Tim Treadgold: Lithium burns as electric vehicle subsidies are lifted
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Lithium has lost its spark, not because companies mining the lightweight metal have done anything wrong, they’re simply victims of political games and consumer uncertainty about electric cars.
China is the place that ignited the lithium boom and it’s the place that has thrown the industry into confusion, which can best be measured in the lithium price that has been cut in half over the past year.
The share prices of most Australian lithium miners have suffered the same fate.
Sold in a myriad of ways, the most commonly quoted form of the metal is as a carbonate (a combination of lithium, carbon and oxygen — Li2CO3) which has dropped from more than $US20,000 ($28,631) a tonne at this time last year to around $US10,000/t today.
Somewhat amusingly (in a very black sense of that word), the price plunge could have caused some investors to start taking lithium carbonate as a medicine because it not only finds its way into batteries but is also prescribed to control manic depression disorder.
Anyone with a fistful of Orocobre (ASX:ORE) shares, which are down 51 per cent from this time last year when they were trading at $5.63 to a latest price of $2.79, could be in the market for a dose of medicinal lithium.
As could a Pilbara Minerals (ASX:PLS) investor who has seen their investment fall by 55 per cent from $1.11 to 49c – or Altura Mining (ASX:AJM), down 65 per cent from 35c to 12c.
In time, lithium stocks will stage a comeback but a wise investor will be waiting for positive signs that demand is picking up (or supply is falling) before returning to a sector which has a brilliant future — but not just yet.
What’s happened is that the negative aspects of the over-promoted electric car revolution have taken a bite out of the industry, with vehicle sales in most markets failing to meet ambitious projections.
Range anxiety, the easy to understand fear of an all-electric car not completing a trip is a very real factor affecting sales, as is a shortage of charging points.
But the biggest issue is cost because electric and hybrid vehicles, which have both a petrol and electric motor, are substantially more expensive than conventional cars, even with government incentives such as cash grants and licensing discounts.
When the Chinese government slashed electric car incentives earlier this year sales crashed and have not recovered.
The same thing happened in a number of European countries which lowered incentives to buy an electric vehicle, a trend which has just been repeated in Britain where sales of plug-in hybrid cars fell by 33 per cent in the first half of the year – including a thumping 50 per cent drop in June.
The lesson for vehicle makers and lithium miners that ultimately depend on car sales is that consumers are not prepared to make the jump out of their petrol or diesel-fuelled vehicles without a generous financial incentive, and even then, electric vehicles are still seen as a rich man’s novelty.
Several investment banks have been warning for much of the year that the lithium boom was coming to an end, at least for now, with the potential to make a comeback when electric vehicle sales accelerate.
Both Morgan Stanley and Macquarie Bank last week updated their warnings about lithium being a commodity suffering the pains of over-supply and under-demand.
Macquarie started its review of lithium with an ominous headline: “Storm clouds on the horizon”. Correct, up to a point, the reality is that the storm clouds are actually overhead not on the horizon.
“While demand has gone from strength to strength as the electric vehicle market grows, the supply-side response has been wildly in excess of requirements,” Macquarie said.
But that’s before the second shoe dropped in the lithium game, because it’s not just excess supply it’s lacklustre demand.
“The latest electric vehicle data revealed slowing growth, inferring that on top of excess (lithium) supply, demand is now a problem. Needless to say, we remain bearish, Macquarie said.”
Hope, more so than storm clouds, is on the horizon for investors with a willingness to enter the lithium den at what should be a future positive development – the full-scale entry of big-name car makers.
Until recently the electric car leaders have been a handful of courageous Japanese manufacturers such as Toyota and Nissan and the wildly optimistic US player, Tesla.
Next year will see Volkswagen and BMW crank up their electric vehicle offerings, followed by Renault, Ford and the rest of the gang – and it could be that car buyers are waiting to shift when a car maker they’ve trusted in the past adds reliable and long-range electric vehicles, at a reasonable price.
When that happens lithium miners will get a new life, but take care because not every company you see in that space today will be in business for the second coming.