The Lithium Investment Boom: Here’s What You Need to Know

14 min readSep 13, 2022

Tesla, Rivian, Lucid; we all know the companies that get the headlines, but what’s more important lurks beneath the surface

Tesla has made me a lot of money thus far, in fact, I was up 1800% before the Federal Reserve started tightening and raising interest rates. Ev’s are the future and will be huge, but the big money makers in my opinion, other than Tesla, won’t be the car companies themselves.

Car companies make dismal margins traditionally. The only reason I call out an exception to Tesla is their push into other areas, including those I see profitable, in the EV race. Just like Dell and HP don’t make gobs of money off the hardware (which becomes a commodity), the autos will see the same thing happen to their industry. Dealerships eat up profit, unions demand high wages, they rely on long complicated chains of part suppliers, and are outsourcing the elements that do have margin like software, battery, lidar, and materials to many other companies.

Tesla is going the route of Apple with vertical integration and taking it even further. They produce the software, mine and use the data collected, pioneer automated factories, skip the dealership model to sell and service themselves, and are even developing batteries and looking to mine some of the raw materials themselves.

Now this certainly isn’t all about Tesla. This is about the fast approaching wall that all EV makers will crash into at 88 miles per hour if they don’t rapidly figure out a serious game plan. This is a wall of limited resources for the batteries themselves and their critical components. They will all find themselves in a cat fight and this is an industry where you need steady and guaranteed supply. Tesla is one of the few that can thread the needle to come out the other side, and there are companies lining up to make a killing manning the turnstile.

Better ways to invest (the wall):

In this multi-part series, I will cover various aspects of EV manufacturing that I see to be much more lucrative to invest in than the OEMs, or Original Vehicle Manufacturers. I will cover one part in each blog post to give you some interesting and unique investing ideas.

Part 1: The Raw Materials-

This seems the most obvious and starts from the beginning of the supply chain.

Elon Musk has been heard musing that he wants raw materials going in one side of the factory and finished cars coming out the other. While maybe not 100% likely, many inefficiencies can be removed from the manufacturing process. In a perfect world, the more responsibility and control a manufacturer has, the more supply disruptions can be avoided, the better margins, and the better product integrity can be retained.

This is in theory, but not many can pull this off. Apple is best in class, but they still outsource much in terms of iPhone assembly to Foxconn in China and even raw cobalt from open pits where there is fear of child labor in the Congo for batteries.

Chinese workers at Foxxconn assembling iphones

When talking of what raw materials to invest in, I’m not talking rubber or aluminum for the cars. Those are not rare enough and follow long cyclical price variations that link more to the economic cycle. (Just like steel and copper are more linked with economic expansion.) I’m talking battery components. These are broken down into three main segments for the most part;

1) Electrolyte Slurry

-lithium salts in a solvent

This is what exchanges electrons between the negative side of the battery and the positive battery and the valuable elements of this chemistry are the lithium salts. While plentiful in the earth’s crust (Lithium is actually one of the most common elements in the universe), Lithium can be difficult to mine as there are only so many places that have it in concentrations enough to make extraction worth it. China has taken a massive lead, while there are established, large mines in Australia and South American countries such as Chile.

Lithium is found in one of two forms; hard rock and brine. The hard rock is higher quality and is closer to the desired end product for electric vehicle use, lithium hydroxide, while the brine consists more of lithium carbonate which has to be collected, the water allowed to evaporate in open pits and then processed into lithium hydroxide for practical use.

When looking to invest in Lithium, I personally have a few criteria;

Avoid investment in politically volatile regions
Invest more in hard rock/lithium hydroxide producers
Look into supplier partnerships with EV leaders and close proximity to the United States.
A balance between established miners and new promising developments coming online. (Applies to all materials)

Piedmont Lithium

North Carolina-based Piedmont Lithium (NASDAQ:PLL) is about as risky as it gets when it comes to lithium investing. It is unproven, and pre-revenue. It aims to “serve the important vehicle and stationary storage markets in the USA and Europe.” One of their big goals is to turn around the fact that lithium hydroxide is primarily sourced from China.

After accumulating a few recent acquisitions, the company is gunning to be a big supplier. Regulatory challenges have made many overlook the long-term potential here, but the company has obtained stakes in some of the top lithium projects, including Sayona Mining and Atlantic Lithium giving it more diverse assets. If it can get its lithium mining and processing plants in North Carolina up and running, it has a lot of potential.

I have a relatively small position here as the old saying goes, “if a stock is risky and does really well, a little is all you need and if it goes really bad, a little is all you want.”

The technicals: (source: finviz.com)

Profitability- While not profitable, it does sport a future p/e ratio of 54 with earnings per share projected to jump from -$1.00 this year to $1.14 next year.

Valuation- at about a 1 billion dollar market cap, this is a very small and volatile company with large potential upside or downside. Proceed with caution.

