China Guarantees Lithium Stock Profits for You

Written by Nick Hodge
Posted August 31, 2016 at 6:27PM

I’ve been on top of the lithium battery and electric vehicle trend for years.

All the way back in 2008 in fact, in the flagship Early Advantage newsletter, I recommended a Chinese lithium battery and electric car maker named BYD (HKSE: 1211). It stood for Build Your Dreams.

Warren Buffett took a 10% stake in the company that same year.

By 2010 my readers were up more than 400% and we sold before the sector, and indeed many cleantech sectors, cratered.

BYD Max Chart(Click to Enlarge)

But I’ve continued to watch the lithium market out of one eye, and over the past year or so it’s begun to heat up in a big way.

In fact, BYD was back in the news recently because it forecast up to a 91% rise in profits for the first nine months of this year to over US$539 million. Its first-half profit of ~US$344 million was a 384% year-over-year rise.

It has reported successive quarters of triple-digit growth since the third quarter of 2015. For what it’s worth, Tesla (NASDAQ: TSLA) has lost more than $200 million in every quarter since then.

And the difference is government policy.

Chinese government policies have sparked a boom in the sales of all electric cars… and therefore in the use of lithium batteries. This has also been a driving force behind the rampant rise in lithium prices and lithium stocks that I’ve been writing to you about for several weeks now.

Last year, China surpassed the United States as the largest market for electric vehicles — the result of spending US$2.3 billion on subsidies since 2009. By 2025, China wants to be selling more than three million electric cars annually.

And it may issue compulsory quotas to do it.

According to a draft document from China’s National Development and Reform Commission, the country considers electric vehicles a “strategic industry” and a new proposed measure would require automakers to produce or import electric vehicles relative to the number of traditional vehicles they sell.

To support this growth, China needs as much lithium as it can get. And that’s one of the reasons lithium prices have surged in recent months, from $5,000 per tonne last year to as high as $24,000 per tonne in China this year.

Lithium Carbonate PricesAnd it’s also why China is pushing forward with a $400 million lithium hydroxide plant in Western Australia. As I've told you before, China’s Tianqi already controls a majority stake in the Greenbushes mine, the hard-rock (as opposed to brine or clay) producer in Australia that supplies a third of global demand for concentrate.Lithium Suppliers Market Share

Tianqi’s partner in the Greenbushes project is Albermarle, which also runs the only lithium-producing brine operation in North America — in Nevada’s Clayton Valley.

Now, China’s Tianqi has also applied to build a lithium hydroxide plant that will be fed concentrate trucked from Greenbushes. This way it can keep more lithium in its own supply chain instead of exporting it to the rest of the world, which also needs increasing amounts of lithium for their electric cars, smartphones, and power tools.

As The West Australian succinctly put it, China’s goal is “maintaining the company’s domination of the local lithium industry as upstart producers race to be the first new suppliers of a growing demand in China and beyond.”

Indeed, new suppliers are jockeying for position in a big way.

Just last week USA Today reported something I’ve been trying to get you to understand for weeks now: a lithium supply shortage is a very real possibility. It noted:

We’ve gone electric, and there’s no going back at this point. Lithium is our new fuel, but like fossil fuels, the reserves we’re currently tapping into are finite — and that’s what investors can take to the bank.

You may think lithium got too popular too fast. You may suspect electric vehicles are too much buzz and not enough real future. You may, in short, be a lithium skeptic, one of many. And yet, despite this skepticism, lithium demand is rising steadily and sharply, and indications that a shortage may be looming are very real.

It won’t be a shortage in terms of ‘peak lithium’; rather, it will be a game of catch-up with the electric car boom, with miners hustling to explore and tap into new reserves.

But which lithium companies and stocks will lead you to the highest gains?

In a boom such as this, there are plenty of companies eager to take your money.

I spell out which are worthy — and which to avoid at all costs — in this brand new lithium report.

Call it like you see it,

Nick Hodge Signature

Nick Hodge

follow basic@nickchodge on Twitter

Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street Underground. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.

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