Updated on November 22nd, 2021 by Bob Ciura
Lithium, also dubbed “white petroleum,” is one of the flashier metals that you will come across.
Electric vehicles are becoming the true drivers of demand, as an electric car requires 5,000 to 10,000 times as much lithium as a mobile phone.
This has caused interest in investing in lithium stocks to surge.
Because of this, we have created a list of lithium stocks (along with important financial metrics such as price-to-earnings ratios and dividend yields) that can be downloaded using the link below:
This guide gives an overview of the lithium Industry, as well as detailed analysis on lithium stocks.
Table of Contents
- Lithium Industry Overview
- Investing In Lithium
- Lithium Mining Stocks
- Lithium Battery Stocks
- The Best Lithium Stocks
- Final Thoughts
Lithium Industry Overview
While Lithium is white or gray in typical form, when it is thrown into a fire it turns bright red. The lithium mineral was documented in the 1790’s, but it wasn’t until 1855 that the element was separated and identified.
Lithium (atomic symbol Li) has many unique characteristics.
It’s light and soft – soft enough to be cut with a butter knife and light enough to float on water.
Further, the metal has a relatively low melting point but a high boiling point. Its uses vary dramatically, from the manufacture of aircraft and batteries to mental health medicine.
In 1991 Sony popularized the lithium ion battery and now it has become a vital part of nearly every electronic device. Naturally the use of electronics has taken off with mobile phones leading the way in the last decade.
In 2009 the lithium ion battery made up roughly 21% of all lithium consumption.
In 2020, about 65% of lithium produced went to battery production – more than tripling its share (in a growing market) in just over a decade.
There are two main ways of extracting lithium: mining and brine water.
Interestingly, about two-thirds of lithium is extracted via brine water. The highest concentrations of these lakes are found in Chile and Argentina.
Lithium is obtained via evaporation in the form of lithium carbonate, the raw material used in lithium ion batteries. This process also leaves behind magnesium, calcium, sodium and potassium.
While brine mining is a lengthy endeavor – normally taking 8 months to 3 years – it is still usually easier and cheaper than hard rock mining.
The remaining amount of lithium is found in traditional mining operations.
The concentration of lithium is greater in hard rock mines, but the cost to operate these mines and the environmental and geological impact is much greater. Still, a hard rock mine in operation can be competitive with an upstart brine mine.
While there are 145 minerals containing lithium, just five are used in lithium extraction.
Moreover, of these five, spodumene makes up the lion’s share (~90%) of mineral-derived lithium. The mineral is heated, cooled and mixed with sulfuric acid to create lithium carbonate.
Finally, there is a very small amount of lithium that is being recycled from electronics. This method does not provide pure enough lithium to make new batteries, but it is suitable for other uses such as glass and ceramics.
Total lithium production in 2020 amounted to 82,000 MT (metric tons).
Here are the top lithium producing countries in 2018:
1. Australia = 40,000 MT (49% of worldwide production)
2. Chile = 18,000 MT (22%)
3. China = 14,000 MT (17%)
4. Argentina = 6,200 MT (7.6%)
5. Zimbabwe = 1,900 MT (2.3%)
As you can see the production of lithium is highly concentrated, with approximately 98% of it being produced by just five countries.
Indeed, Australia and Chile alone accounted for more than 70% of the production market last year. Keep in mind that this does not account for U.S. production, but this is currently limited to a single mine, the Silver Peak mine in Nevada.
Total worldwide lithium reserves are estimated to be 21 million metric tons.
Long-term mining activity will continue to be driven by Chile, China, Australia and Argentina.
The demand for lithium currently has three main drivers: Continued mobile device adoption, energy storage for electric grids / renewable energy, and electric vehicles.
As noted above, short and intermediate-term demand for lithium will likely depend on the dynamics of the electric vehicle market.
Mobil device adoption will continue to be a driver, but electric vehicles require thousands of times as much lithium and hence have a much larger influence.
Batteries for storage for renewable energy could be an important driver down the line, but that is viewed as more of a long-term demand driver.
Global electric vehicle sales are expected to exceed 14 million by 2025 and are likely to continue growing over the next several decades, as electric battery costs become cheaper than internal combustion engines.
Source: Bloomberg New Energy Finance
Additionally, while demand forecasts vary widely, it is largely expected that electric vehicle production will test supply in the years and decades to come.
Indeed, some believe that electric vehicle adoption will be stymied by the availability (or lack thereof) of key components like lithium, as the recent ramp up in demand moves much faster than the ability to establish new mines, which often take years.
However, despite tremendous expectations, it should be noted that while lithium is an essential part to electric vehicles, it is not necessarily a fundamental cost driver.
More important cost drivers could include nickel and cobalt, making up ~73% and ~14% of a typical battery, as compared to ~11% for lithium. Tesla’s Elon Musk calls lithium “the salt on the salad,” noting the relatively low expense of the material as compared to the overall cost of the vehicle.
Investing In Lithium
There is a way to directly and broadly invest in the lithium industry: The Global X Lithium & Battery Tech ETF (LIT).
