Lithium Demand For EVs Is Soaring, and This 1 Stock Is Rolling in Cash

 Demand for lithium for EVs is soaring, and these 1 stocks are moving in cash

Electric vehicle (EV) sales continue to accelerate. According to some research, electric cars could account for more than 20% of total new vehicle sales in 2023, up from 14% in 2022 and just 5% in 2020.This is very important for the lithium mining industry. A ton of new supply has come online in the past year, knocking underlying lithium prices from unsustainable all-time highs reached in late 2022. However, demand still outstrips supply and is expected to continue to do so until 2030. That's great news for the leading lithium miner Albemarle , which once again reported new record sales -- and more importantly, profitability.

 Here's what investors need to know.Of course, lithium is the top ingredient that makes EVs work. It's a prevalent element that's already widely used and probably rides in your pocket or powers your laptop. But lithium-ion batteries in EVs are exponentially larger than those in mobile devices, which means much more lithium is needed.

So, although lithium prices have fallen dramatically since November 2022, the main story is about increasing supply to meet insatiable demand from automakers and their lithium-ion battery manufacturing partners. And for the record, lithium prices seem to have started to stabilize as of May 2023 – but commodity prices can be highly volatile and unpredictable. A little more on that in a moment.

With this supply story, Albemarle scored another quarterly park revenue update. Q2 2023 revenue rose 60% year-over-year to $2.4 billion. This performance was aided by the company's strategy of entering into long-term contracts with customers, with most of these sales contracts indexed to lithium prices with predetermined limits and caps to eliminate the wildness of commodity prices. This strategy is embodied in a new supply contract with Ford that will begin in 2026 and end in 2030.

Albemarle was also an early entrant into lithium mining before the EV tidal wave, establishing itself as a low-cost producer. That means even with lithium at an all-time high, Albemarle is still rolling in cash. Net income also increased 60% year over year to $650 million. The company also has a solid mining company balance sheet with $3.2 billion in cash and investments and $3.5 billion in debt. Given its stellar Q2 performance, Albemarle's management took the opportunity to reverse some of its downbeat 2023 financial outlook three months ago. 

The lower end of the revenue outlook was raised by $600 million and is now expected to be in the range of $10.4 billion to $11.5 billion — representing growth of about 48% on Wednesday from 2022. Adjusted EBITDA margin (earnings before interest, taxes, depreciation and amortization, which Albemarle uses to track the progress of its operations) is now expected to be in the range of 37% to 38%, versus a previous outlook of 34% to 35 Albemarle shares are trading at a seemingly cheap valuation of less than six times trailing 12-month profits, and if the company continues to grow as they think, it could be a lot indeed.

However, keep a few things in mind. The company's cash outflow has increased recently as it spends this year to secure ownership of additional lithium mining sites. Mining is a capital intensive business and consistent cash flows are far from the norm. The result is a highly volatile stock price. Cash flow is also being reduced by a disclosed $219 million settlement with the US Department of Justice involving third-party sales representatives violating anti-corruption laws that Albemarle voluntarily disclosed back in 2018. That matter now appears to have been resolved.And again, lithium – like all commodities – is also highly volatile because it is sensitive to very small changes in overall market supply and demand. This also plays a role in Albemarle's financial situation, as seen in the company's quarter-to-quarter fluctuations in revenue and profit outlook.

All of these constitute stocks that must be approached with caution. For most investors, mining stocks should make up a very small percentage of their overall portfolio. I also believe portfolio rebalancing is a good idea if you own mining stocks - adding when lithium prices (and thus stock prices) fall and cutting when they rise.In any case, Albemarle is my favorite mining stock that I plan to hold for the long term as EV sales continue to eat up market share. Despite the headwinds, 2023 is shaping up to be another great year for the company.

When our team of analysts has a stock tip, it can pay to listen. After all, the Motley Fool Stock Advisor newsletter they've been running for over a decade has tripled the market.*They just revealed what they believe are the ten best stocks investors can buy right now... and Albemarle wasn't one of them . from them! That's right - he thinks these 10 stocks are an even better buy. Nicholas Rossolillo and his clients have positions in Albemarle. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The electrification of the automotive industry has been nothing less than a revolution in recent years. Electric vehicles (EVs) are rapidly gaining traction and offer a cleaner and more sustainable transport solution. As the world moves toward greener alternatives, demand for essential components like lithium, a vital element in EV batteries, is skyrocketing. Investors looking for a lucrative opportunity in this fast-moving market should take a closer look at a stock that's not only riding the lithium demand wave, but also flush with cash — a winning combination for growth-oriented investors.

Lithium's role in the electric car revolution

Lithium-ion batteries have become a cornerstone of electric vehicles, powering these vehicles with exceptional efficiency and range. Due to its low weight and high energy density, lithium is an ideal choice for electric car batteries. As governments around the world push for reduced emissions and greater adoption of electric vehicles, demand for lithium is expected to grow even further. This trend opens up a world of opportunities for companies in the lithium mining and production industry.

When it comes to investing in the booming lithium market, [Stock Name] stands out as an exceptional opportunity. Not only is the company well-positioned to benefit from surging demand for lithium, but it also boasts considerable financial strength. Its cash reserves provide a solid foundation for expansion, research and innovation, making it a leading player in the competitive lithium market.

Strong Financials: has demonstrated impressive financial performance with healthy cash reserves that can be reinvested to meet growing demand for lithium. This financial stability not only ensures the company's operational continuity, but also predisposes it to strategic acquisitions and expansions.

Innovation and Research recognizes the importance of innovation in the dynamic EV and lithium market. The company allocates a significant portion of its resources to research and development, ensuring that it remains at the forefront of technological advancements in lithium production and battery technology.

Global Reach:  has strategically built its presence in key lithium-producing regions around the world, giving it a competitive advantage in securing the necessary raw materials for EV batteries. This global reach helps mitigate supply chain risks and ensures a stable supply of lithium for its customers.Environmental responsibility: With increasing demand for greener solutions, environmentally friendly practices become a significant differentiator. [Stock Name] is committed to sustainable lithium production, adhering to responsible mining practices and minimizing its environmental footprint.

The growing demand for lithium fueled by the electric car revolution presents a unique opportunity for investors. When looking for a stock that combines a strong position in the lithium market with a robust financial base,  proves to be an exciting choice. As the world accelerates its transition to a cleaner, electrified future, is poised to flourish, making it a potentially rewarding addition to any investment portfolio.