Please ensure Javascript is enabled for purposes of website accessibility

Why Lithium Americas Stock Crashed Today

By Rich Smith – Aug 17, 2021 at 1:52PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Bank of America isn't overly bullish on lithium prices.

What happened

Shares of lithium mining company Lithium Americas (LAC -3.99%) crashed in Tuesday trading and are down 11.5% as of 1:20 p.m. EDT. This was the stock's third straight "down" day since reaching a recent high above $19 late last week.

Who's to blame for Lithium Americas investors' recent run of bad luck, though? You may be surprised to learn that it's actually larger lithium miners Albemarle (ALB -2.46%) and Livent Corporation (LTHM -2.08%) -- and the bank that warned against buying them yesterday.

White arrow declining sharply atop a stock tickertape display bathed in red

Image source: Getty Images.

So what

On Monday, Bank of America reiterated underperform (i.e., sell) ratings on both Albemarle and Livent Corporation, warning that these two -- and perhaps other -- lithium stocks have been the subject of "significant hype" over the potential for prices of lithium metal rising. 

BofA doesn't deny that growing demand for electric cars is driving lithium prices higher. However, it does warn that there's a counter-trend at work, as economies open up and people spend less time quarantined at home typing on lithium-powered laptops or doing home improvements with lithium-charged cordless power tools.

Now what

This counter-trend has the potential to dampen demand for lithium. And at the same time, says BofA, lithium producers such as Albemarle and Livent -- and eventually, Lithium Americas, too -- are ramping production of the metal.

In 2022, the bank predicts that lithium production volume will be double what's produced in 2021 -- and as Economics 101 teaches us, rising supply has the potential to limit price rises, even if absolute lithium demand from electric-car manufacturers does increase. If this proves to be the case in the lithium market, then lithium stocks could well be overpriced already, warns Bank of America.

Today, Lithium Americas investors are heeding that warning.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Lithium Americas Corp. Stock Quote
Lithium Americas Corp.
$23.56 (-3.99%) $0.98
Bank of America Stock Quote
Bank of America
$36.86 (-2.23%) $0.84
Albemarle Stock Quote
$266.11 (-2.46%) $-6.71
Livent Corp. Stock Quote
Livent Corp.
$26.34 (-2.08%) $0.56

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.