Auto sales have experienced a marked year-over-year decline in Canada and the United States in 2018. In Canada this has been a more recent phenomenon and not quite as pronounced given the consecutive record years posted by the industry. Weak numbers have been a drag on earnings for automobile dealerships and the threat of potential auto tariffs imposed by the United States is an ever-present source of anxiety for investors.
The lone bright spot has been the performance of electric vehicles in the Canadian market. According to FleetCarma, a clean-tech information and technology company, electric vehicle sales were up 214% year on year after the second quarter. The company reported that 14,626 EVs were sold in Canada in the second quarter compared to 11,060 for the entirety of 2016. There were only 4,659 reported EV sales in the second quarter of 2017.
Sales of EVs made up 7.8% of Canadian passenger car sales in the second quarter compared to 2.2% in the prior year. As we approach the end of this decade, the considerable momentum that could bring EVs above 10% of the total market by next year.
This should inspire investors to take yet another look at lithium producers. Back in July I’d discussed how demand for EVs was also pushing up demand for lithium. According to the market consultancy firm Roskill, lithium battery demand is expected to increase by 650% or more over the next decade. Lithium prices are also forecast to peak this year and dip into 2019 before the market stabilizes and begins climbing again in the beginning of the next decade.
This means that there is ample opportunity for investors to pick up cheap options in this market. Let’s review two top examples today.
Nemaska Lithium (TSX:NMX)
Nemaska Lithium has plunged 67.2% in 2018 as of close on September 4. Shares are down 39% year over year. On August 20, Nemaska finalized a five-year supply agreement with Northvolt AB. Nemaska is a cheap speculative buy in the exploration stage of its lithium mining business. Considering the present weakness in lithium prices, the stock could be a terrific long-term hold heading into the next decade.
Lithium Americas stock is down 48% in 2018 so far. The Vancouver-based company boasts two lithium projects in Argentina and Nevada. Shares are down 9.9% year over year.
The company released its second-quarter results last month. It reiterated that Stage 1 production was expected to commence by 2020 at its Cauchari-Olaroz location. On August 2, Lithium Americas filed the Preliminary Feasability Study (PFS) for its Thacker Pass lithium project. It is currently considering partnerships and financing to advance the project.
Overall, Lithium Americas reported a net loss of $6.6 million compared to $9.7 million in the previous year. Both stocks represent attractive buy-low opportunities for investors looking to dip into an industry that is poised for a second wind in 2020-2021. Meanwhile, EV sales in Canada and internationally will continue to surge.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.