Top investment bank Goldman Sachs believes that the bull market for lithium is over. The bank sees prices on a downward trajectory for the next couple of years, with a substantial correction from today’s levels.
Moreover, it is of the view that today’s lithium prices are a “fundamental mispricing [that] has, in turn, generated an outsized supply response well ahead of the demand trend in focus.” Consequently, the report led to a selloff in lithium stocks with massive losses across the board.
It is imperative to understand that the macro-economic elements weakening the outlook on stocks will subside at some point. However, with lower demand, the demand for materials needed, including lithium, is dropping at an incredible pace. Therefore, here are seven lithium stocks you should probably avoid now.
|CBAT||CBAK Energy Technology||$1.03|
|SQM||Sociedad Quimica y Minera de Chile||$87.57|
Piedmont Lithium (PLL)
Piedmont Lithium (NASDAQ:PLL) aims to become an integrated lithium producer but might wind up being nothing more of a lithium processor.
Its primary project is located in Gaston County, North Carolina, where it expects to produce roughly 30,000 metric tons of lithium hydroxide from more than 200,000 tons of spodumene each year. However, Piedmont’s regulatory troubles have gotten it in hot water, which cast a shadow of uncertainty on its future.
The company doesn’t have permits for its project from either the state or the local government. Moreover, it faces strong opposition from the Gaston County Board, which is responsible for granting permission to develop the mine. Despite everything hanging in the balance, PLL stock trades at a lofty valuation.
CBAK Energy Technology (CBAT)
CBAK Energy Technology (NASDAQ:CBAT) is an EV lithium-ion battery producer in Mainland China. The market is remarkably competitive, full of smaller competitors that continue gobbling up CBAK’s market share.
Moreover, the company’s clientele market share is limited to a few customers, which account for over 50% of its sales. Hence, losing one customer will result in a huge blow to its fundamentals. Additionally, our stock has fallen out of favor with its investors, having shed over 70% of its value in the past 12 months.
Recently, CBAK announced its acquisition of a troubled battery materials supplier in Hitrans Lithium Battery Technology. CBAK claims that Hirans generated roughly four times its revenues during the first nine months of last year.
However, filings have shown that the acquired company’s financials are extremely weak, with large cash deficits. Hence, with plenty of uncertainties surrounding its business, CBAK stock remains a highly risky bet in its sector.
Lithium Stocks: Standard Lithium (SLI)
Standard Lithium (NYSEAMERICAN:SLI) develops extraction technologies that can effectively utilize bromine extraction infrastructure to produce battery-ready lithium salts.
Though it’s still early days in the development of its plant, there is significant potential for creating a massive lithium source down the line.
Strong evidence supports the need for Lithium due to the proliferation of EVs and battery storage. Therefore, the risk lies in its execution abilities and production process. SLI expects a whopping $1 billion in capital expenditures based on $4 billion in project returns.
Feasibility information is lacking, which has led to massive uncertainty surrounding the stock. Moreover, it only has $100 million in cash at this time, which points to future dilution and debt increases.
American Lithium (LIACF)
American Lithium (OTCMKTS:LIACF) focuses on developing leading lithium projects in the Americas. It’s a penny stock that gained incredibly in 2020 from multiple catalysts.
However, the movement in stock price wasn’t related to the company fundamentals. The company is a pre-revenue business that needs constant cash flow injections to stay afloat. Naturally, it could pay off in the long run if it hits big in the coming years. However, the chances of its success seem minimal at this time.
Lithium demand is expected to rise at a staggering pace over the next several years. Analysts at McKinsey report that demand for lithium could rise from an estimated 500,000 metric tons in 2021 to three to four million metric tons by 2030.
Hence, American Lithium and other lithium producers will continue to float up and down regardless of their competencies and quality of fundamentals.
Lithium Stocks: Tesla (TSLA)
Tesla (NASDAQ:TSLA) is an O.G. in the EV sector which has also been the most successful business in the burgeoning niche.
Unlike several EV start-ups that have emerged over the past couple of years, it’s a business that continues to thrive and is delivering real cars to real people. Its fundamentals are impressive from top to bottom, and have kicked into overdrive of late.
With the rising metal prices, Elon Musk recently tweeted about Tesla getting into the lithium mining and refining business. Musk said that though there is no shortage of lithium, the pace of refinement is slow. Moreover, the “Price of lithium has gone to insane levels.” It remains to be seen how successful the business might turn out to be in terms of improving supply and limiting costs.
Nevertheless, TSLA stock’s meteoric price remains a bone of contention, with it trading over 50 times enterprise value to EBITDA.
Albemarle Corporation (ALB)
Albemarle Corporation (NYSE:ALB) is a leading lithium conglomerate business that has been one of the most consistent performers in its niche. Its operations are highly diversified from a geographic standpoint, which gives it the edge over its competition.
Moreover, the variety of locations it operates in gives it a unique advantage in dealing with different governments. The stability of its business is linked to the stability of its mines, which has plenty to do ALB’s relationship with various governments. Nevertheless, it has established itself as a juggernaut in the sector, and it’s in the best position to capitalize on the demand for lithium.
There are, however, plenty of risks to consider with ALB stock. Firstly, it trades at a nosebleed valuation of 4.70 times forward sales estimates. Moreover, it is always at the mercy of governments and institutions, which could significantly hamper its business.
Lithium Stocks: Sociedad Quimica y Minera de Chile (SQM)
Sociedad Quimica y Minera de Chile (NYSE:SQM) is a specialty chemicals company involved in producing and distributing plant nutrients and derivatives. Its nutrients and minerals are in use for various applications, including batteries and lithium derivatives. Moreover, it’s been a top performer in the sector, growing sales and EBITDA by over 100% on a year-over-year basis.
Though there’s plenty to like about SQM, Chilean lithium faces immense political risks. Social Convergence, a left-leaning party, recently won the elections in Chile, and the parliament subsequently voted to repeal the current constitution.
SQM enjoyed a privileged position under the old constitution. The consensus is that the new Chilean government will be looking to nationalize the production of copper and lithium. If that’s the case, then SQM and its stockholders could be in a world of trouble.