5 Lithium Stocks to Consider in 2024 | The Motley Fool (2024)

Lithium, the elemental metal, is a much-discussed commodity these days. It's used to manufacture batteries, notably for electric vehicles (EVs), so many investors feel optimistic about companies that produce and refine the basic material.

However, anyone investing in the sector should prepare for a wild ride. For example, the price of lithium carbonate (used in batteries) rocketed almost sevenfold from the summer of 2021 to the autumn of 2022, only to fall back down to 2021 levels in the summer of 2024.

Automakers and battery manufacturers accelerated investment in EVs during the pandemic but then pulled back as relatively high interest rates constrained auto sales, including EVs. The resulting oversupply of lithium caused the lithium price to fall through 2023 and into 2024.

Even with the oversupply, soaring battery demand from EVs and energy storage (saving power for later distribution to the electric grid) have some investors anticipating a solid recovery in lithium demand in the next few years.

In the U.S., the 2021 Infrastructure Investment and Jobs Act, a significant step towards a greener future, allocated $5 billion in federal funding for EV charging stations. And the 2022 Inflation Reduction Act was passed to provide credits for consumers, further supporting President Biden's ambitious goal of EVs accounting for 50 percent or more of new auto sales by 2030. With such strong government support and automakers aligning their strategies, the future demand for lithium looks promising. Here's what you need to know before considering an investment in this essential material used in battery development.

Five leading lithium stocks

Investing in lithium stocks

Like any basic materials and metals investment, betting on lithium isn't for the faint of heart. Soaring demand for a material used in manufacturing doesn't automatically equate to higher sales and profits for a company. Supply also plays a hand in the market price of the basic material, so when supply outpaces demand, prices fall -- and the material producer's sales can fall, too, even if demand is expanding.

As with all mining operations, establishing new lithium projects can be a substantial financial commitment. It often takes several years to reach full production, which can strain a mining company's financial resources. However, the long-term potential of these projects can be a significant draw for investors.

It's important to note that new lithium mines are not immune to political uncertainty. For instance, Chile, the world's second-largest lithium-producing country, has plans to nationalize its lithium industry. Similarly, a major lithium mining project in Serbia was halted in 2022 due to environmental protests. However, discussions are ongoing in 2024, and there is a possibility that Europe may soon have its first major lithium mine. These challenges, while significant, also highlight the industry's resilience and adaptability.

Top lithium stocks for 2024

Here are five leading lithium producers in this growing market:

1. Albemarle

Mining and chemical producer Albemarle is leading the charge in global lithium output. Among the company's biggest customers is Panasonic (OTC:PCRFY), which manufactures lithium batteries for everything from small consumer electronics to EVs. Samsung (SSNL.F -28.74%) and Corning (GLW 0.67%) are also significant customers.

Although lithium prices can be volatile and will ultimately guide the direction of Albemarle's sales, the company has proven itself over the years to be a durable mining operation that can bring lithium to market.

It's an excellent place to start if you are looking to expose yourself to the upside potential of the price of lithium carbonate.

2. Ganfeng Lithium

On the other side of the Pacific, Ganfeng Lithium is China's largest producer of base materials for lithium battery manufacturing. Given the sheer size of China's population (1.4 billion) and the rapid rise in EV sales, Ganfeng is well positioned as a top supplier to EV manufacturers based in China and the U.S. EV manufacturers such as Tesla (TSLA 0.23%).

The company is well capitalized with cash and manageable debt, and it has generated healthy profit margins.

3. Sociedad Quimica y Minera de Chile

One of South America's top basic materials and chemical companies, Sociedad Quimica y Minera (SQM) is one of the world's largest producers of lithium used in batteries and other energy storage technologies. Like some of the other diversified and well-established mining operations such as Albemarle and Ganfeng, SQM generates healthy double-digit operating profit margins, has plenty of cash to fund expansion, and carries minimal debt.

Chile's pending nationalization of the lithium industry could pose risks for SQM shareholders, though. The company is currently highly reliant on Chilean resources, and it remains to be seen how state control of lithium (if implemented at all) would affect SQM's ability to generate a profit.

SQM predicts demand for lithium will outpace supply over the long term, so it has been investing to increase its production capacity. With recent improvements now complete, the company claims it will be able to increase its market share in supplying lithium, mainly for EV batteries.

4. Lithium Americas

Legacy automakers have big plans to electrify their vehicle lineups in the coming years, which means millions of new EVs could be sold. The potential trend has led to a big jump in smaller, more speculative lithium stocks such as Canada-based Lithium Americas.

Lithium Americas currently doesn't generate any revenue. It is building lithium extraction sites in Argentina with partner Ganfeng Lithium. It completed a feasibility study on another 100% owned site in northern Nevada, and has begun construction there, backed by a $650 million equity investment in Lithium Americas from General Motors (GM 1.93%).

This makes Lithium Americas a highly speculative stock. Tread lightly with these speculative bets.

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Staying diversified

Staying diversified

To help lessen wild swings in value, consider buying a lithium ETF such as the Global X Lithium & Battery Tech ETF (LIT -1.57%) or invest in a basket of lithium stocks such as the ones listed above. Given the ups and downs in lithium production, keep any investment in this niche of the mining and chemicals industry small, and stay focused on the long term.

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