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Why Lithium Americas Stock Bounced Back Today

By Rich Smith – Aug 18, 2021 at 1:20PM

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But Canada sounds an inflation alarm for investors.

What happened

After tumbling on Tuesday, shares of Canadian lithium mining company Lithium Americas (LAC -3.12%) bounced right back Wednesday, achieving an 11.3% gain as of 12:40 p.m. EDT today.

Yesterday, I noted that Lithium Americas' decline seemed tied to notes from Bank of America warning of the potential for lithium prices to plateau. Today, the stock is moving the other way, and investors may have Tesla (TSLA -4.48%) to thank for it.

Lithium spodumene rock

A piece of rock containing lithium Image source: Getty Images.

So what

As electric vehicle (EV) news site Electrek reports today, Tesla has just confirmed that it plans to soon open its Supercharger network of charging stations to other manufacturers' EVs. The move is good news for Tesla, which should be able to boost the revenue from its charging network, at the same time as it earns some good will from the Biden administration, which has been backing moves to expand charging availability in the U.S.

It's good news for rival manufacturers, too. They should be able to sell EVs more easily to customers knowing there's a network of 26,900 Superchargers now available to charge them at.

And the news should be good for companies like Lithium Americas, which want to sell the lithium to those manufacturers for use in their car batteries.  

Now what

All that being said, there is one small cloud on the horizon for investors. In a report yesterday, Reuters highlighted the risk posed by rising inflation in Canada to Canadian stocks such as Lithium Americas.  

Inflation tends to devalue profits set for the future faster than it affects profits already being earned. Lithium Americas isn't expected to turn profitable for at least another couple of years (2023 at the earliest) nor even begin generating revenue before 2022. And for this reason, it's possible that investors in Canada will punish the stock if inflation keeps trending upward.

How big a problem might inflation be for Lithium Americas? According to the latest inflation data out of Statistics Canada, the consumer price index rose 3.7% in July. That may not sound like a lot, but according to The Globe and Mail, a Canadian newspaper, this was "the fastest pace in a decade." It doesn't seem to be hurting Lithium Americas stock much on a day like today, but it's still a data point worth watching.  

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 owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

Stocks Mentioned

Lithium Americas Corp. Stock Quote
Lithium Americas Corp.
LAC
$24.52 (-3.12%) $0.79
Tesla Stock Quote
Tesla
TSLA
$186.12 (-4.48%) $-8.74

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

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