Why is Lithium Americas Stock so Cheap?

We don’t see a lithium glut – but we do see a 75% undervalued stock.

Andrew Willis 16 February, 2024 | 4:28AM
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Key Takeaways for Lithium Americas Stock:

  • Investors are likely selling Lithium Americas stock on low lithium prices, but we see continued demand from electric vehicle sales, which we expect will continue to grow in 2024.
  • Just as lithium miners responded to high prices by increasing high-cost supply, they are responding to low prices by cutting production and delaying new projects.
  • Lithium Americas stock has a Very High Uncertainty Rating, in part due to the fact that lithium production has not begun. The Thaker Pass resource is due to complete later in the decade and could be one of the largess mines, globally.

 

Andrew Willis: Lithium prices may have plunged 80%, but we don’t believe the bears on where lithium prices go from here. The recent increase in supply was a response to all-time high prices in 2022.

And in 2024, we’ve already seen supply respond to prices that are below their marginal cost of production, according to stock strategist Seth Goldstein. He sees undersupply conditions emerging and rising prices in the second half of the year. Which is great news for Lithium Americas stock investors.

Lithium Americas Undervalued by 80% Underestimates Potential Production Power

The price of lithium is really at the heart of the divide on Lithium Americas stock, which in a way illustrates how much of a pure-play it is. The company hasn’t even started production yet at its Thacker Pass location, but the promise is there. We estimate that the location could eventually produce almost a quarter-million metric tonnes of lithium a year – which isn’t bad, considering that’s a quarter of what the world did in 2022.

For Morningstar,
I’m Andrew Willis.

 

bulls Lithium Americas Bulls Say

  • As a lithium pure play, Lithium Americas is well positioned to increase profits from EV growth through lithium batteries.
  • The McDermitt caldera is one of the largest lithium resources in the world, which will allow Thacker Pass to greatly expand long-term volumes above management's initial annual capacity target of 80,000 metric tons.
  • Lithium prices will remain well above the marginal cost of production through at least the remainder of the decade, leading to excess profits and return on invested capital for Lithium Americas.

bears Lithium Americas Bears Say

  • Thacker Pass is a new greenfield lithium project that will likely face delays and cost overruns, similar to other greenfield projects in the industry.
  • Lithium prices will fall as new supply comes online faster than demand, which will weigh on profitability. Lithium Americas' project will prove value-destructive in the wake of lower prices.
  • As Thacker Pass will be the first clay-based lithium resource in the world, it will likely have higher operating costs than management forecasts, leading to a materially higher position on the global cost curve.

 

 The author or authors do not own shares in any securities mentioned in this article.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Lithium Americas Corp6.48 CAD1.09Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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