Is Now the Right Time to Buy Lithium Stocks?

Lithium stocks like Lithium Americas (TSX:LAC) should be on your radar.

| More on:
Question marks in a pile

Image source: Getty Images

Timing is critical. You may have spotted a major trend in the market, but if you’re too early or too late to invest in it your portfolio could underperform. Many investors spotted a trend in lithium mining stocks a few years ago, when the sales of electric vehicles (EVs) was ramping up. Now, lithium trades at a record high, while lithium stocks have collectively outperformed the stock market.

Some believe the trend could continue for decades, while others believe the prices are overblown and due for a correction. If you’re looking to bet on this trend, here’s what you need to know. 

Energy transition

What we know for sure is that the transition to cleaner energy is gathering steam. In recent years, governments have raised their targets for net-zero emissions. That means several major countries have implemented incentive schemes for electric vehicles and grid-scale battery storage. 

The ongoing energy crisis and conflict in Ukraine has intensified this shift. Two million EVs were sold across the world in the first quarter of 2022 — 75% higher than the previous year, according to the International Energy Agency (IEA). The agency expects EV sales to hit a “record high” by the end of the year. Meanwhile, the IEA expects grid-scale battery storage capacity is expected to expand 44-fold between 2021 and 2030. 

Both these transitions require lithium — a key component of electric batteries. Unfortunately, there’s a supply shortage of this critical material. 

Lithium shortage

Battery demand has outpaced lithium production. By 2025, the world will need 1.4 million tonnes of lithium to meet forecasted demand for EVs and grid-scale batteries. Supply, meanwhile, will only be 1.8 million tonnes that year. By 2030, demand will hit 4.6 million while supply will approach just 3.5 million. 

Put simply, we don’t have enough lithium to meet the world’s energy goals. Experts believe the value of lithium could skyrocket due to this persistent supply crunch. However, that doesn’t necessarily mean it’s a good time to buy lithium stocks. 

Time to buy?

Lithium mining is likely to be a lucrative endevour for the next decade. However, that doesn’t mean lithium mining stocks are attractive right now. Lithium Americas (TSX:LAC) is worth $3.6 billion right now. However, the company hasn’t produced revenue yet.

So far, the company has raised funding through a combination of equity and debt to finance production facilities in Argentina and the United States. However, there’s no way to predict what the price of lithium will be and how rapidly the company can ramp up production by next year, which is why the current valuation is purely speculative. 

Investors looking to make a bet on Canadian lithium stocks may want to wait for more clarity on production and revenues. Or you could bet on well-established lithium mining stocks across the border in America.  

Either way, this is a trend that should be on your radar for the foreseeable future. 

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 Vishesh Raisinghani has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Metals and Mining Stocks

young woman celebrating a victory while working with mobile phone in the office
Metals and Mining Stocks

Beat the TSX With This Unstoppable Dividend Stock

This dividend stock continues to outpace the TSX and then some, providing you with a dividend that you'll want to…

Read more »

A worker drinks out of a mug in an office.
Metals and Mining Stocks

5 Things to Know About Nutrien Stock in December 2022

Trading at heavily depressed multiples, Nutrien stock is a great opportunity, as it delivers solid financial results and an optimistic…

Read more »

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Wednesday, November 30

The TSX is set to end the second consecutive month in positive territory today, as it has already climbed by…

Read more »

Gold bars
Metals and Mining Stocks

Better Buy: Newmont or Barrick Gold Stock?

If you think better days are ahead for gold miners, consider exploring gold stocks Newmont and Barrick Gold.

Read more »

Target. Stand out from the crowd
Metals and Mining Stocks

1 Volatile Stock I’d Buy Again and Again

Nutrien (TSX:NTR) stock is a valuable stock I'll buy over and over due to its huge deal combined with record-setting…

Read more »

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Friday, November 25

TSX stocks could remain range bound, as the U.S. markets are set to close early today.

Read more »

stock market
Metals and Mining Stocks

Should You Invest in TSX Mining Stocks Right Now?

A key TSX mining index has gained 16% so far this quarter. Newmont stock (TSX:NGT) could be a rewarding bet…

Read more »

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Wednesday, November 23

Investors may want to limit their risk exposure ahead of the U.S. Thanksgiving holiday.

Read more »