After a marathon debate, the Senate, on Sunday, passed a monumental climate bill, which aims to accelerate the U.S. transition away from fossil fuels. The bill — also called the Inflation Reduction Act (IRA) — is headed to the House and is expected to be passed by the end of this week. Once signed into law by President Biden, the bill would be the boldest climate legislation in U.S. history.
It seeks to allot around $370 billion toward clean energy initiatives to turbocharge decarbonization efforts. The bill includes tax credits to boost domestic manufacturing of solar panels, wind turbines, batteries, and critical minerals processing, as well as subsidies for buying electric and hydrogen-fueled vehicles. All that would put the United States on track to reduce greenhouse gas emissions by nearly 40% below 2005 levels by the decade-end.
The new climate bill will further spur the electric vehicle (EV) revolution. The rising EV penetration will have a trickle-down effect in the supply chain, making lithium more attractive than ever. To capitalize on the flourishing prospects of lithium, place your bets on Albemarle Corp ALB and Livent Corp. LTHM and Piedmont Lithium Limited PLL. But before we discuss these stocks, let’s glance through the prospects of the EV space and the lithium market.
EV Industry to Shine Brighter
EV and renewable energy stocks clearly stand to benefit from this landmark climate bill. As it is, amid heightening climate concerns and technological advancement, more and more cars are getting electrified as legacy automakers are fast shifting gears to e-mobility. And now this IRA is set to further supercharge the prospects of the red-hot EV industry.
To encourage the adoption of EVs, the IRA includes a $7,500 tax credit till 2032 on the purchase of a new EV. Importantly, the tax credit will be sans the 200,000-car cap. In the current scenario, the tax credit phases out once a company has reached the 200,000 EV sales mark. A few auto biggies, including Tesla, General Motors and Toyota, have already exhausted the limit. The updated EV tax credit would remove that cap at the start of 2023.
With Americans staring at sky-high inflation and rising interest rates, the elimination of this federal EV tax credit cap will help in the acceleration of the adoption of zero-emissions cars, which is the need of the hour. Additionally, there’s a new $4,000 credit on used EVs. The updated tax credits are set to provide a major impetus to the EV industry— which is only expected to blossom in the coming years.
Per S&P Global Platts Analytics, global EV sales are expected to rise to 26.8 million units by the decade end. To put this into perspective, sales of green cars totaled 6.6 million units in 2021. BHP Group Ltd forecasts EVs to account for 60% of new car sales by the decade-end and 90% by 2040.
Lithium Demand to Explode
Thanks to the accelerated adoption of green vehicles, one metal that is expected to be most in demand is lithium. With batteries serving as the secret sauce for EVs and lithium being the most important metal in the EV battery, the demand for lithium is likely to skyrocket.
Importantly, more than half of all the lithium produced is deployed in rechargeable batteries. The lithium space gains the maximum attention from EV batteries. This would only continue to rise in the coming years amid the soaring popularity of green cars and further dwarf the usage of the metal for traditional industrial purposes, including ceramics, polymers and glass ceramics.
Notably, China dominates the lithium produce. Western countries are also trying to catch up fast to ramp up their production. Miners in Australia -- home to nearly 50% of the world’s produce — are having a gala time, thanks to a flurry of deals with automakers seeking to rev up their EV game.
The burgeoning demand for lithium is underscored by the price of the metal itself, which has rocketed nearly 500% in the past year. The prices are likely to remain elevated for the rest of the year, per BloombergNEF.
Per Statista, the global lithium demand is forecast to exceed 2 million metric tons of lithium carbonate equivalent by 2030, majorly driven by consumption in EV batteries. Credit Suisse anticipates lithium demand to triple between 2020 and 2025. Per Fortune Business Insights, the global lithium-ion battery market size is expected to reach $193.13 billion by 2028 and register a revenue CAGR of 23.3% during the 2021-2028 time period.
Given the bright outlook for lithium demand, we highlight why you should press the buy button on the below-mentioned lithium stocks.