The ETF “invests in the full lithium cycle, from mining and refining the metal, through battery production.” The fund’s objective is to “provide investment results that correspond to the price and yield performance, before fees and expenses, of the Solactive Global Lithium Index.”
The “before fees” portion is important, as management fees stand at 0.75% annually. Moreover, the current dividend yield is negligible.
The fund was started on July 22nd, 2010. It has generated strong returns in the past five years, of 34.5% compounded annually. To compare, the S&P 500 Index ETF (SPY) has generated annual returns of 18.6% in the past five years.
While the ETF’s performance has been uninspiring, interest has ballooned. Assets of the fund increased from $68 million in June of 2016 to nearly $6 billion in November 2021.
The fund holds just over 40 securities, but the top 10 positions make up 55% of the ETF’s total assets:
1. Albemarle (ALB): 11.7% of assets
2. Tesla (TSLA): 5.8%
3. TDK Corp: 5.5%
4. Eve Energy Co: 5.2%
5. Contemporary A-A: 4.9%
Lithium Mining Stocks
For a long time the lithium mining industry was controlled by the “big three:” Albemarle (ALB), Sociedad Quimica Y Minera de Chile (SQM) and FMC (FMC).
Rockwood Holdings was also a large player, but Albemarle acquired it several years ago. These three businesses accounted for 85% of the world’s lithium market share.
However, more recently China has entered the market in a big way. For instance, Australia’s largest mine, the Greenbushes, is 51% controlled by China’s Tianqi Lithium and 49% owned by Albemarle.
Today the market share of the “big three” has dropped to 53%, while Chinese companies control about 40% of the world’s lithium market share.
Here are the five largest lithium-mining businesses:
4. Tianqi Lithium
5. Jiangxi Ganfeng Lithium
While the Chinese stocks cannot be invested in easily, the top three lithium-mining businesses do offer publicly traded shares:
Lithium Mining Stock: FMC Corporation (FMC)
FMC Corporation, based out of Philadelphia, PA operates as a diversified chemical company. In 2021 the company generated $4.6 billion in sales and earned $551 million in net profits.
Last year the company reported adjusted EPS of $6.19, up 2% from 2019. The stock also has a 1.8% dividend yield.
FMC is more of a crop chemical producer than a lithium producer.
While the company held an 84.25% equity stake in Livent, the company’s former lithium segment, FMC completed a spin-off of the company on February 25th, 2019.
Indeed, the company’s future outlook excludes lithium from its forecasts.
Looking at the stand-alone Livent Corporation (LTHM) will give a better picture of a pure, globally integrated lithium stock moving forward.
Lithium Mining Stock: Sociedad Quimica Y Minera de Chile (SQM)
Sociedad Quimica Y Minera de Chile ADR, more succinctly known as SQM, is a Chilean commodities producer with operations in lithium, potassium fertilizers, iodine and solar salts. Last year the company generated $1.8 billion in revenues and $164 million in net income.
On a per share basis, shares trade hands around $67. The stock has a 2% current dividend yield.
SQM’s most impressive assets are the low-cost lithium deposits in Chile’s Salar de Atacama, which has both the highest concentration of lithium globally and benefits from the high evaporation rates in the Chilean desert.
The company also has about half the market share in potassium nitrate and is the world’s largest producer of iodine. These three industries ought to benefit from the ongoing trends toward electric vehicles, increased crop production and healthcare spending.
The company has a long-term contract with Chile to extract 414,000 metric tons of lithium through 2030.
Lithium Mining Stock: Albemarle (ALB)
Albemarle is the largest producer of lithium and second largest producer of bromine in the world. The two products account for nearly two–thirds of annual sales. Albemarle produces lithium from its salt brine deposits in the U.S. and Chile.
The company has two joint ventures in Australia that also produce lithium. Albemarle’s Chile assets offer a very low–cost source of lithium.
The company operates in nearly 100 countries and is composed of four segments: Lithium & Advanced Materials (49% of sales), Bromine Specialties (21% of sales), Catalysts (21% of sales) and Other (9% of sales).
Albemarle produces annual sales of $3 billion.
Albemarle has increased its dividend for over 25 consecutive years. As a result, it is on the exclusive Dividend Aristocrats list.
Click here to download our most recent Sure Analysis report on Albemarle (preview of page 1 of 3 shown below):
Lithium Battery Stocks
The producer side is fairly concentrated although recently China has been taking significant market share from the “Big 3.” On the application side, there are a wide variety of battery makers and the market share is still somewhat up for grabs.
Here’s a sampling of the top-10 lithium ion battery manufacturers in the world according to ELE Times:
1. Samsung SDI
4. LG Chem
6. A123 Systems
7. eCobalt Solutions
9. Contemporary Amperex Technology
10. Johnson Controls (JCI)
As far as investable equity positions for U.S. investors go, Samsung, Toshiba, LG Chem, A123 Systems, eCobalt Solutions, BYD and Contemporary Amperex Technology are headquartered outside of the U.S. / listed on a foreign exchange. Which gives you a fair idea of where the majority of batteries are being produced.
