A bad earnings report from General Motors (NYSE:GM) brought good news for Livent (NASDAQ:LTHM) stock in the form of a supply deal for its lithium hydroxide.
The agreement sent LTHM stock up about 7% in pre-market trading. But the stock’s price was already elevated. The company had sales of $420 million last year, on which it made just $600,000. Livent’s market capitalization on July 26 was $4.12 billion.
Inside the Supply Deal
Lithium hydroxide is needed to make lithium ion batteries. These batteries are essential for electric cars. Livent has manufacturing facilities in China, India, Great Britain, and South America. The company also has a facility in Bessemer City, NC, 40 miles east of Charlotte. The Bessemer plant is described as its largest and is presently being expanded.
Livent introduced a lithium battery product called Liovix, last year. It says Liovix can be printed directly onto a battery’s anode.
The announcement of Liovix helped the stock rise into the low-$30s last November. It went there again in May after Livent reported a strong first quarter. Until the GM contract, however, the stock had been falling steadily to a low of $20.30.
Livent is currently producing Liovix in South America. The deal contemplates expanding production in the U.S. starting in 2025, supplying all the GM contract here by 2031.
Big Deal for GM and LTHM Stock
Securing key supplies is a huge deal for electric car companies like GM, which currently can’t supply the market’s demand. Supply chain control, as well as integrated manufacturing, helped Tesla (NASDAQ:TSLA) gain control of the market. Tesla currently sports a market cap nearly 17 times that of GM.
Livent’s lithium will be part of GM’s Ultium platform, on which all its future electric cars will be based. Combined with a deal signed with Korea’s LG Chem, GM says it will have capacity to make 1 million electric cars by the end of 2025.
What Happens Next?
Investors remain skeptical about GM, which must wean itself off gasoline engines as it ramps up electric production. The 1 million EV capacity is still three years away, and GM is presently making over 2 million cars a year.
LTHM also must deliver on the contract’s promises to justify its current stock price. A market cap 10 times higher than sales sounds very 2021.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
