I wrote this piece on 7 April, and have made significant efforts following developments in EV/Lithium which you can find in my EV/Lithium thread under ASX-General.
FWIW these are issues that lithium forums would avoid to express and discuss.
.and Here's why I am not bullish or mildly bearish about lithium stocks prospects over the next 12 months or more
1. INDUSTRY ACTION. Watch the actions of lithium producers, not what they say. ALB the lithium industry leader has cut production plans, layoff workers, raised a billion dollars, all suggesting to expect a lithium industry consolidation mired by lower than production cost lithium pricing not to be transitory but to be more protracted. No large company would go to such extent if they expect lithium price to recover significantly after just a few months. And we have seen the same cutbacks across lithium companies in Australia, sharing the same sentiment.
2. EV GROWTH STALLING. When I mean stalling, I am not saying there is no growth, but high >50% growth has now dwindled to lower double digit growth. And the EV growth scene is different in China compared to US/EU. We've recently seen Tesla suffering a 8% decline in deliveries. EV growth in China comes on the back of price slashing which prompted price sensitive consumers to flock towards EV. And Chinese EV makers can only sustain such lower prices only because there is battery oversupply in China and critical minerals like lithium have fallen significantly. If battery costs move higher due to higher lithium prices ahead, it would make it more difficult for Chinese EV makers to sustain low prices and therefore demand growth could be equally compromised. No company would want to slash prices unless the industry is in such a dire state, so China's EV growth is nothing to celebrate for lithium's prospect because it is driven largely via competitive price cutting and on the back of low battery costs, which represent 30% of the EV cost.
3. NEW GLOBAL SUPPLIES. New global supplies are coming onstream from various parts of the world to challenge Australia's current dominance. Over the next few years, new supplies are coming out of Canada, US, Zimbabwe (China), Chile (US/China), Bolivia (China), EU. Original projections re: demand and supply would need to be re-assessed because original demand projections could be overstated and original supply understated. It is more likely there would be a surplus within the next 12 months at least but the surplus could actually widen if EV growth is stymied. Exxon has also stated that its planned 2027 lithium production could go ahead.
4. GEOPOLITICS has entered the EV space, not just semiconductors. Biden has indicated a China threat from EVs registering personal data that could be compromised while Trump has vowed to slap a 100% tariff on China EVs coming in from Mexico. Bottom line- US is scared shitless about the Chinese EV invasion into US soil, which Elon himself acknowledged could wipe out the US car industry. EU is also on the watch and would do everything to ensure that its all important auto industry is not jeopardised. All that could only mean that China's EV growth could be confined to largely in China and parts of Asia and we know China EVs account for the larger portion of the EV pie. Secondly, a Trump presidency could see parts of the Inflation Reduction Act (IRA) to be unravelled, including possible removal or dilution of EV subsidies. We have already seen EV subsidies been reduced in China (which led to price cutting) and in the EU (which led to an erosion in take-up).
5. HYBRIDS have taken the US market by storm, as Americans have become somewhat wary about being early in adoption of EV. Ford and GM have scaled back and deferred their EV all-in plans and are progressing towards hybrids. These moves only serve to reduce the potential for EV penetration rates to go higher as originally projected as Tesla would continue to focus on higher end EV market.
6. EVOLVING BATTERY TECHNOLOGY. China is moving at such a fast pace in its technological innovation in the EV and battery space that they're more likely to develop an EV battery that will deliver greater range and reliability at lower cost in a shorter time than everyone would expect. This may not be just sodium-ion batteries but newer ones that could limit the use of expensive lithium material. While this can just be conjectures, but we know that China can truly deliver battery innovation very quickly. China's interest is in producing unrivalled quality EVs at low cost, its interest is not in ensuring critical minerals like lithium prices go higher or stay higher; on the contrary, their interests would be best served by lower longer term lithium prices, and if they can't stay low enough, they would be more likely to accelerate lithium substitutes in EV battery technology. So given this, it is very unlikely for lithium prices to ever return to previous levels seen in the past 3 years.
7. EV GROWTH MAY NOT BE SYNONYMOUS WITH LITHIUM DEMAND & PRICING GROWTH
It is my belief that lithium demand and lithium pricing growth would not keep pace with global EV growth over time. Because less of it would be used per EV and lithium pricing could be capped to enable to the EV industry to achieve higher penetration rates - while Govts could increase the carbon costs for ICE vehicles to make them on par with EVs to promote EV sales, that won't be enough unless EV production costs can be reduced over time. And EV production costs can be reduced enough if it continues to rely on heavy lithium usage at high lithium pricing.
8. AUSTRALIA HAS NO VERTICAL INTEGRATION
Australian lithium has a major disadvantage because it has no vertical integrated industry. China's EV can be produced cheaply because it has access to its own lithium, lithium processing, EV battery production. US can rely on lithium produced in US in a year or two, the EU likewise, so Australia would have to export their lithium with no domestic customers. Add the higher cost of Australian production and the tyranny of distance to export markets, our lithium producers would end up being price takers, not price makers and have to contend with lower margins.
9. PROSPECT OF GLOBAL RECESSION.
If and when we have a recession, consumers would be hamstrung to buy basic necessities let alone expensive EVs or a change of vehicles. It would be more likely consumers would resort to buying 2nd hand EVs which are selling at steep discounts to their original prices. So, if and when we have a recession, that would put paid to EV growth, including in China
