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The auto giant deals
MARKET INSIGHTS
Lit gets real
Despite claims the boom is over, seismic auto giant deals signal a new growth chapter for the lithium industry
BARRY FITZGERALD
Two deals struck between ASXlisted lithium project developers and overseas auto giants in June are being seen as seminal events in the evolution of the lithium industry.
Supply or offtake deals have been struck between lithium producers/developers and auto groups previously.
But in industry firsts, Liontown (ASX:LTR) and Vulcan Energy ASX:(VUL) have attracted financial support for their lithium projects, in addition to offtake arrangements.
Liontown secured a $300 million debt facility from Ford to be used for the development of its Kathleen Valley project in Western Australia while Stellantis took up an 8% stake in Vulcan for $76 million in support of its lithium/geothermal project in Germany.
The financial support for the new lithium projects highlights the growing concerns auto groups have about being able to secure the raw materials for the lithium-ion batteries that underpin the electric vehicle megatrend.
Canaccord analyst Reg Spencer said the Liontown and Vulcan deals were the first instance of Western world auto companies committing to more than just offtake arrangements to secure future lithium supplies.
“In our view this is a recognition by industry of the potential for long-term supply shortfalls in the on from a controversial call in late May by Goldman Sachs that the lithium boom was over.
Somewhat ironically, the investment bank’s call that lithium prices would crash to $US16,000 a tonne in 2023 was not based on a global economic slowdown or falling demand for lithium.
It also agrees lithium will continue to enjoy exponential demand growth as the EV revolution gathers pace.
However it forecasts that lithium supply will soon move into oversupply because of the “outsized supply response’’ triggered by the at or near record price levels for the key battery material.
But leading producers dismiss the
lithium market and reflects growing competition for security of supply,’’ Spencer said.
He said the two deals could mark the beginning of more activity by auto groups in the upstream or mining side of lithium supply. It is something leading lithium industry consultant Benchmark Mineral Intelligence has long considered a necessity.
“For the next decade, physical supply of key battery raw materials is king – it will make or break automakers’ trillion dollar EV plans,’’ Benchmark CEO Simon Moores said in June.
“If you do not physically own the raw material mine level assets, you simply will not have complete control over your EV destiny for at least the next 10 years.’’
Benchmark estimates that lithiumion battery demand is growing at its fastest rate and is on course for 50% year-on-year growth.
The growth in demand is underpinning continued outperformance by lithium prices. Lithium carbonate and hydroxide prices have stabilised at or near all-time records in recent weeks of $US70,000/t and $US71,000 respectively.
Despite the industry-shaping Liontown and Vulcan deals, and lithium’s continuing price strength, lithium stocks did not escape the share market meltdown in June.
In fact, they were hit harder because the market sell-off followed
Barry FitzGerald An Audi Q4 e-tron electric vehicle (EV)
assessment. US lithium heavyweight Albemarle told a battery materials conference in Arizona earlier this month that to keep up with demand, every existing producer would have to double every two to three years for the next decade.
