The lithium sector received a strong boost at the end of January when General Motors (GM) announced a stunning new partnership with Lithium Americas (LAC).
On Jan. 31, Lithium Americas announced that GM was investing $650 million to help the company develop a new mine in northern Nevada. The investment represents a milestone in the industry as it marks the largest-ever commitment by an automaker to produce EV-focused raw materials.
Traditionally, automakers have used supply agreements with producers of parts and materials to ensure the stability of their supply chains.
However, the lithium sector presents a unique challenge because demand for the raw material in the electric vehicle (EV) sector has increased faster than available supply. That’s because virtually every EV currently on the road is powered by a lithium-ion battery.
According to the U.S. Geological Survey (USGS), approximately 74% of annual global lithium production is currently being consumed by the EV battery sector.
At the end of last year, there were an estimated 27 million EVs in use globally. That figure is expected to climb above 40 million by the end of 2023. EV sales are expected to climb above 13 million units worldwide in 2023, which is 300% more than the amount sold in 2020.
When it comes to lithium production, the global heavyweight is Australia. In 2022, Australia was responsible for over 50% of the world’s total lithium production. Last year, around 90% of that lithium production was exported to China.
After Australia, the world’s next largest producers are Chile, China and Argentina. Together, the world’s top four producers account for roughly 95% of total global production.
The recent commitment by GM to Lithium Americas indicates that American automakers are getting more serious about growing the EV market in the U.S. They are also likely getting concerned about the potential ramifications of ignoring this market.
In 2022, the two largest EV manufacturers in the world were Tesla (TSLA) and BYD (BYDDF), in that order.
BYD, which is headquartered in China, pumped out 900,000 total battery electric vehicles (BEVs) in 2022, while Tesla produced 1.3 million. However, when including hybrids (hybrids and plug-in hybrids), BYD’s total EV output in 2022 jumped to 1.9 million—well ahead of Tesla.
Last year, China accounted for more than 5 million of the total 10 million EVs sold globally. The Chinese government made the EV industry a priority several years ago, and there are now hundreds of EV-related companies in the country. As a result, it’s estimated that over 300 different EV models are currently available for purchase in the country.
Circling back to GM’s deal with Lithium Americas, current estimates suggest that the mine in Nevada will have the potential to produce enough lithium for the equivalent of one million EVs when it reaches its maximum capacity. For the next 10 to 20 years (due to an option that GM holds to purchase additional supply), the American carmaker basically controls the entirety of that mine’s production.
With lithium still in tight supply, this deal could have a domino effect in the industry, as other auto manufacturers scramble to secure future supplies of lithium in the U.S. and elsewhere.
In 2022, total lithium production was 130,000 tons worldwide, with the U.S. accounting for less than 1%. But with several new mines coming online in 2023, the U.S. is expected to more than double its production of lithium in 2023, according to Fitch Solutions.
The sharp uptick in demand for electric vehicles has transformed lithium’s role in the global economy, pushing this once overlooked commodity into the spotlight—as illustrated below.
So far this year, lithium prices have traded mostly sideways, but the recent deal between GM and Lithium Americas suggests a rebound could develop in the foreseeable future.
Last year, lithium prices set an all-time high at roughly $85,000 per ton in November before correcting slightly during the last six weeks of 2022. At present, lithium is trading for about $69,000/ton. Back in 2021, the price was closer to $20,000/ton.
Some of the lithium miners that could benefit from similar agreements with global automakers include Century Lithium (CYDVF), Infinity Stone Ventures (GEMSF), Lithium Ionic (LTHCF), Sigma Lithium (SGML) and Standard Lithium (SLI).
To track and trade the broader lithium industry, readers can also add the following tickers to their watchlists:
- Amplify Lithium & Battery Technology ETF (BATT)
- Energizer (ENR)
- EnerSys (ENS)
- FMC Corp (FMC)
- Global X Lithium & Battery Tech ETF (LIT)
- Livent Corporation (LTHM)
- Piedmont Lithium Limited (PLL)
- Pilbara Minerals Limited (PILBF)
- Sociedad Química de Chile (SQM)
To follow everything moving the markets—including the latest commodities news—monitor tastylive, weekdays from 7 a.m. to 4 p.m. CDT.
Sage Anderson is a pseudonym. He’s an experienced trader of equity derivatives and has managed volatility-based portfolios as a former prop trading firm employee. He’s not an employee of Luckbox, tastylive or any affiliated companies. Readers can direct questions about this blog or other trading-related subjects, to firstname.lastname@example.org.