2023 Lithium Shortage

Global EV Boom to Boost Value of Select Lithium-focused Stocks as Supply Gap Widens

The global electric vehicle (EV) boom is driving demand for a key element in battery power generation — lithium.

Bloomberg New Energy Finance projects that by 2040 — 57% of all global vehicle sales will be electric.

That’s over 55 million EVs being sold annually — a nearly 10-fold increase from the 6 million being sold today.

Tesla founder, Elon Musk, goes a step further stating… all transportation on Earth will eventually go electric!

Benchmark Minerals – who I continue to insist are the smartest guys and gals in the room when it comes to critical metals research – estimates that the industry needs to invest $116 billion by 2030 if global economies are to achieve the lofty targets governments and automakers have set for themselves.

The bottom line is there aren’t enough mines coming online to supply the lithium necessary to make this happen.

Benchmark puts it this way,

“Even if every asset in the pipeline came online on time and hit their projected lithium production capacities, the world would still need 1.8 million tonnes on top of that to meet the high case demand.”

“It’s almost impossible, and definitely a race against time,” Cameron Perks, an analyst at Benchmark, said. “The big money that needs to be spent takes time to get approval for and to deploy.”

The biggest obstacle to governments and automakers achieving their stated goals is lithium. There’s a lot of money to be made from that and even the oil companies are acknowledging that lithium is the new oil.

Reuters recently reported that Exxon is in talks with Tesla, Samsung and Ford – among others – to supply lithium. Which is really interesting considering Exxon doesn’t produce any lithium.

It’s not just Exxon. Saudi Arabia has decided it wants a seat at the global mining table with a $2.6 billion deal to buy a 10% stake in Vale SA’s base metals division. Vale plans to invest up to $30 billion on new projects in its home country, as well as Canada and Indonesia.

Initial investments will focus on minority equity positions in iron ore, copper, nickel, and lithium.

This is the first such deal for Saudi Arabia and I can promise you it won’t  be the last. The country is planning to develop a $2 billion EV battery metals plant in partnership with EV Metals Group. EVM Arabia is set to set up a $905 million battery chemicals complex in the Arab country later this year.

If automakers are to be believed, EV penetration could reach 80% by 2030 though Benchmark estimates the number to come at 44%.

And all of that demand is going to require tons and tons of lithium… the aptly-named “white petroleum.”

Lithium is the lightest metal on Earth. And it’s not just EVs that are driving its demand.

Lithium-ion batteries power the lives of millions of people each day from the EVs and hybrids we drive to the laptops and cell phones we use to connect to an ever-connected world.

Lithium power has gained massive popularity in recent years due to its ultra-light weight, high energy density, and ability to recharge.

The vast majority of lithium around the globe is produced from brines. It’s a relatively straightforward process whereby lithium brines are pumped to the surface allowing the sun and wind to work their evaporative magic.

 

Demand for Lithium is Growing & Growing

Lithium — because of its high-energy-per-unit-mass relative to other electrical energy storage systems — is ideal for use in car batteries as well as in laptops, cell phones, and a host of consumer electronic devices.

Lithium batteries have become the front-running rechargeable energy storage medium — particularly for the rapidly growing EV industry — creating a strong demand forecast for lithium.

There is no current replacement for lithium. You may see stories about new battery technologies or about lithium recycling. But they are largely fantasy at this stage.

New technologies that could potentially replace lithium-ion batteries are a minimum of a decade or two away.

And lithium production from the recycling of old, end-of-life lithium-ion batteries represents little more than a drop in the bucket of what’s needed to satisfy growing demand.

 

The Drive for Lithium Power

Unless you’ve been hiding under a rock somewhere… you know that the global EV trend is being fueled by Billions in investment not just by Tesla but by the world’s largest “traditional” automakers as well.

That includes billions of dollars in investment and innovation from the likes of Volkswagen, Mercedes, BMW, Toyota, Nissan, Hyundai, GM, Ford, and Fiat-Chrysler — to name just a few!