Albemarle: Charlotte-based Albemarle is one of the leading producers of lithium, with battery-grade lithium-producing plants in Australia, China, Chile and the United States. The company’s lithium unit accounts for the highest percentage of overall revenues and profits. ALB, thus, remains laser-focused on the expansion of its lithium footprint.
Albemarle is investing in high-return projects to drive productivity and is well placed to gain from the long-term growth of the battery-grade lithium market. In Australia, the Kemerton I plant commenced production last month and the Kemerton II conversion plant is on track for mechanical completion in the second half of this year. La Negra III/IV expansion in Chile is boosting prospects. In the United States, expansion projects at Silver Peak are progressing ahead of schedule. The acquisition of the Qinzhou plant in China, scheduled for closure in the second half of 2022, will also bolster the growth of conversion capacity and drive lithium volumes.
As of Jun 30, Albemarle had liquidity of approximately $2.6 billion. The company is also a dividend aristocrat, having raised its annual dividend for 27 straight years. The Zacks Consensus Estimate for Albemarle’s 2022 earnings implies year-over-year growth of 358.4%. The stock currently sports a Zacks Rank #1 (Strong Buy).
Livent: Philadelphia-based Livent is the largest vertically integrated pure-play producer of low-cost lithium, with operational sites in the United States, England, India, China and Argentina. Livent has been extracting Lithium Brine at Salar del Hombre Muerto in Argentina for more than 20 years. It is one of the lowest-cost resources for lithium carbonate, providing the company with a competitive edge.
LTHM is on track with all its capacity expansion programs. The first 10,000 metric tons of lithium carbonate expansion in Argentina is scheduled to be completed by the year end. The second 10,000 metric tons of lithium carbonate expansion is anticipated to be concluded by 2023-end. Livent remains on track with a 5,000 metric ton hydroxide addition in Bessemer City by the end of the third quarter of 2022.The company is set to add 15,000 metric tons of lithium hydroxide capacity at a new location in China by the end of next year.Québec-based Nemaska Lithium project is likely to commence in 2025 and will aid the top-line growth of Livent.
LTHM expects strong demand and high lithium pricing to buoy its prospects through 2022. The company envisions revenue in the band of $800-$860 million this year, implying a year-over-year uptick of 97% at the midpoint of the guided range. Adjusted EBITDA is estimated at $325-375 million, suggesting significant growth from $70 million recorded in 2021. The consensus mark for LTHM’s 2022 earnings implies year-over-year growth of 667%. The stock currently sports a Zacks Rank #1.
Piedmont: This U.S.-based lithium explorer has not generated revenues yet but is worth a look due to its solid prospects. Piedmont is set to benefit from hard rock lithium assets in three strategic locations including North Carolina, Quebec and Ghana. The company is focused on the development of the Carolina Lithium Project, located in North Carolina — one of the top-notch regions in the world for lithium exploration.The project targets the production of 30,000 tons/year of battery-grade lithium hydroxide.
Piedmont also holds a 25% stake in the Abitibi lithium hub and a 16.52% interest in Sayona Mining. PLL owns 10% of Atlantic Lithium and can earn a 50% interest in Atlantic Lithium’s Ghanaian lithium portfolio. Atlantic Lithium is likely to provide additional high-quality SC6 to support North American lithium hydroxide production. The company owns a 25% interest in Sayona Quebec, which holds a 100% stake in the Quebec Projects, including North American Lithium, the Authier Project and the TansimProject. Additionally, PLL also owns around a 14% stake in Sayona, the parent company of Sayona Quebec.
A sustainable business model and solid growth pipeline with attractive economics augur well for PLL’s long-term prospects.As of Jun 30, Piedmont had cash and cash equivalents of $139 million, representing a strong cash ratio of more than 22. The consensus estimate for third-quarter 2022 bottom line is pegged at a loss of 13 cents, narrower than the loss of 53 cents recorded in the second quarter of 2022. The stock currently carries a Zacks Rank #2 (Buy).
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