Revenue/cost to obtain Revenue: there is currently no revenue so this cannot be evaluated. They have a growing R&D budget.

My rating: Limited speculative buy

Livent Corp

Livent is a large CURRENT lithium producer with supply partnerships with Tesla, BMW and GM currently. According to the SEC,

Livent is a pure-play lithium producer formed when FMC spun off its lithium business in October 2018. Livent should benefit from increased lithium demand via higher electric vehicle adoption, as lithium is a key component of EV batteries. The company’s low-cost lithium carbonate production comes from brine resources in Argentina. Livent also operates downstream lithium hydroxide conversion plants in the United States and China.

Being partly South America based, although they have some Chinese locations, is not a deterrent for me owning this stock. Livent is more locally located and Argentina is a much more reliable trading partner than China and less friendly countries to US interests but the fact that they use a brine-sourced Lithium-carbonate source will make me establish this stock lower in the hierarchy of my Lithium stocks, but it is definitely one to include.

The technicals: (source: finviz.com)

Profitability-

P/E ratio 63 — profitable but very expensive

Forward P/E 18 -showing very rapid growth into higher profitability

P/S ratio: 10 — very high for a mining company

Valuation- at about a 6 billion dollar market cap, this is a medium and fairly volatile company with decent potential upside or downside. close to 10 billion to 50 billion would be my sweet spot for the best risk/reward ratio. I would include this as close enough to count.

My rating: Strong Buy

Albemarle Corp

Incorporated in the state of Virginia, per the SEC;

Albemarle is the world’s largest lithium producer. Our outlook for robust lithium demand is predicated upon increased demand for electric vehicle batteries. Albemarle produces lithium from its salt brine deposits in Chile and the U.S. and its hard rock joint venture mines in Australia. Albemarle is also a global leader in the production of bromine, used in flame retardants, and oil refining catalysts.

This is a large company, it won’t be the most exciting and you’re not likely to get the biggest gains, but as the biggest player it can bring stability and diversity to your lithium investment.

The technicals: (source: finviz.com)

Profitability-

P/E ratio 134— profitable but very expensive

Forward P/E 12-showing very rapid growth into higher profitability

P/S ratio: 8— a bit high for a mining company

Valuation- at about a 34 billion dollar market cap, this is a large and less volatile company with respectable potential upside or downside. close to 10 billion to 50 billion would be my sweet spot for the best risk/reward ratio. They have a small bit of debt, $8/share in cash and pay a small dividend.

My rating: Moderate Buy

Sociedad Quimica y Minera de Chile

This is a Chilean company using evaporation of brine to mine Lithium carbonate for processing. My negative is that the company is outside of the U.S, uses a less efficient and less scalable for quick demand means to get lithium. Chile shouldn’t present too much trouble as a trading partner in the near term.

The technicals: (source: finviz.com)

Profitability-

P/E ratio 15— profitable and reasonably valued

Forward P/E 9-showing slower growth into higher profitability

P/S ratio: 4— reasonable

Valuation- at about a 28 billion dollar market cap, this is a large and less volatile company with respectable potential upside or downside. close to 10 billion to 50 billion would be my sweet spot for the best risk/reward ratio. They have a small bit of debt, $10/share in cash and pay a large dividend.

My rating: Strong Buy

Standard Lithium

Description according to the companies’ website;

By leveraging the existing infrastructure and operational expertise of the largest brine processing facilities in North America, Standard Lithium is leading a new wave of U.S. lithium production. Utilizing proprietary advanced processing technologies and strategic partnerships, the company believes new lithium production can be achieved quickly and more cost effectively.
The Company’s flagship project, the 150,000+ acre “Lanxess Project”, is located in the prolific and productive Smackover brine region of southern Arkansas. By securing access to the strategic resource through agreements with the region’s largest commercial brine operator, Standard Lithium plans to leverage the extensive existing infrastructure and permits, to fast-track the projects’ development timelines.

The technicals: (source: finviz.com)

Profitability-

P/E ratio: none— not profitable

Forward P/E: no projected break even

P/S ratio: none

Valuation- at about a 1 billion dollar market cap, this is a tiny company that is entirely speculative as they have not proven anything yet. They use brine production which I don’t love, but they are a Canadian (friendly country)-run company working in the U.S in Arkansas so little to no geopolitical risk. Supply chain issues abroad make this worth taking a look at.

Revenue/cost to obtain Revenue: Revenue — There is no current revenue

My rating: High risk — beware but worth taking risk or watching as a speculation if you believe that locally sourced Lithium will be essential and they could be successful in years to come.

Lithium Americas

Lithium Americas Corp. operates as a resource company in the United States and Argentina. The company explores for lithium deposits. It owns interests in the Cauchari-Olaroz project in Argentina; Thacker Pass project located in north-western Nevada; and Pastos Grandes project located in Argentina. The company was formerly known as Western Lithium USA Corporation. It is headquartered in Vancouver, Canada.