In all, commitments to invest in lithium-ion batteries and EVs now totals an astounding US$90B globally with 40+ automakers moving into the electric/plug-in hybrid vehicle space.

EV sales are currently at an all-time high with companies such as Tesla, Volkswagen, and Mercedes all recently posting record shipments… and that trend is expected only to intensify in the coming years.

President Biden has announced that the US is now aiming for HALF of all new vehicles sold by 2030 to be electric powered in an effort to fight climate change and to keep pace with Europe and China, who are surging ahead in terms of EV market share.

The United States currently stands at just 4.5% of new vehicles sold being electric — lagging behind both Europe and China, which stand at 16% and 14%, respectively.

Thus, the goal to reach 50% market share in the US by 2030 is a lofty one indeed… but one that US automakers are firmly behind.

Not only is that great news for global climate initiatives… but it really couldn’t come at a better time as there can be no doubt that human activities are causing our planet to warm at an ever-alarming rate with catastrophic weather events becoming the norm.

Yet, because of surging demand in the EV space, experts are unsure whether enough lithium will be available to keep pace.

Global lithium demand is expected to rise from roughly 500,000 tonnes per annum currently to upwards of 4 million tonnes per annum by 2030 — an 8-fold increase.

Lithium mines, on the other hand, produce only around 100,000 tonnes worldwide per annum — a far cry from what’s needed even by today’s standards.

And while the supply of lithium from mining is indeed increasing — including increased output from Australia, new mines coming online in Quebec, Canada, and a major new discovery in India — it’s happening at a far slower rate than the rise in demand.

That means an escalating supply gap is a near certainty going forward as millions of drivers make the switch to electric-powered cars and trucks.

With gasoline prices still high as a result of Russia’s invasion of Ukraine and the global energy-uncertainty it’s creating — that switch will likely happen even faster than what many experts are predicting.

Translation: Select lithium-focused companies — with strategically located assets in safe mining jurisdictions — have the potential to deliver outsized returns this year… next year… and for years to come.

 

Lithium Price Rise

Due to strong lithium demand driven primarily by the auto industry, the price of the metal has increased by approximately 500% in just the last two years.

Going back a bit further, the lithium price in 2012 was just US$4,450 per tonne.

Following a short-lived slump from 2018 to 2020, the price of the mineral has skyrocketed to well above US$60,000 per tonne due to increased demand coupled with constrained supply.

 

Long Time Horizon from Discovery to Production

Lithium is mined from two primary sources: brines and hard rock deposits.

The prolific Lithium Triangle — which encompasses parts of Chile, Argentina, and Bolivia — accounts for more than HALF of global lithium resources.

It’s where the vast majority of lithium production from brines originates… as well as Nevada, to a much smaller extent.

In the Lithium Triangle, mineral-rich brines are mined from vast salt flats — which the locals refer to as “salars.”

Chile is by far the world’s largest producer of lithium from brines and boasts the world’s largest total known lithium reserves.

Australia is the #1 global producer of lithium from the hard rock mining of spodumene — an ore that contains high levels of lithium as well as aluminum. The country has the world’s second-largest total known lithium reserves.

A joint venture between US-based Albemarle Corp. (NYSE: ALB) and China’s Tianqi Lithium — known as the Greenbushes Lithium Mine in western Australia — is considered the world’s largest hard rock project to extract the metal.

In hard rock lithium mining, the ore has to be processed, which involves the separating of the metal from the source rock followed by further refining to attain battery-level quality.

In lithium brines, the ore is pumped to the surface wherein the lithium is extracted through the processes of evaporation.

The remaining saline solution is further processed in several stages until the lithium material is suitable for use in batteries: for example, lithium hydroxide and lithium carbonate.

A key issue driving the growing supply gap for lithium is the length of time required to bring new lithium projects online.

Whereas you can build a battery factory in as little as two years, it can take up to a decade to take a lithium project — hard rock or brine — from development all the way to production… and even longer to get the metal into the supply chain.

