Livent (LTHM) joined the Growth Portfolio in TCI’s October issue. Since then, the stock has had some sharp swings. But this lithium pureplay’s long-term story remains fully intact, emphasizes Kuen Chan, editor of The Complete Investor.
In 2022’s fourth quarter, LTHM shares dropped 35%, with particular pain in the year’s final month and a half. But so far in 2023, the stock has regained some ground, recently up 23% since the start of the year.
As a lithium pureplay, Livent is very sensitive to lithium price movements. Given that lithium prices began falling in mid-November and continued dropping through the end of 2022, the hit to Livent isn’t surprising. Also hurting Livent was negative sentiment towards a major customer, Tesla (TSLA).
This year, though, TSLA has staged a massive rally, fueled by expectations that Tesla’s U.S. price cut will increase market share; more positive recent EV trends in China; and Musk’s tease of a “Master Plan 3.” Short covering no doubt also contributed.
The outlook for renewable energies and EVs, which both require energy storage – the key growth driver for lithium demand – remains robust with decades of growth ahead. We have often discussed how the global transition to low-carbon energy faces the hurdle of scarcity, the question being whether there will be sufficient supply of critical materials at affordable prices to achieve ambitious goals. Livent, clearly, will play a central role in supporting this massive transition.
As one of the world’s few fully integrated lithium companies, handling everything from extraction to finished product, Livent gains some insulation from overall inflation and, more important, can produce lithium products at low cost.
Take lithium hydroxide, for example. Lithium hydroxide increasingly is becoming the lithium compound of choice for EV makers, used in higher-performance EV batteries and storage applications (more capacity, longer-lasting, and safer). According to Wood McKenzie, annualized demand growth for lithium hydroxide will be 46% between 2020 and 2025, and then settle at 15% between 2025 and 2030. The compound is expected to be the fastest-growing product in the lithium market.
Because it takes an additional chemical process to produce lithium hydroxide from lithium carbonate, it is currently in shorter supply and more expensive. Livent has an edge because it uses internally sourced lithium carbonate. Lithium hydroxide represents about half of the company’s revenue, a share that should increase over time.
Worth noting, too, is a geopolitical aspect: China produces about 80% of lithium hydroxide used in EVs, making Livent important to U.S. plans to become more self-reliant in critical minerals.
Recommended Action: Buy LTHM