Despite a decrease in lithium demand from China as EV sales slow, big producers such as Albemarle Corporation (NYSE: ALB) believe business will remain robust.
Whenever there’s a rapidly growing market, plenty of competitors jump in. While Albemarle and other big names, such as Sociedad Química y Minera de Chile SA (NYSE: SQM) command high market share, smaller companies Sigma Lithium Corp. (NASDAQ: SGML), Piedmont Lithium Inc. (NASDAQ: PLL), and Livent Corp. (NYSE: LTHM) are muscling in.
EV adoption is an obvious source of demand. Certainly, it seems that EVs are suddenly everywhere, and no longer a novelty. Consulting firm McKinsey, in a January blog post, said, “A 2022 analysis by the McKinsey Battery Insights team projects that the entire lithium-ion (Li-ion) battery chain, from mining through recycling, could grow by over 30% annually from 2022 to 2030 when it would reach a value of more than $400 billion and a market size of 4.7 terawatt hours.”
Canada-based Sigma is a specialty chemicals producer with producing properties in Brazil. Shares rallied nearly 21% on news that Tesla Inc. (NASDAQ: TSLA) is considering acquiring its mining operations, with Sigma as a candidate.
Watch for more on that news at Tesla’s investors day on March 1.
Sigma holds 27 mineral rights in four properties, which include nine past-producing lithium mines or mines that already have a track record of production. That’s an advantage over developing new properties.
Sigma focuses on its 100%-owned Grota do Cirilo property, the largest lithium hard rock deposit in the Americas. At that site, the company has been producing environmentally sustainable battery-grade lithium concentrate on a pilot scale since 2018. A larger-scale commercial operation is planned with a capacity for 270,000 tonnes annually in phase 1, increasing to 766,000 tonnes in phases 2 and 3.
The company is expected to swing to profitability this year, with earnings of $4.43 a share. Sigma stock is up 21.30% so far this year, but given the plans to scale up production, it’s reasonable to expect that Sigma’s full potential isn’t anywhere close to being realized.
Wall Street believes that, too, according to MarketBeat analyst data. Analysts have a “buy” rating on the stock.
Piedmont was among the lithium stocks declining on the Tesla news. However, that could have been a short-term overreaction, as Tesla is far from the only consumer of lithium. Even if it purchases Sigma, there appears to be ample opportunity for other producers and suppliers to grow their sales and earnings.
Wall Street sees North Carolina-based Piedmont becoming profitable this year, with projected earnings of $3.14 a share.
Piedmont recently inked a deal with Korea’s LG Chem Ltd. (OTCMKTS: LGCLF), the largest battery producer outside of China. LG Chem invested $75 million in newly issued Piedmont common shares. Piedmont will supply LG Chem with 200,000 metric tons of spodumene concentrate, which contains lithium ore, over four years.
This makes LG Chem Piedmont’s largest customer, for now, anyway.
In a media appearance following the announcement, Piedmont CEO said the biggest challenge facing the EV business is not demand for the vehicles themselves, but instead for the batteries and raw materials that go into the batteries. He noted that it can take a decade or more to ramp up a lithium project.
That suggests that demand will be high for years, which can bode well for companies such as Piedmont.
Analysts have a “buy” rating on the stock, with a price target of $95, a 50.44% upside. Meanwhile, institutional buying has far outpaced selling in the past 12 months. Both those factors suggest this stock has plenty of room to run, once the market digests the news about Tesla and Sigma.
Philadelphia-based Livent produces performance lithium compounds, including battery-grade lithium hydroxide, and other chemicals and metals that boost battery output and extend life. It can also reduce manufacturing costs.
In addition to the automotive market, Livent’s customer's hail from industries including aerospace, pharmaceuticals, and industrials.
The company reported fourth-quarter results on February 14, earning $0.40 a share on revenue of $219.4 million. As you can tell by that revenue number, this is still a small company, with presumably more upside ahead, as lithium demand increases.
Nonetheless, those marked year-over-year increases of 400% and 79%, respectively.
MarketBeat data show analysts have a “hold” rating on the stock, with a price target of $29.36, an upside of 25.84%.
Unlike other lithium companies, Livent has a track record of profitability. Wall Street is eyeing earnings growth of 39% this year, to $1.94 per share, and expects earnings to grow another 28% in 2024, to $2.49 per share. Both those estimates were revised higher recently.
In the recent earnings conference call, CEO Paul Graves cited several factors the company expects to contribute to growth this year and next, including charging higher prices, higher sales volume, and the first phase of the company’s Argentinian mining operations, due to come online during the year.