Stock markets finished mixed on the day after Thanksgiving, with the Dow Jones Industrial Average (^DJI 0.66%) gaining ground even as the Nasdaq Composite (^IXIC 1.75%) posted modest losses. The S&P 500 (^GSPC 1.24%) finished the quiet trading day little-changed.


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Data source: Yahoo! Finance.

The trend toward electrification in key areas like automobiles has had a significant influence on several parts of the stock market. One area in particular that has seen a big rise in interest is the lithium industry, as lithium stocks have gotten a lot more popular among investors. Yet on Friday, lithium stocks were among the weakest performers as a group, with several big companies in the space seeing sizable declines. Read on to learn more about what's happening with lithium and whether the prospects for these companies still look good for 2023 and beyond.

Running out of juice

Shares of many of the biggest lithium-producing companies struggled on Friday. Albemarle (ALB 1.31%) lost 5% on the day, matching the decline in the much-smaller Piedmont Lithium (PLL 4.81%). Sociedad Quimica y Minera de Chile (SQM 2.74%) weighed in with a 7% drop, while Lithium Americas (LAC) fell 8% and Livent (LTHM) posted a 10% pullback.

Fundamentally, the prospects for lithium businesses have remained favorable throughout 2022. Huge demand for lithium as a component of batteries for electric vehicles and other purposes has helped keep prices strong, and as of mid-October, lithium hydroxide had jumped almost 150% for the year to approach the $75,000 per metric ton mark.

However, some Wall Street analysts are growing more skeptical about the future prospects for lithium. Goldman Sachs made less optimistic comments earlier this month, arguing that more challenging macroeconomic conditions could spur a slowdown in electric vehicle purchases, which in turn could hurt demand. Meanwhile, as major suppliers like Albemarle have boosted their production capabilities, Goldman anticipates that there could be surplus lithium in the market in 2023, bringing the strong bull market to an end.

Similarly, Credit Suisse analysts commented recently that a major player in the Chinese battery market could cut production targets in the near future, putting further pressures on the supply and demand dynamics of the lithium market in the coming year.

No slowdown yet

Despite those warnings from Wall Street, however, fundamentals remain strong. SQM reported its third-quarter results just a week ago, and its numbers were truly outstanding. Revenue more than quadrupled year over year to $2.96 billion, and earnings soared tenfold to $1.1 billion, or $3.85 per American depositary receipt. The Chilean company announced ongoing increases in lithium prices throughout the period, and it continued to spend significant amounts on research and development to expand its production capacity.

SQM's views on future demand were much different from Goldman's. The company has signed new long-term contracts with customers and is boosting its facilities' footprints in both Chile and China, maintaining a geographical presence in key areas where buyers need lithium compounds.

If Goldman and other naysayers are correct and demand starts to fall off, then the drop in lithium stocks might well prove justified. But with valuations looking fairly attractive, any continued strength in the market for lithium material could bring a quick rebound to Albemarle, SQM, and other players in the space.