6 lithium stocks powering the future
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Lithium is in everything. Things like phones, computers, tablets, smartwatches, and electric vehicles (EV) are all powered by lithium-ion batteries.
Meanwhile, the economy appears to be moving away from fossil fuel sources of energy. The United States has pledged to be carbon neutral by 2050, with individual states like California setting a more ambitious goal of being carbon neutral by 2045.
To reach these goals, energy will have to be produced and stored through alternative means. Lithium-based energy storage solutions — and thus lithium itself — are going to increase in demand. This could make lithium stocks a great investment opportunity for savvy investors looking to capitalize on this shift.
This article will cover some of the biggest players in the lithium market — and whether or not you should consider adding lithium stocks to your portfolio.
More: How to invest in the EV industry
6 lithium stocks to consider
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Albemarle Corporation (ALB)
Albemarle Corporation is one of the world’s largest chemical companies with three primary business lines in bromine, lithium, and catalysts. They are the world’s largest supplier of lithium. Albemarle supplies consumer electronics manufacturers, like Panasonic, and a number of different EV battery manufacturers.
In October 2022, Albemarle was named as a recipient of a major U.S. infrastructure bill aimed at building domestic EV supply chains. Looking ahead, Albemarle is also increasing the number of variable-priced lithium contracts they engage in. This signals to investors that Albemarle is preparing itself to capture more profit coming from a projected increased appetite for lithium in the coming years.
Sociedad Química y Minera de Chile (SQM)
Sociedad Química y Minera de Chile — or SQM — is a Chilean chemical company and one of the world’s largest lithium producers. It has access to one of the best lithium deposits in South America. Combined, Albemarle Corporation and SQM account for about 50% of the global lithium market share.
In 2022 the Chilean government awarded SQM a lithium development contract, signaling to investors that there is strong demand for its services. The business is profitable and has a diverse array of income streams.
Ganfeng Lithium (GNENF)
Ganfeng is the third largest producer of lithium products in the world (after Albemarle Corporation and SQM). The Chinese company is well positioned to support the growing demand for EVs in China. In fact, in 2021, Tesla signed a new deal with Ganfeng to provide battery-grade lithium for Tesla’s growing operations. This stock gives investors exposure to Asian markets as well as to larger international market share.
Piedmont Lithium Inc. (PLL)
Piedmont Lithium Inc. is based in Belmont, North Carolina and has inked deals with EV companies like Tesla to provide lithium for their car batteries. It’s a pre-revenue company but aims to capture the large “vehicle and stationary storage markets” with a proposed new plant in South Carolina.
Currently, most of the world's lithium comes from Australia, Chile, Bolivia and Argentina. Piedmont hopes to help meet the underserved domestic demand through local mining. Like Albemarle, Piedmont was s a recipient of funding from a major infrastructure bill to develop a domestic EV supply chain.
However, while it all looks promising on paper, prospective investors are encouraged not to hold their breath on immediate returns: Pressure from North Carolina regulators might place international mining opportunities in Ghana and Canada ahead of their U.S.-based chemical plant in Piedmont's list of priorities.
Lithium Americas Corp. (LAC)
Lithium Americas Corp. is pre-revenue and is currently building production capacity in Nevada and Argentina. In 2021 the Bureau of Land Management issued Lithium Americas approval for the Thacker Pass project in Nevada. This is expected to be the largest lithium deposit in the United States with a planned output lasting 46 years.
Mining permits were issued in February 2022, allowing LAC to begin construction. However, the company is appealing restrictions prohibiting it from mining below the water table. According to the New York Times, this plant is expected to consume “billions of gallons” of ground water, and the surrounding area could face water contamination for up to 300 years.
Because of its environmental impact, the company has been the target of ongoing protests (and two lawsuits) by local environmental groups, ranchers, and members of an Indigenous tribe. While investors are optimistic that LAC will be a profitable venture, ESG and socially responsible investors may consider whether this company fits with their values.
More: How to know If a company or fund is really ESG
Standard Lithium (SLI)
Headquartered in Canada, Standard Lithium is joining the American lithium rush to start building one of the newest mining operations in Arkansas. The company uses a proprietary process to extract lithium and, if successful, could become a major player in lithium production.
However, the efficacy of Standard Lithium's technology was publicly called into question by investment research firm Hindenburg Research. Their announcement sent the Koch Industries-backed Standard Lithium's shares tumbling 27% percent.
Other ways to invest in lithium companies
Investing directly in lithium companies can pay off handsomely but it does come with risk. Construction setbacks and regulatory red tape can impact an individual company’s performance.
Investors looking to benefit from increased demand in lithium production aren’t limited to just buying individual stocks. Lithium ETFs are also a good, lower risk option. They track the entire supply chain, not just individual lithium producers. These are the top three ETFs to consider:
- Global X Lithium & Battery ETF (LIT): This ETF follows the Solactive Global Lithium Index and its top three holdings include Albemarle, SQM, and Tesla.
- Amplify Lithium & Battery Technology ETF (BATT): This ETF follows the EQM Lithium & Battery Technology Index and its top three holdings are BHP Group, SQM, and Albemarle.
- VanEck Vectors Rare Earth/Strategic Metals ETF (REMX): This one tracks companies producing a range of strategic materials, including lithium.
What to consider before investing in lithium
The growing demand for EVs coming from both consumers and government officials indicates there’s a rush to produce more lithium. This is a good signal for investors interested in capturing the growing demand for lithium-based batteries and storage solutions.
Before investing in new lithium projects, investors need to understand the risks.
For one, while general adoption of electric vehicles are a positive step towards mitigating climate change, the process of actually extracting the lithium needed to power EVs poses its own environmental risk. However, as the technology becomes more sophisticated and reusable lithium batteries come into play, the carbon footprint and local damage of mining lithium could shrink in the future. Regardless, climate-minded and socially responsible investors may want to take this into account before considering adding Lithium companies to their portfolio.
Secondly, future environmental regulation (particularly in the United States) could also impact a project’s output. Likewise, new companies entering the lithium rush face competition from Albemarle and SQM which hold significant market share.
Concentration in the market is another factor investors need to consider. Tesla is a major consumer of lithium batteries and many of the producers listed above have contracts with Tesla. While Tesla is a popular EV stock pick, setbacks in their production schedule could impact lithium producers as well.
The takeaway: should you invest in lithium?
Whether lithium is a good investment depends on the investor's goals, risk tolerance and values. While demand is certainly growing — and there's no sign of it letting up in the future — much of it is still tied to a handful of companies. This, coupled with its still-developing technology, could lead to major swings in both directions.
Plus, lithium producers still lie solidly within an environmental grey zone. They're useful in supporting a climate-forward future, but could cause the surrounding areas and communities to be depleted of water for generations.
Before deciding to invest in any one of these companies, thoroughly research them to make sure they align with your values. And when it comes to mitigating risk, you may consider diversifying your exposure through ETFs. This gives investors the opportunity to capture growth in lithium demand by investing in indexes that track the entire lithium production supply chain.
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