What happened
Lithium mining stocks exploded higher in Monday trading. As of noon EDT, shares of Lithium Americas (LAC) are up 9.9%, Livent (LTHM) stock has gained 13.5%, and Piedmont Lithium (PLL) is doing best of all -- up a staggering 19.3%.
But there's only a really good reason for one of these stocks to be rising, and it's not Piedmont.
Image source: Getty Images.
So what
Over the weekend, Barron's ran an article discussing the rising demand for lithium to manufacture electric car batteries. The publication used last week's supply deal between Tesla (TSLA -2.71%) and Piedmont Lithium as its kickoff point, explaining that a lack of lithium is the "only one thing standing between Tesla and world domination."
You might think this would logically lead to Barron's endorsing Piedmont Lithium stock, seeing as it is the company that just signed the deal with the electric vehicle (EV) maker. But Piedmont had already gained plenty already -- shooting up 236% on the day of the pact's announcement. Instead of chasing that stock higher, Barron's turned its attention to other miners such as Albemarle, Sociedad Química y Minera de Chile and Livent, encouraging investors to look into these more established lithium suppliers instead.
Of these three stocks, by the way, Barron's concluded that "Livent looks like the best bet" -- and certainly not Lithium Americas or Piedmont, neither of which is yet producing lithium at commercial scale.
Now what
Barron's noted that global lithium production yields "roughly 400,000 tons of lithium a year" right now, theoretically "enough to power 2 million to 3 million electric vehicles" (but in fact, only a third of this production is available for EVs, because laptops, cellphones, and other rechargeable devices need lithium, too). In order to reach Elon Musk's goal of producing 30 million Teslas by the end of this decade, warns the magazine, lithium production "will have to increase perhaps as much as tenfold."
Pricing remains a risk. The publication notes that, after peaking around $25,000 a ton in 2018, lithium prices have fallen to around $7,000 a ton over the past year. But even at that rate, so much demand creates an opportunity for new players -- so once they're up and running, start-ups Piedmont and Lithium Americas could still become players in this industry. In the meantime, however, Barron's urges investors to focus their research on businesses that are already operational and profitable.
I think that's sound advice -- for lithium stocks, and for any stocks at all.
