Challenges Faced by Lithium Stocks Amid Supply Storm and Demand Issues

The Lithium industry is currently experiencing a significant setback due to a combination of supply disruptions and emerging demand problems. This has resulted in a decline in the stock prices of key players in the market.

Impact on Lithium Miners

Albemarle (ticker: ALB), SQM (SQM), and Livent (LTHM), all prominent lithium miners, have witnessed a decline in their stock values. In midday trading on Monday, their shares were down by 4.4%, 3%, and 2.6% respectively. It is important to note that this drop cannot be attributed to overall market trends, as the S&P 500 and Dow Jones Industrial Average were both performing positively, with gains of 0.6% and 1% respectively.

Factors Contributing to the Decline

1. ON Semiconductor (ON)

The decline can be attributed, in part, to U.S. semiconductor maker ON Semiconductor. As a major supplier of chips for car manufacturers, their announcement that fourth-quarter sales would approximate $2 billion fell short of Wall Street's expectations of $2.2 billion. This news caused ON Semiconductor's stock to plummet by 18% during midday trading.

2. Panasonic (6752.Japan)

Another contributing factor to the decline is the revised fiscal year 2024 forecast from Japanese battery maker Panasonic. The company now projects sales of 8.4 trillion Yen (approximately $56 billion), down from its previous estimate of around $57 billion. Interestingly, within Panasonic's energy division, which includes batteries and related products, the sales forecast was reduced by approximately 15% to about $5.9 billion. The company cited weakened demand for high-end electric vehicles and sluggish consumer and industrial demand as the key drivers behind this revision. Furthermore, a growing trend among automakers, such as Tesla, to adopt lower-priced batteries to reduce costs has further impacted Panasonic's sales.

In conclusion, the current situation in the lithium market is challenging, with supply disruptions and demand issues converging. Investors should closely monitor the ongoing developments in this industry as they can significantly affect the performance of lithium stocks.

Panasonic's Fiscal Year Ends in March 2024

Panasonic's fiscal year is set to conclude in March 2024. However, the company's shares experienced a 2% drop in overseas trading on Monday.

Downgrade for Chinese Lithium Miner

Analyst Jack Shang from Citi downgraded the shares of Chinese lithium miner Tianqi Lithium (9696.Hong Kong) from Buy to Sell on Sunday. Shang cited weaker price trends for lithium ore due to oversupply in the upcoming years. As a result, he adjusted his earnings estimates for 2023, 2024, and 2025.

Shares Weaker, But Showing Improvement

Despite the downgrade, Tianqi Lithium shares performed relatively well, closing up 1.3% in overseas trading. Nevertheless, the shares are still down around 31% from the previous year.

Impact on Electric Vehicle (EV) Demand

The cumulative effect of these developments points to a decline in demand for electric vehicles (EVs). This has negative implications for various stocks, including lithium miners. For instance, Tesla (TSLA) stock experienced a 4.6% decline, trading at $197.75 during midday trading. Similarly, Rivian Automotive (RIVN) shares are down 2% at $15.68 per share.

EV Sales Continue to Grow, But Oversupply Is a Concern

Despite the overall decline in demand, EV sales are still showing growth. In the United States, EV sales have increased by approximately 50% this year. Europe has witnessed a similar trend with a reported 50% increase, while China experienced a more modest 20% rise. However, when supply surpasses demand, it becomes problematic for the industry as a whole.

Effects on Albemarle and Livent Shares

In light of these circumstances, both Albemarle and Livent shares have suffered a significant decline of 54% over the past 12 months. Additionally, the benchmark lithium price has plummeted by about 70% within the last year. The combination of supply growth and excessive industry inventories has contributed to this decline, further highlighting the cracks in EV demand.