Lithium makers hit gold with global push for e-vehicles

Indian e-vehicle market is at a nascent stage and every year only about 2,000 electric vehicles are sold in a market of three million units

Lithium has suddenly become a favourite commodity among global investors, thanks to the rush towards electric vehicles the world over. The price of lithium, a metal used to make lithium-ion batteries, is on a surge (increasing threefold to about $20,000 per tonne since mid-2015). The push for e-vehicles has also doubled stock prices of leading lithium producers in the past year. Analysts are giving ‘Buy’ calls on these stocks.

Global lithium production was 32,500 tonnes in 2016 and is expected to expand to 300,000 tonnes by 2020, as mining companies have shown intent to add 20 lithium manufacturing sites to the existing 16. Earlier, lithium was being used only for mobile and laptop batteries. It is now being used to make batteries for electric vehicles. Currently, these batteries form almost half an electric car’s price.

American company FMC Corporation, a NYSE-listed chemical maker, has seen its share price double to $94.55 over the past year. In August, FMC revised the outlook upwards for its lithium unit. It also raised the projected earnings from $100-120 million to $112-125 million for 2017. The company is benefiting from strategic investments, acquisitions and efforts to expand its market position and portfolio. Upbeat prospects for the lithium unit have also provided a boost to its shares, said Chicago-based Zacks Investment Research in a report earlier this month, advising investors to add FMC to their portfolios. FMC is also expanding its lithium hydroxide capacity, a compound used in lithium-ion batteries.

NYSE-listed lithium exchange-traded fund Global X Lithium and Battery Tech ETF (the only lithium ETF) has delivered a return over 60 per cent this calendar year. The fund invests in the complete lithium cycle, from mining/refining to lithium-ion battery manufacturing. 

FMC has 23.65 per cent weight in this ETF, which also has 18.5 per cent exposure to Chilean company SQM. NYSE-listed SQM has also seen its share price double to $59.30 in the past year. SQM got 29 per cent of its revenue from the lithium segment against 11 per cent for FMC in the first half of 2017.

“Understandably, there is a surge in prices of lithium stocks as the onslaught of electric vehicles is set to fire up demand. While companies have been lining up to extract lithium from regions such as the Lithium Triangle (Argentina, Bolivia and Chile) that have more brine-based deposits and are easier to extract, the rapid increase in demand has made companies look at more difficult/expensive methods to extract deposits in rocks (example in Australia) to make up for the shortfall in supplies due to some restrictions in the Lithium Triangle,” said Ashim Sharma, partner and group head (auto, engineering and logistics) at Nomura Research Institute India.

Morgan Stanley projects production of electric cars at 2.9 per cent of 99 million new cars in 2020 and to 9.4 per cent of 102 million new units in 2025. It is estimated at about one per cent of 86.5 million cars this year.

Japanese automobile major Suzuki (which owns the country’s biggest carmaker, Maruti) is investing Rs 1,151 crore in setting up India’s first lithium-ion battery making unit, in alliance with Toshiba and Denso. Products from the unit would be available from 2020. Suzuki did not answer specific questions related to sourcing of lithium and the quantities this unit would consume every year.

A recent report from Goldman Sachs said investment of up to $32 billion could go into creating battery capacity in India and private players would play an active role. It said the falling price of lithium-ion battery would spur investment.

“Lithium is not available beyond three or four countries in a big way. People are already calling it white gold. What happened with oil several years ago could happen with lithium now,” said Saurabh Kumar, managing director at EESL, the company purchasing 10,000 electric cars from Mahindra & Mahindra and Tata Motors for leasing to government ministries and departments.

The Indian electric vehicle market is at a nascent stage and every year only about 2,000 electric vehicles are sold in a market of three million units. But, the government has  stated its intent to have an all-electric vehicle fleet in the country by 2030, nudging carmakers to start manufacturing these. Two home-grown firms — M&M and Tata Motors — have started making electric cars and a number of start-ups are venturing into electric two-wheelers.