What happened

Shares of Canada-based U.S. lithium mining company Standard Lithium (NYSEMKT:SLI) crashed on Tuesday and were down 11% as of 10:05 a.m. EDT. It is the stock's fourth straight decline since approaching a 52-week high early last week.

But it doesn't appear to be Standard Lithium's fault that its stock is down. Instead, you can blame bigger lithium miners Albemarle (NYSE:ALB) and Livent (NYSE:LTHM) and the bank that just blasted them.

Red stock arrow breaking up and showering down in pieces over a city below

Image source: Getty Images.

So what

In a report released Monday, Bank of America (NYSE: BAC) reiterated underperform ratings on two of the biggest names in lithium metal, Albemarle and Livent. The bank said both stocks are benefiting from "significant hype" regarding long-term demand for lithium metal, but according to the analyst, they may not be able to deliver on that hype.  

The bank warns that lithium carbonate prices are starting to plateau as demand fades for batteries to power laptops for the work-from-home market and power tools for unemployed do-it-yourselfers during the height of the pandemic lockdowns. So while lithium supplies look tight as electric car production ramps up, there's a counter-trend at work to keep a lid on demand.

Now what

What's worse, Bank of America says, is that while continued demand growth for lithium gets called into question, miners like Albemarle and Livent (and perhaps soon Standard Lithium as well) are investing heavily to increase lithium supply. Indeed, the bank predicts that 2022 lithium production could be as much as twice what will be produced this year.

Such a rapid increase in lithium supply threatens to overwhelm even rising lithium demand, and depress the stock prices of Albemarle and Livent (and Standard Lithium, too) when it does.

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.