What happened
Shares of Lithium Americas (LAC +0.00%), a start-up miner of lithium for use in electric-car batteries, surged 13% through 10:45 a.m. ET on Tuesday after the company announced a huge strategic partnership with General Motors (GM 1.12%).
The miner says GM has agreed to invest $650 million to support development of Lithium Americas' Thacker Pass project in Humboldt County, Nevada. The miner, in turn, has promised to supply GM with lithium extracted from Phase 1 of the project for at least 10 years, and potentially as long as the next 15 years.
NYSE: LAC
Key Data Points
So what
What the miner calls the largest-ever investment by an automaker to produce battery raw materials will give GM access to "the largest known lithium resource in the U.S." It will also make GM the largest shareholder of Lithium Americas stock.
Initially, GM will pay $320 million to acquire 15 million Lithium Americas common shares (10% of the company) plus warrants entitling it to buy more shares at a later date.
After Lithium Americas has separated out its Argentine business, GM will be able to exercise the warrants and invest a further $330 million at a price to be determined, but no more than 30% more per share than the valuation of the first purchase. That means $27.74 per share is the most that GM will have to pay.
Lithium Americas stock currently costs just under $25 after today's run-up -- about midway between what GM is paying for its first tranche of shares, and what it might have to pay for its second.
Landing GM as both an investor and a primary customer has also helped to erase some of the losses Lithium Americas investors have suffered over the past year. The stock is still down about 37% from a March 2022 peak, however.
Now what
What does this deal mean for GM? Once Phase 1 of Thacker Pass is up and running in the second half of 2026, it will have the right of first offer to buy any or all of the 40,000 tons of lithium carbonate that the miner plams to produce annually. Phase 2 of the project will add another 40,000 tons per year to Lithium Americas' capacity, and GM will get first dibs on this production as well.
Thus, the primary benefit of this deal for GM (in addition to the fact that the price it's paying for its first tranche is already lower than what the stock is selling for) is access to lithium needed to make its electric car batteries. Securing access to lithium at favorable rates will be a big advantage to GM as demand for electric cars only seems likely to grow over time.
In addition, while the prices GM will need to pay Lithium Americas will be linked to prevailing market prices, the miner says, they won't necessarily be as high as the market price. Potentially, GM could get its raw materials from Lithium Ameircas at a discount -- giving it even more of an advantage over its rivals.
And by the way, GM stock is up 7.5% today.
