By Andrey Dashkov, analyst, Casey Research
Lithium may turn out to be “the oil of the 21st century.”
This year, it’s taken the title of one of the best-performing commodities.
Over the past 12 months, its price is up 190%.
But there’s a problem…
Due to unprecedented demand, the lithium market is projected to go into deficit.
This means that electric vehicle (EV) makers like Tesla could sell fewer models in the future…
But it also means that investors who position themselves early could profit immensely from this trend.
That’s because there’s more room to run for both the metal itself and for the companies leveraged to its price…
The Supply Crunch
Subscribers who followed my lithium stock recommendation in the Super Spike Advisory last month are already seeing 31% returns.
In the meantime, lithium itself is up about 5%.
If you, too, would like to outperform a benchmark by six times… check out our portfolio here.
We’ve been saying it for a while now, but investors don’t seem to completely grasp what’s in store for lithium.
As I showed you back in October, the lithium market deficit is expected to grow until at least 2030.
It could increase by a factor of 24 – to over 900,000 tonnes of lithium carbonate equivalent (or LCE).
That’s the high-grade lithium compound that goes into EV batteries.
Slowly, market players are beginning to understand the implications of this trend.
The CEO of Livent, a lithium producer, recently said:
If you take those forecasts of demand or conversion of sales, then we can never expand lithium supply quickly enough to catch up. We see no situation where there will be enough lithium to supply all the corners of demand.
Thus, lithium could become a scarce resource… and manufacturers in need of the metal will not be able to utilize it in every product.
For instance, we could see lithium buyers prioritize their highest-value products over cheaper ones.
A case in point: premium-priced EVs over lower-end models. Both need lithium, but the former group makes more money for their manufacturers than the latter. So the premium models get the batteries, and the cheaper ones remain second-in-line.
What Does This Mean for Companies – and for Your Money?
First, we could see the likes of Tesla sell fewer cheap models in the future…
…Even though most people can only afford the cheaper cars.
Such a move would preserve the company’s margins (premium models make more money for Tesla per sale), but it would stall sales growth.
A decreased volume of sales brings down the share price. And slowing expansion is a death knell for a high-growth story like Tesla.
Tesla won’t be alone in this situation, of course. The “legacy” car manufacturers trying to electrify their lineups will face the same issue.
The bigger problem, though, is that if there aren’t enough cheap EV models on the market, the global push toward EVs will also slow down.
Several governments have already committed to this objective, however. The U.S., for instance, has a goal of reaching 50% EV penetration by 2030.
To avoid a crushing supply crunch, governments across the world will accelerate exploration projects.
Billions and billions of dollars will go into the lithium sector to ensure the electrification push is on track.
Which, of course, will be great for the lithium space.
To play this thesis, consider the Lithium & Battery Tech ETF (LIT). It’s an exchange-traded fund holding companies that mine and refine lithium, as well as battery makers.
Meanwhile, to get more specific exposure, check out our premium advisory – the Super Spike Advisory – where we recommend lithium picks.
Our quick win of 31% in a little over a month is proof that this sector is unstoppable.
Good investing,
Andrey Dashkov
Analyst, Casey Research