Should You Stay Away From Lithium Stocks?

Lithium producers were the beneficiaries of massive hype only a few years ago. The proliferation of electric vehicles in the world market had investors salivating at the potential for lithium producers. Lithium stocks have sputtered in 2018 and the first half of 2019, and the situation may only worsen into the next decade.

Morgan Stanley recently forecast a 30% drop in lithium prices by 2025. As expected, the crisis facing lithium prices continues to be oversupply in the global market. New technologies have also emerged that are lowering the cost of production.

Lithium prices are already down almost 10% in 2019 so far. However, this forecast is predicated on the bank’s projection that EVs will make up only 10% of the global fleet by 2025.

Stocks of lithium producers have performed poorly in 2019 with slumping prices proving to be a formidable headwind. Nemaska Lithium (TSX:NXM), a Canada-based producer, has seen its stock drop a whopping 65% in 2019 as of close on July 16. Shares are down 72% from the prior year.

Lithium Americas (TSX:LAC)(NYSE:LAC), which boasts projects in Argentina and Nevada, has been a notable outlier. Its stock has climbed 21% in 2019 so far. Still, we are coming off a brutal 2018 that saw the stock shed over 60% of its value.

The run-up is nice to see, but Lithium Americas stock is still dangerous if lithium prices extend this bear market well into the next decade.