Lithium Stocks: Ready for a Breakout in 2024?

The lithium market has taken a massive beating since 2022 and equities currently appear to be priced for the worst.

However, there have been new developments recently that could send lithium stocks soaring this year. The Department of Energy has financially supported many domestic lithium companies in the United States, and the Biden Administration has also implemented tariffs to help protect domestic EV manufacturers.

There may be supply issues in subsequent years, which could send lithium prices back to the 2022 highs. Equities also have a lot of room to run as these catalysts potentially kick in this year.

Concerns about lithium being oversupplied and the EV industry facing headwinds are likely way overblown, and 2024 could be a breakout year for mining companies that have stable contracts with EV giants. Companies with stable North American operations could be near term beneficiaries of some of these new positive trends in the EV industry and lithium market.

Lithium Outlook

Lithium stocks have had a very bumpy start to 2024, as the spot price of lithium collapsed and many lithium stocks have sold off strongly. Lithium carbonate prices have declined by over 70% in the past year after peaking in 2022 and 2023.

In 2021 and 2022, there was a supply deficit of lithium due to the soaring demand, which caused prices to spike during these years. Many companies ramped up production after this, which has resulted in a swift short-term correction. However, demand will still likely be strong in the coming years, which could support a rally in 2024.

One short-term concern has also been the slowdown in growth in the EV industry. However, growth in 2024 still looks like it will be very favorable and EV sales growth during the first quarter of the year was strong. Companies in North America may be positioned for stronger growth due to newly announced tariffs.

McKinsey projects that the growth of Li-ion batteries will be 30% per annum through the next decade. While batteries only accounted for around 30% of lithium demand in 2015, this number has sharply risen and could soon exceed 90% in the coming years.

And it’s not just electric vehicles that rely on lithium. Other applications, such as energy storage systems, e-bikes, electrification tools, and other applications, could help boost the demand for lithium batteries.

In the long run, there may be additional supply deficits as demand potentially picks back up and existing miners struggle to meet the soaring demand for lithium. While this supply deficit may not immediately occur during H2 2024, now looks like an intriguing time to accumulate equities that appear priced for the worst.

Top Lithium Investments to Consider

There are plenty of interesting small-cap and large-cap lithium plays, which have sold off strongly this year and could have explosive upside. Companies in North America may be positioned to outperform this year, although a general bullish approach should also produce strong returns in this environment.

An Intriguing Lithium ETF

The Global X Lithium and Battery Tech [LIT] is one of the easiest ways to gain exposure to the potential rebound in the lithium and battery market. This ETF could be superior to other smaller ETFs, as its AUM exceeds $1 billion, and it could have a lower risk of delisting like other smaller ETFs.

This ETF invests in a diversified basket of companies listed in the United States, Japan, South Korea, and China. Moreover, most companies only represent less than 5% of the ETF’s total assets.

This ETF has fallen around 20% YTD and is down over 50% from its previous 2021 peak. It could be less volatile than some individual lithium mining companies, but it still could have a reasonable upside if lithium enters a bull market.

Lithium Americas Corp

Lithium America Corp [LAC] is a dominant lithium player in the North American market. Its main resource, Thacker Pass, is the largest measured and indicated resource in North America. Lithium America Corp is well positioned to begin supplying the US market in the near term to help meet the country’s rising EV demand. One of its major clients is General Motors, who has partnered with this company to help it support its lithium demand.

Notably, the Biden Administration has recently decided to place tariffs on Chinese vehicles, which should help support the growth of the domestic EV market. Moreover, Lithium Americas Corp also recently received a $2.26 billion loan from the DOE with the interest rate equal to the US treasury yield.

The company is planning to ramp up production in Tucker Pass during the second half of 2024, so there could be near term catalysts for this stock, especially if conditions in the lithium market improve. Shares have pulled back 60% YTD on the back of weak news in the general market, but could be positioned to rally this year.

Piedmont Lithium Inc. [PLL]

Piedmont Lithium Inc. [PLL] is a relatively smaller lithium company that primarily operates in North Carolina and Tennessee, but also has operations in Ghana and Canada. It has major clients such as Tesla and LG Chemicals to name a few, and could be well positioned to supply EV companies in the United States.

Despite being a smaller player in the market, Piedmont Lithium has strong liquidity, supported by investments from LG Chemical, and it has currently been boosting its revenue and may eventually be moving towards profitability.

Piedmont Lithium could be a benefit of the battery belt trend in the United States, in which $30 billion in new investments per annum have been made in Southern states like North Carolina and Tennessee. This company is an interesting, potentially more volatile, microcap company to consider.