ASX lithium shares and electric vehicle (EV) makers are both enjoying a boom as the decarbonisation trend takes hold.
The global market for EVs is expected to grow from 11 million vehicles in 2020 to 145 million by 2030, according to a report by the International Energy Agency (IEA). And with major players like Volkswagen, Ford, and General Motors getting into the game, it's clear that this trend is here to stay.
But what about lithium shares? ASX-listed lithium companies have been at the forefront of the green boom and many investors are wondering if they make for a better investment case than EV makers.
So far, it's been difficult to say for sure. However, looking back at what has happened in the past might give us some clues.
EV production to take charge of lithium future
Whether the real winners of the green shift will be EV makers or ASX-listed lithium shares partly depends on the battery composition of the future.
According to the IEA, the total lithium demand for EVs and battery storage is roughly 30% of the entire market. However, the agency's forecasts anticipate this will expand to 83% of all lithium demand by 2030 under a 'sustainable development' scenario.
This creates some risk for ASX-listed lithium investors if battery chemistry were to evolve beyond the need for lithium. However, as noted in the scientific journal Nature, the plummeting price of lithium-ion batteries over the years means they will likely dominate the scene for the foreseeable future.
How has it played out for ASX lithium shares so far?
The last year has seen many ASX lithium shares benefit from record-high prices for the electrifying material. In 2021, the price of lithium carbonate exploded by roughly 500%, according to Trading Economics.
Undoubtedly, a major catalyst for these higher prices was a growing demand for EVs. Last year, nearly 6.5 million new electric cars were delivered, an increase of more than 108% over the prior year.
Importantly, experts have estimated that for every 1% increase in EV market penetration, an additional 70,000 tonnes of lithium carbonate is required.
As a result, investors are responding to the expected supply gap (as shown above) by bidding ASX-listed lithium shares higher. For example, here's how some of the largest lithium companies on the ASX have performed in the last 12 months:
- Mineral Resources Ltd (ASX: MIN), up 34%
- Pilbara Minerals Ltd (ASX: PLS), up 187%
- Liontown Resources Limited (ASX: LTR), up 330%
What about EV shares?
Despite noteworthy increases in electric vehicle sales in 2021, manufacturers of these electricity eaters are not experiencing the same fanfare as ASX-listed lithium shares recently.
An interesting dynamic to consider is: as lithium prices move higher, this will have a direct impact on the margins of EV makers if they cannot pass on the additional cost.