Lithium market suffers as EV demand slows

Lithium, a key component in electric vehicle batteries, has endured a rough 2023, with prices plunging 80% year-to-date. Concerns around EV demand growth paired with oversupply has crushed the lithium market after an outstanding 2021 boom.

Yahoo Finance's Madison Mills breaks down the details, providing insights into what has caused the supply-demand imbalance within the lithium market.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

影片文字轉錄稿

BRIAN SOZZI: It has been a dud of a year for lithium. Yes, lithium-- a metal often talked about by Elon Musk, the world's richest person, on his earnings calls. After hitting record highs in 2022, prices have plunged this year as investors weigh concerns about a slowdown in EV growth. Yahoo Finance's Madison Mills has the analysis. And I know, Madison, after your analysis, you are not making fun of me about wanting to talk about lithium.

MADISON MILLS: I was just going to say, I'm really happy to hear that I get the stories everyone's making fun of in the morning meeting. So thank you for alerting me to that you guys. I appreciate it. But in all seriousness here, it is contract-signing season for lithium producers. And it's not great news for them, right?

This precious metal down 80% year to date. Why is that? Well, it's the classic supply and demand issue. There was a boom in production following the boom in demand that we saw for lithium in 2021. That was due to the EV craze. Now we're seeing too much production, so too much supply, and a lack of demand as EV sales continue to stall. EV sales in the 40% range this year. UBS expecting that to slow to 11% next year.

So what is this doing to the stocks in this space as we look year to date here for some of these big producer names? They are also starting to struggle. We're seeing those stocks heading into the red as we head into the end of this year.

Now, when we look ahead here, I don't personally think that it's over for lithium. I think that if the EV space can start to create models that are a little bit more affordable, they'll be able to get some more market share, get some more consumers to the table who haven't considered an EV personally, and that might lead to an increase in demand for EVs that could lead to more interest in lithium moving forward.

I'm looking at one leading indicator. It's a plot of land here in the US, that's about 22 miles wide and it's worth about $1 trillion because of the amount of lithium underneath the soil there. So if you look at that, it's not looking like lithium is going away anytime soon. These contracts are looking to go down by about 5% to 10% as they close out the year here, but they're still getting signed at similar volumes compared with last year, guys.

BRAD SMITH: Maddie, just while we have you, I mean, we were thinking about GM, Ford, Stellantis, all of them that have these EV ambitions and production goals that have started to scale that back because of the breather that we're seeing in demand.

How does that translate through to the lithium market and where ultimately perhaps is that giving the lithium space more time to get its ducks in a row and perhaps find a bidder for that 22-mile plot of land that you mentioned a moment ago?

MADISON MILLS: Well, it's-- thank you for pointing out my geography background here, Brad. But it's critical, right? I mean, if the demand isn't there, if we're hearing news about Ford cutting back on EV production, that's not going to be good for the lithium producers. Also because of that demand boom that I mentioned earlier, there's a lot of competition in this space. So now you've got more players in the room and you've got less players coming to the table.

And I do want to mention the China piece is critical in this story as it is with every story we talk about. The lack of a robust return to growth in China that we had anticipated is also leading to some slowdown in the contract sign, particularly when it comes to the Chinese producers that are coming to the table with these lithium producers.

They're not necessarily as invested in getting big contracts, big demand for this coming year because they just don't need it as much, given that slowdown in EV production and demand.

BRIAN SOZZI: Well, Madison, on a slow day, it's good to see you bringing us land plot analysis on lithium. The team might be making fun of this one, but no making fun of your analysis. That is good stuff. Madison Mills, thanks so much.