That fact is putting immense pressure on the price of lithium with no signs of letting up.

Benchmark Mineral Intelligence — the global leader in lithium supply chain reporting — agrees, stating: the lithium market will remain in structural shortage until 2025.

Tesla co-founder and CEO, Elon Musk, has been commenting on the “insane levels” of lithium prices as well… even suggesting that the EV maker may have to mine the metal itself.

Musk says, “​​There is no shortage of the element itself, as lithium is almost everywhere on Earth, but pace of extraction/refinement is slow.”

And while it’s true that lithium is abundant on Earth — there’s even 180 billion tonnes of it in our oceans but at uneconomic grades by way of current technology — it’s becoming increasingly difficult to find large new deposits of high-quality lithium at high enough grades to be mined at a profit.

Elon Musk has called for investment into lithium production to ease shortages… saying those who seized the opportunity would be “basically printing money.”

If you’re not a particular fan of Mr. Musk… take it straight from Ford Motor Company.

The US$50B auto-giant is making a big push into the EV space starting with an all-electric “Lightning” version of the best-selling car in America: the F-150 pickup.

Ford, like other automakers, has been scrambling to secure a stable supply of lithium to meet its growing needs.

In fact, Ford, Tesla, and GM are all moving ever-closer to the mining side of the industry by inking deals with lithium miners and developers — both large and small — that operate in all of the major lithium-producing regions: Australia, South America’s Lithium Triangle, and even right here in the USA.

Tesla has already acquired a 10,000-acre lithium deposit in Nevada. Adding fuel to the fire, in mid-April of this year, an exploration geologist announced on LinkedIn that he was leaving mining giant Rio Tinto to join Tesla.

So… pretty easy to read the tea leaves there!

Clearly, the race is on to secure ample supplies of lithium to meet global demand growth: we’re talking automakers, miners, refiners, and entire nations!

For investors, it means the lithium space will continue to be a robust market segment for many years to come as the switch from gasoline-powered to lithium-ion battery-powered vehicles hits its stride.

 

Where Will All the Lithium Come From?

Many experts see the most significant new lithium supply as coming from China over the next decade.

But what they won’t tell you is that the vast majority of China’s spodumene and other hard rock sources of lithium are of extremely low quality.

Even China’s brine resources are considered poor and have a history of struggling to produce meaningful volumes of lithium into the market — let alone battery-grade quality.

Hence, demand will continue to outstrip supply in the coming years.

In terms of the Lithium Triangle, of the three countries that comprise the district, only Chile has been able to successfully transform the majority of its available lithium resources into economically viable reserves available for commercial production.

Argentina and Bolivia have, thus far, failed to do so largely due to unfavorable investment climates and more challenging geographic conditions.

The bottom line is that supply is going to continue to struggle to keep up with escalating demand for years to come — creating a robust investment opportunity in the best-positioned lithium miners.

 

US to Become Major New Lithium Source

America, as a matter of national security, is waking up to the fact that it needs to control its own supply of critical metals such as lithium.

In the last decade, the Chinese government has spent somewhere in the neighborhood of US$100B to increase its domestic market for lithium batteries by subsidizing the production of low-price EVs while helping companies build out the lithium mining and refining infrastructure to support them.

As a result, China’s share of the battery market — from raw materials extraction to production of lithium-ion batteries — has increased dramatically from 60% in 2018 to around 80% now. They’ve done the same thing with rare earth metals… and they won’t stop there.

In response, President Biden has turned to a Cold War-era law — the 1950 Defense Production Act — to boost domestic production of lithium and other critical minerals used to power electric vehicles and other green-energy technologies.

And while the United States has virtually zero chance of ever catching up with China on lithium — or rare earths for that matter — Biden’s action is an important first step.

It authorizes the Pentagon to allocate funds for a range of mining-related activities, including feasibility studies to determine the economic viability of proposed mine sites.

