In 2021, 6.4m electric cars were sold, which is 98% higher than in 2020. Global manufacturing powerhouses are stepping up battery production to keep up. And lithium prices are skyrocketing in China, where the demand is at an all-time high. The cost of battery-grade lithium is up over 20% since December and closing in on the US$40,000 per tonne mark. Does this demand mean that lithium shares will see exponential growth in 2022 as well?

The lithium market supply chain is not a straightforward one, where companies can simply increase supply to quell demand. Natural resources come with a multitude of governmental restrictions and lobbying which makes this tricky to call. Here I will look at the pros and cons of investing in lithium today and two UK lithium shares on my watchlist that could benefit.

Will the lithium demand cool down?

China controls a majority of the global lithium production and supply, which gives the nation a lot of pricing power. But the US and Europe recognise the need to establish other supply routes to prevent China from having a lithium monopoly. The Biden government released a National Blueprint for Lithium Batteries 2021-2030. This highlights ways in which the US can gain a competitive edge in the lithium market.

In fact, analysts are expecting a global lithium regulatory body in the coming years that will govern the global supply chain. All these developments could affect lithium prices in the future. But the estimates suggest that demand for lithium will remain high throughout 2022 given EV backorders and new model launches.  

But EV tech is growing fast, which means recycling methods and alternatives are not far behind. This puts lithium firmly in the price discovery phase right now. Also, a single mine can take 10 years to mature into expected production levels and seasoned analysts are unsure on how lithium supply can quickly grow to meet demand. The 548% jump in lithium carbonate price since 2020 could just be the start or a reactionary jump that could stabilise in the coming years.

EVs are here to stay

Despite making up just 4% of the automobile market in 2020, EVs have received governmental backing after COP 26 and engineers expect the tech to grow rapidly. And battery production has to match demand in the wider EV market.

What does this mean for UK lithium shares? Well, I think the growing demand for lithium as an opportunity for focused miners like Zinnwald Lithium. Its mining project in Germany has the capacity to produce and process 665,238 tonnes of lithium carbonate over 30 years. But mining efforts can be subject to strict regulations, highlighted by the Serbian government’s decision to revoke licenses from mining giant Rio Tinto’s $2.4bn lithium mine in the Jadar Valley.

This brings me to Ilika, a battery R&D company specialising in solid-state battery technology for a wide range of applications including EVs. This could replace liquid-based lithium batteries in EVs, which could improve battery recyclability. And the tech is widely applicable across multiple sectors.

But again, Ilika is still in its infancy and remains loss-making. The company raised £2m last year and could take two years to reach production. But the technology the company is working on could be very valuable, which is why its share price has jumped 322% since 2020. Both lithium shares could benefit from the demand, which is why I would consider a £1,000 investment if the EV market remains healthy. 

The post EV boom: should I invest in UK lithium shares amid explosive demand? appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The business

Ilika is a pioneering technology company looking to find a suitable replacement for lithium-ion batteries with its own solid-state batteries. The former type is currently in high demand due to the rising popularity of electric vehicles. However, such batteries suffer from some significant drawbacks, like the difficulty of recycling and having a relatively short lifespan.

The alternative that Ilika has designed overcomes these issues and provides a higher power density ratio. In other words, they can drive further and charge faster. That’s why the management team believes the technology will become the new standard by the end of the decade.

That certainly sounds exciting. And the technology is already being used on a smaller scale within medical devices and industrial wireless sensors. Ilika recently published a trading update that revealed good progress in its 70x expansion plan of small battery production. It’s also starting a new collaboration with Fiat to scale up its larger electric vehicle battery manufacturing capabilities. To me, this looks like encouraging progress, so why did the Ilika share price fall by 25% last Friday morning and why has it stayed low this week?

The falling share price

As exciting as this technology may be, the firm has yet to transform itself into a profitable organisation. That undoubtedly exposes investors to additional risks. Why? Because the management team has to find new ways to raise capital. And for a small, unprofitable business, debt financing isn’t a particularly viable option.

As a result, the company turned to shareholders to get its much-needed capital. Last Friday, Ilika announced a new share offer for investors to raise a total of £24.7m. But the vast majority of the newly issued shares were priced below the trading price at 140p. That’s roughly a 30% discount. I’m not surprised to see the Ilika share price fall by a similar amount.

The bottom line

Is the recent drop a buying opportunity? I’m not so sure. While the share price dropped by almost a third, the valuation remains quite rich. It currently has a market capitalisation of around £220m versus a revenue stream of only £2.3m. To me, it looks like the stock is being significantly elevated by expectations rather than fundamentals.

Forecasts suggest revenue will increase substantially in 2023/24 as its large battery production ramps up. But there’s a lot that can go wrong in the meantime. After all, Ilika is not the only business exploring solid-state battery technology. And there’s some evidence to suggest that with nano-technology, lithium-ion batteries could be superior in the future, making this venture ultimately obsolete.

Personally, I think it’s too soon to invest in this business. And so, for now, it’s staying on my watchlist.

The post Why did the Ilika share price crash last week? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A leading vanadium producer

FAR is a vanadium producer – a rare metal that’s a critical component for energy storage devices such as batteries. The company has only been public since 2019 and has continued to trade well below its IPO price of 64p. It was 9.5p a year ago. Even after the most recent surge, the FAR share price is still only trading at 25p. But is that all about to change?

A few days ago, the firm provided an operational update for investors. It announced the successful completion of a second roasting oven within its vanadium plant, boosting its processing capacity by 80 tonnes per month. That’s a 500% increase compared to 2019.

Unfortunately, the business was heavily disrupted by Covid-19. And its processing plant was taken off-line for a cumulative total of five months in 2020. Yet despite these interruptions, overall production for the year grew by 56% to 237 tonnes of vanadium.

The management team hasn’t provided any guidance for full-year revenue. However, looking at the current price of vanadium today (which is around $18,000/tonne), I have estimated it will be somewhere in the region of $4.2m. That’s a 130% increase on 2019’s $1.8m. Furthermore, this revenue figure doesn’t include the additional 400 tonnes that could have been achieved had there not been any interruptions by the pandemic.

Needless to say, 2021 could be an explosive year for the FAR share price.

There are always risks

The vaccine rollout appears to be progressing well in the UK. However, in countries like Kazakhstan, where FAR operates, progress is much slower. The country began distributing vaccines in early February and expects to vaccinate six million people by the end of the year. However, that only represents around 25% of the population. Consequently, I believe the business will continue to suffer from operational disruptions throughout 2021 and potentially even 2022.

Another risk to consider is the fact that the company has no pricing power. It sells vanadium to its customers at a price set by the market. Looking back at historical performance, the company reported a record $4.2m of revenue in 2018. However, in the following year, revenue dropped to $1.84m, taking the FAR share price down with it.

What happened? Production continued as normal, but the price of vanadium collapsed by 75%. And with no other assets in its portfolio, total revenue took a big hit. While vanadium prices might be slowly rising today, they can always drop again in the future if demand falls or the industry becomes over-supplied.

The FAR Share price: time to buy?

The demand for vanadium is currently on the rise as many countries, including the UK, begin to upgrade their energy infrastructure. Part of the government’s Green Industrial Revolution involves installing many energy storage farms that use vanadium-flow batteries.

This presents a fantastic opportunity for FAR and its share price to grow in the future. However, its current market capitalisation of £97m looks like it’s being propped up by significant investor expectations that may not be fulfilled. Therefore I’m not adding the stock to my portfolio today. But I will be keeping a close eye on it.

The post Why is the FAR share price surging and should I buy now? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Zaven Boyrazian does not own shares in Ferro Alloy Resources. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.