Shares in lithium miner Albemarle (ALB -2.89%) declined by 22.1% in June, according to data provided by S&P Global Market Intelligence. The move comes from a price decline in lithium carbonate and a deteriorating narrative around the electric vehicle (EV) market. The first issue is an immediate reaction to falling revenue and profitability at Albemarle, and the second issue is investors pricing in less favorable future outcomes for the company's profitability.
End market concerns
The demand driver for lithium is its use in transportation and energy storage batteries. EVs are the more significant part of that demand, so if you are optimistic about the future for EVs, then you are almost certainly confident about the future demand for lithium. That's why investors often consider Albemarle a proxy for sentiment over EVs.
Unfortunately, the narrative around EVs has deteriorated in 2024, as ongoing relatively high interest rates have made it more expensive to purchase a car. In addition, there's almost a negative cycle whereby declining investment in EVs is slowing the rate at which automakers can reduce cost per vehicle and ultimately make it easier for consumers to buy EVs. That will hurt demand, too.
Moreover, according to news reports, Serbia is preparing to give the go-ahead for a major mine that could open in 2028 and add significant amounts of supply. In addition, Argentina is also ramping up lithium production, as is Bolivia.
A combination of waning demand, relative to expectations, and growing supply is creating negative sentiment around lithium miners like Albemarle.
Image source: Getty Images.
What's next for Albemarle?
After rising in the spring and indicating that the declining trend in the price of lithium carbonate was over, the price declined again in June, and investors remain concerned over rising inventories when EV sales are disappointing. In addition, rising European Union tariffs on EVs produced in China may also curtail EV sales.
It's shaping up to be a challenging year for Albemarle. Wall Street sees the company's sales declining by 38.5% this year, leading to its earnings per share declining from $22.25 in 2023 to just $2.88. That's the kind of wild ride investors can expect when investing in lithium, but it can just as easily turn around next year in a lower interest rate environment and an improving EV sales market. Indeed, the recent positive news on deliveries from Tesla is an indication of how quickly things can turn around.
