Evercore ISI analyst Stephen Richardson explained by shares of lithium makers aren’t doing better even though the metal’s essential to batteries of electric vehicles.
ALB0925
Lithium is supposed to be a hot commodity and a smart way to play the rising demand for electric vehicles around the globe. So why are the stocks performing so terribly?
The performance has some on Wall Street flummoxed. “What’s up with lithium stocks?” asked Evercore ISI analyst Stephen Richardson in a Sunday report.
It’s a good question. Shares of lithium miner Albemarle (ticker: ALB) set a 52-week intraday low last week, and Monday, they’re even lower.
Livent
(LTHM) shares ended Thursday with a 52-week closing low.. Those two stocks are down about 36% and 41% over the past year, respectively, while the
S&P 500
and
Nasdaq Composite
have gained about 18% and 22%, respectively, over the same span.
Lithium
is a key component in the batteries that power Teslas and all other electric cars. EVs can’t be the reason for Albemarle’s struggles, though. EV sales are trending up about 33% year over year in the U.S., Europe, and China combined, according to data from car registration data trackers and Citigroup.
The easiest reason to cite for lithium stock weakness is falling commodity prices. Benchmark lithium prices are down roughly 67% year over year, and near a 52-week low of about $24,000 a ton.
But why are lithium prices down if EV demand is so strong? More commodity supply could be doing it. Richardson is skeptical though. “It is hard to believe incremental supply is coming at what is likely closer to marginal cost today,” wrote the analyst.
Inventories look like the better reason. “For much of first-half 2023 [inventory] destocking was the theme,” wrote Richardson. Destocking leads, eventually, to restocking, which means more buying by battery makers and EV companies. That just hasn’t happened yet.
China makes the most EVs, and the most EV batteries. Buyers might be waiting. “No one is bullish anything to do with China,” added Richardson.
There is a potential light at the end of the tunnel. “History suggests [battery] cathode and cell makers will wait to restock based on expectations for future prices,” wrote the analyst. “This could suggest continued slack until the annual buying pattern improves closer to year-end 2023.”
In other words, buyers don’t buy until falling prices seem ready to move up. After all, why buy today if prices will be lower tomorrow? Prices could start to rise in just a few weeks when companies start ordering material for 2024.
Richardson is an Albemarle bull, rating shares at Buy with a $280 price target. Albemarle stock is down 1% to $166.49 in Monday trading, while the S&P 500 and Nasdaq Composite are both down about 0.3%.
Overall, 81% of analysts covering Albemarle stock rate shares Buy. The average analyst Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target is about $263 a share.
Richardson rates Livent shares at Buy with a $38 price target. Overall, 79% of analysts covering Livent rate shares Buy with an average price target of about $32 a share. Livent stock is down 0.5% in Monday morning trading to $17.61.
Write to Al Root at [email protected]
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