Notably, Johnson Controls recently sold off its Power Solutions business (including batteries) for $11.4 billion in net proceeds to Brookfield Business Partners L.P.
That leaves just two companies from the above list: Panasonic and Tesla.
Lithium Battery Stock: Panasonic (PCRFY)
Interestingly, Panasonic supplies batteries for Tesla. However, this is only one portion of the Japanese business. Panasonic’s operating segments include Automotive & Industrial Systems, Eco Solutions, Connected Solutions, Appliances and Other.
As a general theme, earnings have been volatile. Panasonic is a diversified business, going well beyond the lithium battery market, with arms in electronic component mounting, appliances and home building products.
This has the benefit of safety (when one division does poorly, other divisions can often make up the shortfall) but it can also dilute the growth potential a “pure play” lithium battery maker might have.
Still, Panasonic is well positioned in the industry.
Lithium Battery Stock: Tesla (TSLA)
Tesla is a new business – founded in 2003 and publicly offered in 2010 – but it is a juggernaut in the industry.
There is no doubt the company has a unique value proposition moving in a leading market for the future. Over the first nine months of 2021, Tesla reported net income of $3.2 billion, or $2.84 per diluted share.
The company’s growth needs requires significant cash that may not be easy (or pleasant) to continue to raise through share offerings or debt. Tesla now has over 1.1 billion shares outstanding, and total debt of $29 billion. To compare, total assets totaled $58 billion as of the most recent 10-Q.
The company enjoys a leading position in a growth industry, but you have to make difficult guesses about 1) how quickly the industry will grow, 2) what market share Tesla will take and 3) whether or not sustaining profits can ultimately be generated.
The Best Lithium Stocks
When you look across the publicly traded lithium market it’s hard to find a “pure play” lithium stock. Even among the lithium producers, each one has separate and important operations in other areas.
Even an ETF focused specifically on lithium casts a wide net in a variety of industries.
On the mining side, you have the “Big 3” along with a group of Chinese companies working to take significant share.
In general, the mining side looks somewhat interesting from an economic standpoint due to the inelastic demand of the raw material.
Because lithium is essential, but not a huge cost driver in battery production, battery makers are unlikely to significantly reduce their consumption even in the face of higher Lithium prices.
While miners cannot dictate higher prices by themselves, they are likely to benefit from higher prices if they come about from supply shortages / faster demand growth.
In our view, SQM and Albemarle look the most interesting lithium stocks on the mining side due to their premium position in Chile – a position offering the deepest reserves coupled with high concentrations and ideal environment.
On the battery side, it’s even more difficult to find “pure play” lithium stocks. There are plenty of companies in the market, but from an investment standpoint there is still a lot of uncertainty.
While there very well could be many “winners” in the industry over the long-term, current investors will likely have to deal with substantial earnings volatility and high expectations in the short to intermediate-term.
Lithium is here to stay. There’s a reason that it has gained popularity, especially in the last decade. It’s a versatile metal that has afforded tremendous improvements in how we work, communicate and get around.
Moreover, future demand appears robust as the move towards mobile devices, renewable energy and electric vehicles appears to be on the upswing (with the potential for a very long tail).
However, investors should recall this Ben Graham quote:
“Obvious prospects for physical growth in a business do not translate into obvious profits for investors.”
The takeaway is two-fold.
Picking a growth industry in general may not be particularly difficult. For instance, it’s conceivable that just before (or even during) the ramp up of trains, automobiles, planes, and the Internet a potential investor could point to these areas as “growth industries.”
And indeed, they would have been correct. An investor pointing to the Internet, in say the mid-1990’s for example, would still be seeing that growth industry play out today.
Yet there are two problems.
First, picking a growth industry may not be exceptionally difficult, but picking “winners” can test the best analyst. Out of the automobile or Internet just a handful of “winners” emerged, while hundreds or thousands were cast aside – once hyped, once with great expectations, but eventually for naught.
The second consideration is valuation.
Even if you do happen to pick the “winners” you still have to be concerned about the price you pay. As a hypothetical, a security trading at say 40 times earnings that grows by 10% annually for a decade and later trades at say 20 times earnings would provide investors with returns of just 2.6% per year.
The consideration is not just, “will a company grow?” but more importantly, “will it grow fast enough to justify the current valuation?” Expressed differently, will current investors capture their “fair share” of investment results?
Additionally, while lithium appears poised to be in strong demand for the foreseeable future, you should also take into consideration the possibility of new technologies coming along as well.
Demand alone is exciting, but it could lead to unexpected results if it creates enough new entrants.
Overall we are upbeat on the metal and its prospects over the intermediate to long-term, with the above caveats in mind.
For income investors interested in the lithium industry, Albemarle could be the best stock.
It derives a large portion of its profits from lithium, it has stakes in important reserve areas around the world, the dividend payout ratio is modest, and the company raises its dividend each year.
Otherwise, we consider many of the other lithium stocks as too risky, as there are many unknowns coupled with tremendous expectations.