The stock market came into the new week on a quiet note, with investors seemingly content to consolidate recent gains. As of 11:45 a.m. EDT, the Dow Jones Industrial Average (DJINDICES:^DJI) was up 59 points to 34,929. The S&P 500 (SNPINDEX:^GSPC) picked up seven points to 4,376, and the Nasdaq Composite (NASDAQINDEX:^IXIC) was higher by a single point to 14,702.
Electric vehicle stocks have gotten a lot of attention lately, but many investors have limited their look at the sector to the companies that actually manufacture vehicles themselves. On top of those obvious stock plays, however, are suppliers that provide the raw materials that EVs need to run. It’s those materials stocks that are doing the best on Monday, and below, we’ll look more closely at why they’re performing so well.
Getting a charge from lithium
Companies that produce lithium did extremely well in stock market trading on Monday morning. Leading the way for the industry were Lithium Americas (NYSE:LAC) and Albemarle (NYSE:ALB), both of which were up 9% on the day. Livent (NYSE:LTHM) managed to post a 5% rise, while South America’s Sociedad Quimica y Minera de Chile (NYSE:SQM) saw its stock climb 4%. Piedmont Lithium (NASDAQ:PLL) brought up the rear with a gain of 3% on Monday morning.
Lithium Americas made the biggest splash in the sector in terms of news, announcing an investment in the much smaller Arena Minerals. Arena owns a lithium brine project in Argentina as well as some other mineral assets in Chile, and Lithium Americas agreed to obtain $6 million out of a $10 million financing round. With the investment, Lithium Americas will have a right to participate in future financings and to appoint a nominee to the Arena board of directors if it holds a 10% stake in the company.
It’s important to understand, though, that not all lithium stocks are at the same stage of their development. Neither Lithium Americas nor Piedmont Lithium is actually producing lithium currently, with their projects at various stages of exploration and development. Meanwhile, Albemarle, Sociedad Quimica y Minera, and Livent have extensive production capacity and are top providers of the lithium compounds that go into EV batteries.
Should you go pure?
Meanwhile, investors who are interested in looking into lithium stocks more extensively also have to understand that different companies offer different levels of exposure to the lithium market. Albemarle and Sociedad Quimica y Minera both produce a wider range of products beyond lithium, and so anything that has a positive impact on lithium won’t necessarily have a huge impact on their overall business prospects.
By contrast, Livent, Lithium Americas, and Piedmont Lithium concentrate exclusively on lithium in their current and prospective operations. If lithium prices take off as EV demand continues to rise, then these stocks arguably stand to gain more than their non-pure-play peers.
Be ready for disruption
The one thing EV stock investors need to understand is that the pace of innovation in the industry is fast and furious. At this point, lithium is likely to be a key ingredient in EV battery technology for a long time. Yet there’s no telling whether a future advance could make lithium obsolete or at least inferior to alternatives.
Lithium stocks will likely be volatile for the foreseeable future. Nevertheless, they have an immense growth opportunity that could provide a great way to profit from rising adoption of EVs among drivers around the world.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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