Investors have turned negative on the prospects for lithium as the EV market has cooled.
A UBS analyst recently lowered his price target for lithium mining company Albemarle (ALB -1.08%) stock to $124 from $132, but kept a neutral rating on the stock. However, even that lower price target still implies a more than 20% upside from Tuesday’s closing price.
As Joshua Spector of UBS notes, the price of lithium has improved marginally in 2024, but it’s still far below where it peaked in November 2022.
Unfortunately, that decline has cut into Albemarle’s revenue and earnings, and Wall Street now expects the company’s revenue will fall from $9.6 billion in 2023 to $5.9 billion in 2024.
Negative sentiment toward lithium
The main driver of lithium demand is the use of lithium-ion batteries in transportation and energy storage. Unfortunately, the narrative around the electric vehicle (EV) market has soured in 2024. It’s a sea change in opinion after investors got excited in 2022, when automakers and battery makers accelerated their EV-related investments.
However, the combination of relatively high interest rates cooling the auto market and a natural correction from the previous boom has led to negative sentiment toward EV-related stocks. In addition, there’s a growing concern that manufacturers’ failure to reduce EV prices further (partly due to slowing investment) will slow their adoption, leading to less demand for lithium than previously expected.
Image source: Getty Images.
On the supply side, Serbia is close to giving the green light to what would be Europe’s biggest lithium mining project. If it gets approved, it could go into operation in 2028.
A longer-term outlook
That said, bodies such as the International Energy Agency believe lithium demand will outstrip supply by 2030, suggesting prices could head higher again over the long term. In addition, history suggests the interest rate cycle will turn, which will be good news for EV sales and EV-related investment. Albemarle may have better days ahead, and that prospect could tempt long-term investors to buy in. Still, for investors who don’t have a tolerance for near-term turbulence, Albemarle is best avoided for now.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.