The unique physical and chemical properties of lithium make it useful in a diverse range of applications. It's resistant to high and low temperatures, which makes it a common component in industrial greases and lubricants. Lithium is lightweight, which makes it valuable in high-strength metal alloys, such as those used in fuel tanks for SpaceX rockets. And of course, lithium has a high electrochemical potential and small ionic radius, which makes it uniquely suited for shuttling charges from one electrode to the other inside of a battery.

While the global markets for lithium-ion batteries and energy are still in their infancy, many analysts expect a surge in demand this decade. There's some disagreement on the details, but almost everyone agrees impressive growth is in store.

Albemarle (NYSE:ALB), the world's largest lithium producer, expects the largest end market for lithium metals to be electric vehicles (EV). And it won't even be close. In fact, the company projects the EV market alone will see a 599% increase in lithium demand from 2019 to 2025. Here's what that means for investors.

A person charging an electric car.

Image source: Getty Images.

Batteries are quickly taking over the lithium market

The end markets for lithium have changed dramatically in a relatively short period of time. According to the U.S. Geological Survey (USGS), nearly 29% of the world's lithium consumption went to ceramic and glass applications as recently as 2011, compared to 27% for battery applications the same year. The remaining share went to various specialty applications.

Contrast that with 2019, when an estimated 65% of lithium production was consumed by battery applications, compared to only 18% by ceramic and glass products. The discrepancy between end markets will widen further in the 2020s.

Albemarle projects total lithium consumption will grow from 285,000 metric tons of lithium carbonate equivalent (LCE) in 2019 to 960,000 metric tons of LCE in 2025. Eighty-two percent of the total lithium volume growth is expected to be driven by EVs. The trend is already well under way.

Total annual demand for lithium in electric vehicle applications grew from 59,000 metric tons of LCE in 2018 to 93,000 metric tons of LCE in 2019 as automakers moved to secure supplies. The end market is expected to expand another 599% to 650,000 metric tons of LCE per year by 2025. The total volume growth will be nearly five times the growth from all other end markets combined.

End Market

Estimated 2019 Demand (LCE)

Estimated 2025 Demand (LCE)

Volume Change (LCE), 2019 vs. 2025

% Change, 2019 vs. 2025

Electric vehicles

93,000 metric tons

650,000 metric tons

557,000 metric tons

599%

Grid storage

9,000 metric tons

60,000 metric tons

51,000 metric tons

567%

Consumer electronics

38,000 metric tons

70,000 metric tons

32,000 metric tons

84%

All other / industrial

119,000 metric tons

140,000 metric tons

21,000 metric tons

17%

Other mobility

26,000 metric tons

40,000 metric tons

14,000 metric tons

54%

Source: Albemarle.

Energy storage products for power grid applications are projected to be the next-fastest growing end market for lithium, but nothing will come close to EV markets in total volume growth (557,000 metric tons of LCE) or total annual demand (650,000 metric tons of LCE) by the middle of the decade.

Given the new realities facing global citizens and individual investors, it's fair to wonder how the novel+ coronavirus pandemic and the resulting economic fallout will affect these projections. To be blunt, we're still in the maelstrom, which makes it impossible to make accurate predictions.

Perhaps these projections are simply stretched out over a longer timeline. Perhaps the projected growth of the EV market vaporizes in the ensuing economic carnage. Perhaps urban citizens come to enjoy the lack of air pollution in cities and run to buy EVs en masse. 

Investors should probably expect the projections presented above to be overestimates, but by how much cannot be known. Those with a long-term mindset might still see a great opportunity in lithium stocks, although there are important differences to consider.

A brine deposit of lithium.

Image source: Getty Images.

Not all lithium is created equal

There are two main lithium compounds: lithium carbonate and lithium hydroxide. Each is listed as a separate commodity on markets and has its own selling price. While production, demand, and supply contracts are normalized to lithium carbonate -- expressed on an LCE basis  -- the world is increasingly turning to lithium hydroxide due to its ease-of-processing for battery applications. That creates some considerations for investors.

The mineral brines of South America are better for producing lithium carbonate. Although the material can be converted to lithium hydroxide, brine projects are more difficult to bring into production and have long production profiles once operating (they rely on solar evaporation ponds). Additionally, South America suffers from constrained terrestrial transportation options for moving product from mine to port, and even then the continent's geographic isolation makes 6,000 mile-plus trips to major consumption markets the short route. 

By contrast, the rock deposits of Australia are much better for producing lithium hydroxide. Such projects are also easier to plan and bring into production than the brines of South America, while Australia is a stone's throw away from the high-volume Asian markets. Therefore, investors interested in the EV angle for lithium stocks might want to pay closer attention to the companies bringing new rock deposits online, especially those with a presence in the land down under.

Albemarle boasted total annual production capacity of roughly 85,000 metric tons of LCE in 2019. Roughly 45,000 metric tons of that was lithium carbonate in South America, with the balance being lithium hydroxide. After a 40,000 metric ton lithium carbonate expansion wraps up in 2021, the business plans on focusing solely on lithium hydroxide for the foreseeable future -- mostly in Australia. 

In the next few years the producer could be spitting out 140,000 metric tons of lithium hydroxide on an LCE basis. That would represent roughly 25% of global production of lithium hydroxide in 2025. Ambitious plans haven't helped the dividend stock much in recent years, but Wall Street might come around if the business continues delivering on its promises.

Sociedad Quimica y Minera (NYSE:SQM), the world's second-largest lithium producer, hails from Chile and owns some of the best lithium resources in South America. But it also owns half of a joint venture controlling the Mt. Holland lithium project in Western Australia. Currently expected to come online in 2021, the asset is expected to have a total annual production capacity of 120,000 metric tons of LCE, with plenty more resource for future expansions. The JV will focus on maximizing lithium hydroxide production.

Other companies are ramping up lithium projects in Australia, although most major players are outside of the reach of individual investors for now. There are still a handful of second-tier producers to consider, though. They're highly dependent on brine projects in South America, which may not have all the benefits of rock deposits of Australia, but meeting the planet's near-term lithium demand will require all hands on deck. In difficult times, however, they'll be the first to feel the pinch.

Livent Corporation (NYSE:LTHM) operates exclusively in the lithium brines of Argentina. It produced 20,000 metric tons of LCE in 2019, comprising 17,000 metric tons of lithium carbonate with the balance dedicated to lithium chloride. The company converts the majority of production to lithium hydroxide, which generated 55% of total revenue in 2019. Similar to Albemarle, Livent Corporation's near-term expansion plans skew heavily toward lithium hydroxide.

Will lithium stocks catch a ride from electric vehicles?

Lithium stocks were all the rage a few short years ago. Then investors were reminded that lithium carbonate and lithium hydroxide are both commodities, and commodity markets are prone to imbalances. The plunge in selling prices that began in 2018 marked the first real downturn for the lithium market since the little white metal became one of the planet's major commodities. 

Albemarle, SQM, and Livent Corporation have done their parts to delay expansion plans and bring the markets closer to balance, although such stewardship is likely to be overshadowed by the economic consequences of the coronavirus pandemic. While it's too soon to know what it all means for lithium markets, the long-term potential of EVs and lithium remains bright. Investors with a long-term mindset might want to keep an eye on the industry leaders, especially those with rock deposit assets in Australia, during the current market crash.