The technicals: (source: finviz.com)

Profitability-

P/E ratio: none— unprofitable

Forward P/E 45- highly valued but showing fast growth into profitability with this years -70 cents/share turning into positive earnings of 70 cents/share

P/S ratio: no data

Valuation- at about a 6 billion dollar market cap, this is a medium sized somewhat volatile company with high potential upside or downside. close to 10 billion to 50 billion would be my sweet spot for the best risk/reward ratio. They have no debt, $3/share in cash and pay no dividend.

Revenue/cost to obtain Revenue: As this is a Canadian company, there is less info to use.

My rating: Moderate Buy — I like that they have a hard rock US mine, and little to no geographical risk. Future projected profitability is good and there is a lot of room for this stock to run, but could fall for unforeseen reasons.

Sigma Lithium

Per Seeking Alpha;

Sigma Lithium (NASDAQ:SGML) is a Canadian-headquartered lithium producer focused on developing a spodumene mine in Brazil. The company is near to commissioning its first mine in the late fourth quarter of this year. Sigma Lithium has a strong pipeline of future growth as it expands production and examines its other properties.

The technicals: (source: finviz.com)

Profitability-

P/E ratio : none— unprofitable and overbought currently

Forward P/E 10-showing high growth (-.6 cents/share to $2.8/share next yr) into good profitability

P/S ratio: no data

Valuation- at about a 3.6 billion dollar market cap, this has already had a good run up from 1 billion and will be a volatile company with high potential upside or downside. close to 10 billion to 50 billion would be my sweet spot for the best risk/reward ratio. They have no debt, $.95/share in cash with no dividend.

Revenue/cost to obtain Revenue: Revenue — no current data at this time

My rating: Moderate Buy at lower price. I like that this is in Brazil to diversify out of Chile and Argentina where many producers are mining. It diversifies geopolitical risk and is owned by a friendly government, Canada.

Tesla

This company needs no introduction. Traditionally a car manufacturer, Elon Musk has toyed with the idea of getting into mining or processing lithium to take more control over Tesla’s destiny. Recently, he has been getting more serious.

Per Yahoo Finance;

Elon Musk on the Q1 earnings call asked investors, do you like minting money? Then the lithium business is for you. Well, he actually is taking a page out of his own book. It seems Tesla filed an application with the Texas comptroller to build a lithium refinery on the Gulf Coast. It would process raw material for battery production, and they would ship that to other factories in Fremont and Texas.
Tesla said the decision will be based on tax credits received by the Texas government. And if approved, it would start building that refinery at the end of Q4, and then production of lithium would happen in 2024. So I want to note that Tesla — many automakers have actually invested in lithium, actually the raw materials, but Tesla will be the first to build their own refinery that would directly refine lithium here in the United States.

The technicals: (source: finviz.com)

Profitability-

P/E ratio :110— profitable but highly valued

Forward P/E 52-showing high growth into higher profitability

P/S ratio: 14 — a bit high

Valuation- at about a 920 billion dollar market cap, this is a mega-cap and a pretty volatile company with high potential upside or downside. close to 10 billion to 50 billion would be my sweet spot for the best risk/reward ratio, but Tesla is in a league of its’ own. They have no debt, $6/share in cash and no dividend.

My rating: Strong Buy I love this company for many reasons and this is just another good reason to own. Vertical integration, profitability, amazing engineering and efficiency, and US run are all reasons I make this a heavy buy in my portfolio.

9/29/2022 update:

Here is another company that works in lithium for your research:

-Vulcan materials- focuses in lithium hydroxide

Market cap: 21b

p/e: 33

forward p/e: 21

eps: 4.6

next year eps: 7

small debt, .89/share cash, 1% dividend

Revenue/cost to obtain Revenue: Revenue — cost of revenue shows the gross revenue which shows they are growing the topline and bottom line. To see if they are increasing the rate at which they are curbing spending and getting more bang for their buck, I do my own calculation based off these numbers. I divide the cost to gain revenue by the net revenue and look at it year over year and see if the number is going up. That shows increasing efficiency. Revenue/cost to obtain Revenue: Revenue — cost of revenue shows the gross revenue which shows they are growing the topline and bottom line. To see if they are increasing the rate at which they are curbing spending and getting more bang for their buck, I do my own calculation based off these numbers. I divide the cost to gain revenue by the net revenue and look at it year over year and see if the number is going up. That shows increasing efficiency. (1.4, 1.3, 1.3) Revenues are slowing but commodities have dropped recently due to recession so this is not a huge concern as this is highly cyclical.

This concludes part 1of this series on alternative EV investments to just the cars themselves to make outsized returns. Write me as I love feedback, like and follow me for more content please.

-by Mike Satoshi

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