Market Size of $100B+ by 2025
Lithium is set to have a great year, driven in large part by the electric vehicle (EV) boom. The market for EVs has been hot for years and we know it has got decades left to grow. With Tesla enjoying their status as the darling of the space, other legacy automakers have all joined in now. EV maker Lucid motors shows how much investor demand there is in this space. Lucid is set to go public via a SPAC deal valuing the company at $24B. Lucid has only been publicly making EVs since 2016.
Investors know this space is going to be hot for years. Why? Because most cars in the world are not EVs. EVs represent less than 1% of the total cars on the road. A Deloitte forecast shows Total EV sales are expected to grow at a compound annual growth rate of 29%, reaching 31.1M units by 2030. That is nearly 10x the 2020 estimate from the International Energy Agency in the chart below. The best part? That growth rate only takes EV market share of new car sales to 32%. So, beyond 2030 EVs can still double again before they begin to dominate traditionally fueled vehicles.
EVs are still expensive but they are about to get cheaper. 500,000 EV charging stations are part of Biden’s new plan. That means every EV purchase is going to provide a much better experience for drivers. If this infrastructure investment from the Biden plan is any indication, we can expect more incentives to switch to green vehicles in the coming years.
Tesla Is Priced-In but Adding Lithium Gives You EV Exposure
Lithium is the commodity with the most exposure to EVs. Every single EV made, no matter the specific battery chemistry, requires between 7% and 10% lithium. One of few ways to add EV exposure to your portfolio without paying the premium on these EV manufacturers is to buy lithium mining stocks. The demand for lithium will precede the large growth we anticipate in the EV market. After all, manufacturers always need to secure long-term supply for their expansion plans.
That has never been truer than right now, in the early stages of a sizable commodities boom. There are shortages left and right in this economy and commodities prices have soared accordingly. The price of Lithium is up over 90% so far this year already. The impact of this supply chain disruption and parts shortage still has not fully hit the average American yet. But it will.
More lithium-ion batteries are going to be needed on the demand side throughout the year for more than just EVs. Nearly everything in the consumer electronics category uses these battery packs. With 5G speeding the adoption of more connected devices we can expect a Christmas boom in new consumer electronics this year. That means more demand for lithium from folks who find a new EV unaffordable.
Lithium Market Fundamentals
With research from Macquarie forecasting deficits beginning in 2022 and extending to at least 2030, that 90% price increase stands to get steeper. Goldman Sachs’ global head of commodities research, Jeffrey Currie has noted “Tesla and Apple consume 50% of the world’s lithium market”. With only two companies accounting for 50% of demand and more entrants to these battery-heavy industries every year, lithium is bound to remain in a bull market for the coming decade.
To meet demand, new lithium mines need to be funded and built. The challenge: finding new deposits is hard and the timeline to construct and extract resources can be upwards of ten years. That means the limited number of existing lithium deposits is likely to be funded fast as the coming years bring us closer to the forecasted supply deficit. More than likely, there will be a calamitous disruption in the market as deposits will not get funded quickly enough to produce processed lithium in time to meet forecasted demand.
The deposits that are funded first will be selling their product as the price gets boosted again after the reality of a multi-year deficit sets in. Projects funded at that time (only a few years from today) may miss a good portion of the boom that is being predicted by experts.
With valuations buoyed by a swath of new investors, finding a good price point to enter a stock is more difficult. In the case of the EV megatrend, lithium provides high leverage without the lofty valuations. It also provides exposure to the coming connected home boom and the new commodities supercycle. That last piece means some protection from inflation, which we are seeing more of across the board. Now is the time to move if you want to participate in the gains expected by top analysts.
Thank you for your loyal readership.
The Financial Star.