Those initiatives should go a long way in boosting America’s nascent lithium industry, which shows the United States as having the world’s fourth-largest lithium reserves at 4% — measured at 6.8 million tonnes according to the USGS — but only about 2% of global production.

In fact, the US currently has just one active lithium mine, Albemarle’s (NYSE: ALB) Silver Peak mine located in Clayton Valley, Nevada, which has been in production for more than five decades.

More on Albemarle in a moment.

The sheer size of that mine alone shows the very real potential for other large-scale lithium operations in the United States… and not just in Nevada.

New and potential lithium mining and extraction projects are also in various stages of development in Maine, North Carolina, and California.

California Governor Gavin Newsom has even called the Golden State “The Saudi Arabia of Lithium” with two projects slated for production by 2024.

One of those is the Hell’s Kitchen Lithium & Power project in Imperial, California, which aims to produce an estimated 20,000 tonnes of lithium hydroxide starting in 2024.

General Motors — which is committing $35 billion to introduce 30 EVs by 2025 and be all-electric by 2035 — has announced that it is the first company to make a multimillion-dollar investment in the Hell’s Kitchen project… giving the automaker first rights to purchase lithium hydroxide and lithium carbonate from the initial stages of production.

Similarly, Ford has inked a deal with Ioneer Ltd. to acquire lithium from the Rhyolite Ridge lithium-boron project in Esmeralda County, Nevada, which is currently in the permitting and financing phase.

We believe moves like those are just the start of major automakers signing exclusive deals to secure their own supply of US-mined — and globally-mined — lithium for their own manufacturing requirements.

When President Joe Biden passed the comically named Inflation Reduction Act (IRA) many – including myself – couldn’t help but notice the hypocrisy in the chosen name for the bill. After digging into the bill a bit more I was pleasantly surprised by how pro critical metals the legislation was. The IRA will further accelerate investment in exploration and development of battery metals.

We are already starting to see some very real-world benefits. The $400 billion in tax credits and incentives and the requirement that those credits and incentives are only granted if the bulk of the minerals are extracted or processed in the U.S. or a country with a free trade U.S. agreement has carmakers rushing to secure future supply for their EV ambitions.

The New York Times reports that 31 new battery manufacturing projects have been announced since the IRA became law. The New York Times goes on to report that “the pipeline of battery plants amounts to 1,000 gigawatt-hours per year by 2030 — 18 times the energy storage capacity in 2021, enough to support the manufacture of 10 million to 13 million electric vehicles per year.

In energy production, companies have announced 96 gigawatts of new clean power over the past eight months, which is more than the total investment in clean power plants from 2017 to 2021 and enough to power nearly 20 million homes.”

In addition to the IRA, the recently announced debt limit compromise contains provisions to accelerate permitting timelines and sets limits for environmental review timelines.

The most recent example of a company that has credited the recent legislation as influential in its decision making is Ford.

Ford announced last month that it had signed supply deals with five companies as it pledges to make 2 million electric vehicles by 2026. A 16-fold increase. That’s only three years away.

The latest pacts include:

• Albemarle supplying more than 100,000 metric tons of battery-grade lithium hydroxide for about 3 million Ford EV batteries starting in 2026, and continuing through 2030
• SQM ensuring supply of battery-grade lithium carbonate and hydroxide that will help Ford vehicles qualify for consumer tax credits included in the Inflation Reduction Act
• Canada’s Nemaska Lithium delivering as much as 13,000 tons of lithium hydroxide per year, with Ford becoming the first customer of the company backed by Quebec’s government and Livent Corp., the world’s third-largest lithium producer
• EnergySource Minerals and Compass Minerals supplying lithium products they expect to produce in California and Utah, respectively, starting in 2025

Ford is just one example of future supply coming offline in rapid fashion. This is a trend that will continue and a trend that no matter what Cathie Wood or Goldman Sachs tell you, will continue to deliver for speculators that pick the right companies in the right places.

