What happened

Shares of lithium miner Lithium Americas (NYSE:LAC) took off in trading Tuesday and are up 9.9% as of 2:55 p.m. EST. And would you like to know why?

Maybe ask Tesla (NASDAQ:TSLA).

A battery pack reads Li-Ion Electric Vehicle Battery.

Image source: Getty Images.

So what

Yesterday, as our sister outfit The Motley Fool Australia reported, Chinese lithium miner Yahua International Investment and Development signed a five-year deal to supply lithium to Tesla. Yahua, by the way, has a deal in place to buy as much as 75,000 tons of lithium spodumene concentrate per year from Australian miner Core Lithium.

Now what

Now, given Core Lithium's indirect relationship to Yahua's supply deal with Tesla, it makes a lot of sense that Core Lithium stock would rise 45% yesterday. But what about Lithium Americas?

Lithium Americas does not have a supply agreement in place with Tesla, that we know of. But even so, with lithium prices rising globally, Tesla selling record numbers of electric cars (just under 500,000 cars delivered in 2020), and China moving to lock up supply, while it may not necessarily follow that this is the reason Lithium Americas stock is rising today -- it does make sense.

It makes sense because, while Lithium Americas may not be producing lithium at scale today, all the trends appear to be pointing toward rising demand for lithium, perhaps constrained supply, and therefore higher prices for lithium once Lithium Americas does begin producing. Investors now just need to hope that that demand is still there when Lithium Americas finally gets around to producing its own lithium.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.