Is the party only just getting started for ASX lithium shares?

The market for lithium is electric right now, but is there more charge left in it?

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The electrification trend has been thrown around a lot since electric vehicle (EV) makers, such as Tesla Inc (NASDAQ: TSLA), rose to prominence. In the process, ASX lithium shares have been caught in the updraft of rising lithium prices.

In the space of 12 to 18 months, lithium shares have gone from being the undesirables to being the spice of the time. An expected flood of demand has plenty of investors and speculators alike chasing the next potential gold rush.

Some analysts also believe the trend could have legs, citing the push for a global energy transition as a major structural tailwind.

While the returns from some ASX lithium shares have been downright phenomenal over the past year, various brokers are pointing towards a potential for greater things to come.

More to come?

It might be easy to dismiss the swiftly ascending lithium share prices as nothing but rampant speculation.

However, recent sales data would indicate otherwise, as EV sales continue to surge globally. Preliminary data from Research and Research show substantial increases year on year in August. For instance, German, France, and Norway sales rose 62%, 60%, and 92% respectively.

Similarly, in the first half of the year, China EV sales soared 164% year on year to 271,000 units, according to the China Association of Automobile Manufacturers.

Additionally, the electric vehicle market is broadening out from the pack of initial disruptors. Even the likes of BMW AG and Toyota Motor Corp are spending on batteries and battery technology.

The German luxury carmaker has contracts for A$32 billion worth of batteries. Meanwhile, Toyota is set to splurge US$13.5 billion on its own battery supply system by 2030.

Due to the cost of lithium-ion batteries dropping significantly, analysts expect this to be the standard for the foreseeable future. With lithium being a critical material in this battery design, this obviously bodes well for increased demand over time.

Head of mining research at Canaccord Genuity, Reg Spencer commented on the electric shift, stating:

What you see here is a global structural change in how people move and what powers that movement. In itself, we haven’t seen anything like this since the Industrial Revolution.

Furthermore, Spencer expects a continued surge in lithium demand as lithium maintains its critical role in the electrification shift.

Setting the stage for ASX lithium shares

Some might find it interesting to know that lithium itself isn’t considered a scarce resource. However, the lack of investment in supply in the years prior to the recent boom has meant the volume of lithium required is simply not available.

As a result, the price of lithium carbonate has sprung from about US$5400 per tonne a year ago, to approximately US$19,000 as of today. In a similar fashion, lithium spodumene prices have flown from around US$370 per tonne to more than US$900 per tonne.

The momentous prices have led to an incredible acceleration in events for ASX-listed lithium shares. One major event involves the merger of Galaxy Resources Ltd (ASX: GXY) and Orocobre Limited (ASX: ORE). This unification of companies is set to create the fifth-largest lithium chemicals company on the planet.

Concurrently, other ASX lithium shares have waged staggering comebacks in their own right. For example, the Pilbara Minerals Ltd (ASX: PLS) share price has skyrocketed 553% in the past year. This is backed up by surging revenues in FY2021, with revenue increasing 108.9% to $175.8 million in FY21.

Final remarks

While lithium shares remained exposed to the cyclic nature of mining, Spencer forecasts positive prices for years to come.

Specifically, the analyst expects spodumene prices to hold above US$900 per tonne until FY2026. This is based on the expectation of continued supply deficits as the demand for lithium remains elevated.

Motley Fool contributor Mitchell Lawler owns shares in Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended BMW. The Motley Fool Australia has recommended BMW. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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