Add it all up and it’s clear that lithium demand is only going to grow in leaps and bounds as America hastens its resolve to cut fossil fuel emissions by turning to clean-energy sources such as lithium.

 

The Smartest & Safest Way to Invest

In terms of investment strategies in the lithium space, we believe that the established players are the best way to get involved at this early stage of the lithium boom.

The large, diversified producers stand to benefit from strong lithium pricing going forward, carry far less risk than the pure exploration plays, and, because of their long-life mining operations, can typically withstand multiple commodity price cycles.

 

Albemarle Corp. (NYSE: ALB)

Albemarle — a diversified specialty chemicals manufacturing company based in Charlotte, North Carolina — is currently the global industry leader in the mining of lithium for electric vehicle batteries.

We mentioned Albemarle’s joint venture with Tianqi Lithium on the Greenbushes Lithium Mine in Western Australia — the world’s largest hard rock lithium project — as well as the company’s 100%-owned Silver Peak Lithium Mine in Clayton Valley, Nevada — the only actively producing lithium mine in the United States.

Additionally, Albemarle holds a 60% interest in Mineral Resources Ltd.’s Wodgina hard rock lithium mine project in western Australia.

The company has also commenced construction at the Kemerton Strategic Industrial Area in western Australia to develop the Kemerton lithium hydroxide processing plant (see below).

Upon completion, the plant will process spodumene ore — at an initial capacity of 50,000 tonnes per annum — to produce lithium hydroxide and a sodium sulfate by-product.

As a current lithium producer and soon-to-be lithium processor/refiner, Albemarle is well-positioned to continue to lead the lithium industry in the coming years as the global EV boom intensifies.

The company also pays a solid quarterly cash dividend of US$0.39 per share.

 

Sector ETFs

For investors seeking broad exposure to the lithium industry without having to pick specific stocks — a lithium-focused ETF may be the perfect fit.

In a rising lithium market like we have today, and which we expect to continue in the coming years, we like the Global X Lithium & Battery Tech ETF (NYSE: LIT) at current price levels.

LIT tracks a market-cap-weighted index of 20 to 40 companies involved in the global mining and exploration of lithium — including Albemarle Corp. — as well as firms involved in the development and production of lithium-ion batteries.

While LIT provides broad exposure to the lithium industry — including major producers and battery manufacturers — it also offers targeted, concentrated exposure with a micro-cap tilt.

The index is reconstituted and rebalanced on an annual basis and can be held as a short-term trade or as a mid- to long-term investment.

 

In Summary…

A widening supply gap is expected in the global lithium space over the next few years as millions of people around the world part ways with their gasoline-chugging vehicles in favor of efficient hybrids and full-electric vehicles powered by the lightest metal on Earth: lithium.

There can be no doubt that electric vehicles are the future of transportation in the United States and globally.

In fact, the global market share for EVs more than doubled from 2020 to 2021 and those numbers are only increasing. And several automakers — including Tesla, Volkswagen, and Mercedes — have been reporting record shipments of EVs.

As a result, lithium demand is projected to increase 8-fold by 2030.

There are few signs global mining operations will be able to keep pace due to a recent decline in major new discoveries coupled with the long lead times required for bringing new projects to fruition.

We believe that a widening supply gap for lithium will keep upward pricing pressure on the metal, resulting in a robust investment climate for select lithium miners going forward for at least the next few years.

In this Special Report, we covered two distinct ways to participate: major lithium producers [NYSE: ALB] and sector ETFs [NYSE: LIT].

In terms of specific stocks, and in addition to Albemarle, those taking a long-term value approach by establishing positions in select, well-diversified lithium-focused miners with solid projects in safe mining jurisdictions, robust dividends, and healthy balance sheets should be well-rewarded over the longer-term.

As always, establish your positions incrementally and look for opportunities to buy the dips.

Also, for those interested in the MUCH higher-risk, small-cap lithium space where the near-term gains can be truly life-changing — look for our editor’s note below!

— Daily Profit Cycle Research