Lithium: We Expect Prices During This Decade to Remain Higher Than Market Valuations Imply

Shares of lithium producers plunged in 2023 as falling spot prices leave investors worried the 2022 boom turned bust. However, we see no reason to panic. For investors, the selloff creates an attractive opportunity to invest in lithium.

A temporary lull in demand from the expiration of China’s electric vehicle subsidies led to slow growth to begin the year. We see strong demand growth in the coming years driven by rising EV sales, as demand grows more than three times 2022 levels to 2.5 million metric tons by 2030.

As demand growth accelerates, we expect the supply deficit will remain in place. Most of the new supply required to meet demand will come from new, greenfield resources. Across all resources, many of these projects generally face delays, and we forecast enough supply will be delayed from managements’ initial timelines to keep the lithium market undersupplied.

Strong demand growth in an undersupplied market should generally result in prices remaining above the peak of 2018′s boom, albeit lower than the 2022 peak. We forecast lithium prices will average over $36,000 per metric ton from 2023 through 2030, leading to solid profits for low-cost producers. With the current stock prices implying prices around $20,000, much of the bad news is already priced in.

Our top picks are Albemarle ALB and Lithium Americas LAC. Albemarle shares trade at 60% of our $350 per share fair value estimate and offer the best cost and risk profile of any lithium producer. Lithium Americas has the most upside, with shares trading at less than 50% of our $50 per share fair value estimate, but carries elevated risk as the company does not yet produce lithium.