Tesla Inc (NASDAQ:TSLA)
On Tesla’s most recent earnings call, Elon Musk discussed a variety of topics, one of which was the scarcity of lithium refining choices. Because lithium is an essential component of electric vehicle batteries, the EV sector has an unmet requirement for refined lithium.
Musk asked: “Can other individuals kindly do this work? That’d be fantastic.
In other words, Musk was attempting to highlight the opportunity for lithium producers.
Corinne Blanchard, an analyst at Deutsche Bank who focuses on this industry, agrees with this assessment and has a hunch about which companies might also present an opportunity for investors.
In light of this, we have accessed the TipRanks database and retrieved the information for two of Blanchard’s suggestions. Both of these stocks have a Buy rating and have double-digit upside potential for the upcoming year. Let’s look more closely.
Americas Lithium (NYSE:LAC)
Lithium Americas, a mining and refining company with significant future development potential, will be our first stop. LAC’s most valuable asset is the pre-revenue Thacker Pass Mine in northern Nevada. It has the largest lithium deposits in the US. For the nation’s growing electric vehicle (EV) sector, which requires high-quality Li-ion batteries, this makes the mine a significant resource.
However, even though Thacker Pass is an intriguing idea, it won’t be ready until 2026, which is a very long time from now. Early in March, the firm announced the beginning of construction.
However, during the most recent Q4 earnings call, the firm disclosed that Cauchari-Olaroz mine construction in Argentina was “substantially complete,” and production was anticipated to begin by the end of the first half of 2023. The business claimed that it needs less than $50 million in additional capital expenditures to reach production and positive cash flow. By the first quarter of 2019, LAC expects to have produced 40,000 tpa (tonnes per annum) of lithium carbonate at full capacity.
The Thacker Pass Mine’s long-term potential is at the heart of Blanchard’s optimistic argument when analyzing the company’s prospects.
The analyst with Deutsche Bank stated, “We maintain a Buy rating on LAC given its asset portfolio and strategic geographic exposure to Argentina and the US… Despite the constraints that come with the asset being a clay-based deposit, we are confident in management’s ability to develop the Thacker Pass. The US hydroxide plant Thacker Pass, which produces 80 ktpa, should be very useful to the domestic lithium market in the US.
A $26 price objective, if achieved, would result in a 36% annual share increase for the Buy rating.
Blanchard is not the only one who has a favorable opinion of this potential lithium producer. Since there have been five positive analyst reviews of LAC in the last three months, the consensus opinion is obviously a Strong Buy. The stock is expected to increase 73.5% in the coming year, according to analysts, given that the average goal is $32.85.
Chile’s Society for Chemical and Mining (SQM)
Chile, the world’s second-largest lithium producer, has the largest lithium deposits. The company manufactures lithium carbonate and lithium hydroxide from brine in Chile’s Salar de Atacama, the country’s largest salt flat.
The company’s most recent reported quarter, the fourth quarter of 2022, saw strong profitability thanks to the favorable price environment experienced during 2022. Revenue increased to $3.13 billion, up 189.8% from the same time last year, exceeding expectations by $110 million. Gross profit increased significantly from the $542.8 million produced in 4Q21 to $1.64 billion. The company beat the $3.77 projection and achieved EPADR (Earnings per American Depositary Receipt) of $4.03, up from $1.13 in the same quarter last year.
The shares, however, recently took a significant hit, falling by 18.5% last Friday after Chilean President Gabriel Boric announced plans to nationalize the nation’s lithium industry and create a state-owned corporation that will engage in lithium exploration.
The state-controlled Codelco is anticipated to negotiate a deal with SQM (and rival Albemarle) to buy a stake in their business activities before their contracts expire.
Despite predicting there won’t be any significant changes to present contracts, Deutsche Bank’s Blanchard observes that given the ongoing renewal process, SQM could be impacted because its contract to collect lithium in Chile’s Atacama salt flat expires in 2030.
Although it is still unclear whether the Chilean government’s plan will be implemented, Blanchard emphasizes the possibility for investors and the value proposition of SQM.
“We value SQM’s upcoming volume expansion, with a focus on Chile’s existing operations, but also the 20kt of hydroxide capacity in China and Mt Holland in Australia, as we are increasingly positive on the fundamentals of the market in the medium-term,” the analyst said.
Overall, Blanchard’s Buy recommendation for SQM has not changed, and neither has the price target, which remains at $90 and is expected to produce returns of 42% over the next several months notwithstanding the Chilean government’s measures.
The analyst consensus assesses this company as a Moderate Buy, according to the consensus breakdown, which shows a total of 6 Buys vs. 1 Hold and Sell, respectively. Blanchard does not permit a bullish target of $103.63, thus investors may realize gains of 63% within a year.
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