The surging cost of lithium could impact the electric vehicle market as the commodity is a major component for companies like Tesla Inc TSLA. Here’s what Tesla CEO Elon Musk is suggesting to help offset the rising price.
What Happened: A tweet shared recently from the Twitter Inc TWTR account World of Statistics highlighted the rising price of lithium.
Lithium is now trading at $78,032 per ton according to the post. Here’s a look at how that stacks up with recent years.
- 2012: $4,450
- 2013: $4,750
- 2014: $4,680
- 2015: $5,110
- 2016: $8,840
- 2017: $12,070
- 2018: $14,660
- 2019: $11,310
- 2020: $6,800
- 2021: $17,000
The post prompted a response from Musk, who said that Tesla could consider getting into the mining and refining business.
Price of lithium has gone to insane levels! Tesla might actually have to get into the mining & refining directly at scale, unless costs improve.— Elon Musk (@elonmusk) April 8, 2022
There is no shortage of the element itself, as lithium is almost everywhere on Earth, but pace of extraction/refinement is slow.
Several analysts recently shared their takes on the rising cost of commodities and the impact on the electric vehicle industry.
Morgan Stanley analyst Adam Jonas said there might be little relief for companies that need lithium for vehicles.
“Lower margins and/or demand destruction may be on the horizon,” Jonas said.
Why It’s Important: The note from Jonas highlighted that many battery manufacturers buy lithium at spot prices and don’t lock in costs with long-term contracts. As a result, batteries might cost 25% more to make.
Jonas singled out Tesla as being a company that could hold up better than others due to its scale and vertical integration.
AMC Entertainment Holdings AMC recently made headlines for acquiring a stake in Hycroft Mining Holding Co HYMC, a gold and silver mining company.
While AMC’s investment was more about exploring a new sector, Tesla could take a similar approach and invest in or acquire lithium mining companies to help its supply chain.
Tesla signed a contract for lithium with Ganfeng Lithium, the largest lithium company in the world, that will last for a three-year period dating to the end of 2024.
Tesla also signed a deal with Liontown Resources, a leading Australian miner, to provide lithium to the electric vehicle company.
Back in 2020 at its Battery Day, Musk announced the company acquired the rights to a 10,000-acre lithium clay deposit in Nevada. The company has been relatively quiet on its plans for the area, but some have pointed to it taking years to be built out.
Given the increased prices of lithium, Musk’s comments and the increased competition for lithium for their electric vehicles, Tesla could be serious about making acquisitions in the lithium space to help with its own supply chain.
Stocks to Watch: There are a handful of publicly traded lithium companies that could turn out to be acquisition targets by Tesla and other automotive companies to help with the supply chain.
Here are some of the largest publicly traded lithium related companies:
Livent Corp LTHM
Pilbara Minerals PILBF
Albemarle Corp ALB
Sociedad Quimica Y Minera De Chile SA SQM
Ganfeng Lithium Co Ltd GNENF
Piedmont Lithium PLL
Lithium Americas Corp LAC
Investors looking for a pure play option for exposure to lithium stocks can also consider the Global X Lithium & Battery Tech ETF LIT.
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