For years lithium has been a story that investors gobbled up due to the sheer demand of lithium that is expected for batteries to fuel electric cars. Lithium is a vital component in lithium-ion batteries that charge electric vehicles. The silvery white element is actually in almost everything we use today, from laptops, watches, cameras, to even pacemakers. It’s no surprise that logic would tell us to buy lithium stocks.
Unfortunately, 2019 was considered far from good when it came to lithium related stocks, and leaders Albemarle Corp. (ALB) and Sociedad Química y Minera de Chile S.A. (SQM) both felt the burn. The Global X Lithium & Battery Tech ETF (NYSEARCA:LIT) dropped over 40% last year before rebounding.
Despite there being a demand for the material, there has also been an overabudance of supply from mining companies ramping up their production. It was in 2018 that Morgan Stanley had predicted there would be a big drop in lithium’s price for the next few years.
Then in 2019, the U.S and China trade war resulted in tarrifs on big tech items such as smart phones, tablets, laptops, and game consoles. The tarrifs even included ltihium ion. China controls most of the processing that makes lithium usable in rechargeable batteries. The country has cornered the market. Chilean exports of lithium to China fell 90% during the first three months of 2019, which Chilean authorities have blamed on the effects of the trade war between the U.S. and China.
There may be a light at the end of the tunnel with a recent move from the U.S.
This year the White House cut import tariffs on batteries manufactured in China in half. The tariff on batteries, fell from 15 percent to 7.5 percent, effective February 14. The move is set to improve economics for grid storage projects planning to use battery cells, modules and packs made in China.
“For sure, this is a step in the right direction, but we believe lithium-ion batteries shouldn’t have been listed for tariffs on Chinese goods in the first place,” said Kelly Speakes-Backman, CEO of the Energy Storage Association.
According to Roskill’s 15th edition market outlook report, the demand for lithium will be tremendous in the years to come to feed phones, laptops, and battery-powered cars. The report expects that the demand for these products will increase 650% by 2027 and, as a consequence, the industries demand for lithium could rise to more than threefold over that period.
Howard Klein, founder of RK Equity, publisher of the Lithium-ion Bull newsletter and host of the Lithium-ion Rocks! podcast has said, “Demand forecasts are going up. They are all at about 1 million tonnes estimates by 2025. Demand is higher than supply and that translates into higher prices.”
Lithium will be one of the most sought-after raw materials on earth to fuel the electric vehicle boom. Over the next two decades, worldwide electric vehicle sales will rise from 2 million in 2018 to 56 million by 2040, according to Bloomberg New Energy Finance. At the same time, sales of “conventionally powered” vehicles will fall from last year’s 85 million to just 42 million globally.