Lithium is the hottest commodity attracting significant interest amid the electric vehicle revolution. While interest and focus have always been on electric vehicle companies, there is a seismic shift toward Lithium miners. In the recent past, investment firms and hedge funds have been trimming their exposure to EV giants in favor of companies with direct exposure to Lithium, a key component for the development of electric batteries.
Focus on Lithium Miners
Tesla is one of the companies feeling the brunt of increased focus on Lithium. Institutional investors like Manulife Financial Corp DZ Bank and 1832 Asset Management have cut their exposure to the EV giant in favor of Sigma Lithium Corp. Tesla also seems to be following the trend amid reports it is looking to acquire Sigma Lithium.
A push to acquire Sigma Lithium does not come as a surprise as it will allow Tesla to secure key supply channels for Lithium to produce EV batteries internally. Any company with significant Lithium concentrate stands to be a big winner as governments worldwide ratchet up calls for a cleaner transportation network. Securing Lithium supply channels should also allow Tesla to develop a cheaper mass-market electric car, something it’s been chasing.
General Motors is another auto giant that has joined the fray investing in shares of Lithium Americas Corp as it also seeks to secure a key supply channel for the vital commodity. Its investment has already sent the miner’s shares skyrocketing. In addition, major US and European Automakers have been attending major metal conferences as they look to lock in long-term Lithium supplies.
While it’s unusual for end users of raw commodities to attend large mining conferences, they have no option. It is the only way they can be able to lock in Lithium nickel and graphite supplies, all in the effort of developing cheaper lithium-ion batteries to power the electrification drive.
Lithium Stock Valuation
Automakers and hedge funds are not the only ones eyeing direct exposure to Lithium. Retail investors have also taken note and started targeting lithium miners, as most of them are trading at much lower valuations. Investors are increasingly moving their capital to purchase undervalued lithium producers to capitalize on the latest trend. Likewise, lithium miners’ ETFs are increasingly cropping up to capitalize on the strong investor interest.
Despite the strong lithium demand and the expected explosion, lithium stock prices are yet to reflect the booming demand. Most lithium miners are trading at discounts. Albemarle, the largest lithium producer, is currently trading 11 times price to earnings multiple, way below the 14.8 Times multiple for the S&P 500 Materials index.
Nevertheless, fund managers and analysts expect the lithium stock prices to explode as new stock buyers emerge. Auto giants investing in lithium producers is another catalyst likely to increase stock prices. More auto companies are expected to invest in lithium miners as the market for the vital commodity is expected to quintuple to 3.7 million metric tons a year over the next decade. Currently, demand stands at 800,000 metric tons. With most countries banning fossil fuel cars, a shift to electric vehicles is expected to be the biggest catalyst fueling lithium demand.