital are going to make millions. 

Best Lithium Stocks for 2023

The flurry of investment will provide robust support for record lithium prices that will translate into record high stock prices for successful lithium explorers, developers and producers.

There are several ways to gain exposure to the megatrend.

There’s individual companies, which is the highest risk/highest reward way to gain exposure. 

There’s more advanced stage companies that have already made a discovery and are in the process of defining the economics around those discoveries. 

There’s the producers, which continue to capture record profits from surging prices.

And then there are ETFs, which provide more diversification and less risk than choosing individual companies.

Define your risk tolerance, define your investment timeline and get positioned for years of gains.

Check out what we think will be one of the best lithium stocks for 2023 — and continue your lithium investment research — with this new video we just produced dedicated to the sector. 

Gerardo Del Real

Gerardo Del Real
Editor, Daily Profit Cycle