Selfwealth Capital Markets, a note from the desk 

The lithium trade has arguably been among the most rewarding over the past decade. And there are many reasons to suggest that the well sought after commodity run is far from over.

In 2022 Australia produced approximately 69 million tonnes of lithium, which equates to around 50% of total global lithium production, making us the largest lithium producer in the world. This is a stark contrast to third-placed China, which is the world largest consumer of lithium yet produced only 16 million tonnes. Australia is perfectly placed to capitalise on China surging demand for the mineral as their booming electronic vehicle industry continues to accelerate.

Some may say the lithium space is becoming fairly crowded as over 60 lithium stocks are listed on the ASX. With the recent and sobering 50% pullback in lithium prices, however, the sector is looking interesting again, to say the least. The bleeding appears to have stopped after a horror past six months, and prices have started to recover well. Demand continues to outweigh supply, suggesting this pullback may be a good opportunity to gain exposure or add to existing positions.

Sector Outlook

Demand for lithium is expected to outpace supply for the next several years, according to Australia Office of the Chief Economist (OCE). As the world continues to ramp up its charge towards reducing carbon emissions, electronic vehicle sales are expected to grow at a compounding annual growth rate of 20% - 25%, with the market size in the US alone expected to grow from $30 billion USD in 2023 to $138 billion USD in 2028.

Coupled with this, many of the world largest oil and gas producers are stepping up their efforts to break into lithium to diversify their portfolios beyond fossil fuels. Exxon Mobile, Schlumberger, Occidental Petroleum, and Equinor are exploring whether their core skills of pumping, processing, and extracting oil could be used to mine and process lithium and alleviate the supply shortage.

Oil majors pushing into the lithium space would give producers of electronic cars some reassurance that they will be able to keep up with demand over the coming decade, especially as Western countries and governments begin to ban the manufacturing of petrol and diesel cars.

EV Producers Taking Matters into Their Own Hands

Car manufacturers such as Volkswagen, Ford, and Mercedes Benz are increasingly taking matters into their own hands to ensure they can secure supplies of lithium and other key ingredients needed to produce EV batteries.

Volkswagen also owners of Audi, Skoda, Bentley and Lamborghini recently started another company, PowerCo, responsible for building battery factories to supply its own EV production and sell to outside customers.

In a growing trend among EV producers, PowerCo also signalled they are looking to take direct stakes in lithium and nickel producers and mine as part of its overall strategy. This comes after Chinese car manufacturer Great Wall bought a 3.5% stake in ASX listed Pilbara Minerals (ASX: PLS) in 2017, and Ford entered into an offtake agreement with Liontown Resources (ASX: LTR). Tesla also has a deal to buy nickel, which is used in producing EV batteries, directly from mining giant BHP (ASX: BHP).

Latin Resources (ASX: LRS) has been another star performer this calendar year and has rallied over 200% since April. Liontown Resources, as mentioned earlier, has also been a huge success story, as has Leo Lithium (ASX: LLL), both up 176% and 137%, respectively, over the past several months putting all three stocks on the podium for best sector performers in 2023.

Lithium IPOs “ Outperforming

Despite turbulent market conditions and economic headwinds, lithium IPOs have dominated the market in 2023, performing exceptionally well compared to other sectors. The newest additions, Evergreen Lithium (ASX: EG1) and Leeuwin Metals (ASX: LM1), both triumphantly debuted on the ASX, with Evergreen at one stage posting a return of nearly 200% just days after listing, and Leeuwin currently sitting at a 110% increase from its IPO price of $0.20.

Evergreen Lithium is an exploration company that owns 100% of three highly prospective lithium mineralisation projects within the Northern Territory and Western Australia. Evergreen flagship project is the Bynoe Lithium Project which is located adjacent to Core Lithium (ASX: CXO) and its producing lithium mine, the Finniss Project.

Leeuwin Metals is a critical minerals explorer operating five lithium, copper, PGE, and nickel projects across Canada and Western Australia. Leeuwin aims to contribute to global decarbonisation by securing metals vital for the advancement of electric vehicles and renewable energy. LM1s IPO attracted a 9.97% cornerstone investment from Glencore, the world's largest diversified mining company.

Investors have started to show interest in new floats in 2023, with both lithium IPOs oversubscribed, indicating there is still an appetite for capital raising opportunities, with investors continuing to see significant upside in the lithium space.

Selfwealth Capital Markets team will be looking to provide access to good quality lithium IPOs in the future.