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Demand for lithium is increasing significantly as electric vehicles (EVs) powered by lithium-ion batteries become widespread around the world. This seems like one of the biggest trends of this century. So should I invest in lithium miners within my stocks and Shares ISA next year?
The case of the bull
The argument for owning lithium stocks comes down to the energy transition. This seismic shift will require large-scale deployment of clean energy technologies, and lithium-ion batteries are essential for storing energy generated from renewable sources such as solar and wind.
In addition, there is the unstoppable increase in electric vehicles. According to Bloomberg, there could be up to 700 million electric vehicles worldwide by 2040, up from 27 million by the end of 2022.
Data from Benchmark Mineral Intelligence suggests the world will need more than 20 times the amount of lithium mined in 2021 to meet demand in 2050.
The case of the bear
Those projections make me want to build up lithium reserves right now! However, there are a few things to consider.
First, after reaching all-time highs last year, lithium prices collapsed in 2023. This was due to oversupply combined with higher interest rates that negatively impacted demand for new electric vehicles.
This inherent cyclicality is inevitable when investing in lithium producers. They have very little control over the price of the commodity, so their profits (and therefore their dividends and stock prices) can vary wildly from year to year.
For example, in the third quarter of 2023, the Chilean lithium giant Chemical and Mining Society of Chile (or SQM) reported a 45% year-on-year drop in its revenue from lithium and derivatives.
Next, I would highlight the political risk, especially in Chile, which has the largest lithium reserves in the world.
The Chilean government wants to create a national company that makes decisions in association with the miners. Reports suggest that SQM could even lose its operations once its contract expires in 2030.
To me, this muddies the waters and presents a significant risk.
Finally, there is always the possibility that a new technological advance will reduce the demand for lithium in the long term.
<h2 class="wp-block-heading" id="h-uk-stocks“>UK stocks
While the largest pureplay companies are listed overseas, there are some lithium producers listed in the UK.
Below are three popular ones that might be worth considering, although they all carry their own individual risks. He certainly wouldn't be reversing the truck.
| Market cover | Operations | |
| Atlantic Lithium | £139 million | Ghana, West Africa |
| Kodal Minerals | £82 million | Mali, West Africa |
| Cleantech Lithium | 31 million pounds | Chile South America |
Safety in numbers
Personally speaking, I don't have the time or inclination to closely follow political developments in Chile or West Africa. And this is obviously what you would have to do if you invested in a lithium miner there.
However, this is a market with huge growth potential, so I don't want my ISA to be left out, especially as I expect lithium prices to trend higher over time as global demand increases.
So, I am happy to receive this exhibition of BlackRock Global Mining Trust, which manages a diversified global mining portfolio. The trust faces the same cyclical problems as all miners, but I prefer its safety in numbers.
Has Rio Tinto as a top holding company. He FTSE 100 The miner, already an iron ore giant, is committed to significantly expanding its lithium operations.
