Electric vehicle (EV) sales are slowing and lithium prices are falling, which is weighing on earnings. However, there’s optimism that the lithium market will bounce back. Here is a collection of stocks to watch for opportunities in the lithium mining and production space.
- Pilbara has become the most shorted stock on the ASX; CEO Dale Henderson calls those betting against the company “very, very brave”.
- SQM will continue to build up inventory at warehouses even though falling prices have been impacting its net income.
- Piedmont Lithium boss Keith Phillips believes the EV industry is in a strong place despite inventories being at historically low levels.
The M&A Pullback Stock
Albemarle [ALB] withdrew its offer for Australian miner Liontown Resources [LINRF] in October, and though it expects to keep an eye out for M&A opportunities, this won’t be on the same scale as earlier this year. “In this softer market, we are taking a hard look at the level of our capex spending and the sequence of our projects,” said CEO Kent Masters on the third-quarter (Q3) 2023 earnings call on 2 November. Albemarle lowered its full-year earnings forecast in light of lower sales from Talison, its joint venture with Tianqi Lithium [002466:SZ].
The Profit Dive Stock
Ganfeng Lithium’s [GNENF] share price hit a 52-week low on Monday, with the selloff triggered by a collapse in its revenue and net profit, which declined 42.8% and 97.9% year-over-year respectively, in Q3 2023. The Chinese company’s plan to start mining lithium in Mexico has been put on hold due to a spat with the country’s government, Reuters reported earlier this month, adding that construction has yet to start on its $800m plant.
The Inventory Build-up Stock
SQM [SQM] reported a 34.3% year-over-year fall in its net income for the first nine months of the year, while Q3 earnings were down 56.4% year-over-year and 17% from the previous quarter, due to lower lithium prices. “We continue to see strong fundamentals behind long-term lithium demand growth, supported by strong EV sales volumes and decarbonization targets across the globe,” stressed CEO Ricardo Ramos in the earnings release on 15 November. Executives added on the earnings call that they will continue to build up inventories at warehouses so the firm is prepared when the industry does bounce back.
The Short Target Stock
Pilbara [PLS:AX] has become the most shorted stock on the ASX as investors bet on the lithium price coming down. Speaking at the company’s AGM at the end of November, CEO Dale Henderson explained that it’s become an easy target because of its large market cap and liquid stock. Those that are betting against the company are “very, very brave”, though: “When the lithium market turns, it turns quickly… They better be ready for when it turns because I think it will be swift,” cautioned Henderson.
The Bullish Outlook Stock
Piedmont Lithium [PLL] boss Keith Phillips is very optimistic on the outlook for the lithium industry, despite inventory levels being at historically low levels. “I think there’s a perspective that EV demand must be failing and lithium demand must be falling… Nothing can be further from the truth,” he told Bloomberg on 21 November, adding that any industry would be happy with the 38% rate by which EV demand has grown this year.
Another Way to Invest in Lithium
The Global X Lithium and Battery Tech ETF
The Global X Lithium and Battery Tech ETF [LIT] holds all five stocks. As of 31 October, 51.2% of the portfolio was allocated to materials, while industrials and information technology had weightings of 18.6% and 16.4% respectively. Consumer discretionary accounted for 13.8%. The fund is down 25.7% in the past year and down 22.8% in the past six months.
The Sprott Lithium Miners ETF [LITP] also holds all five stocks. As the fund is a pure-play on the lithium mining industry, it doesn’t provide a portfolio breakdown by sector. The fund is down 43.5% in the past year and down 35.2% in the past six months.