S&P/ASX 200 Index (ASX: XJO) lithium shares have seen their fair share of volatility over the last 12 months. Are things looking more optimistic for FY24?
A year ago the sector was going through a lot of pain amid a widespread sell-off of the ASX share market. One year later, the Pilbara Minerals Ltd (ASX: PLS) share price is up 108%, the Liontown Resources Ltd (ASX: LTR) share price is up around 200% and the Allkem Ltd (ASX: AKE) share price is up 70%.
The ASX 200 lithium share sector has recovered strongly. But will it be able to kick on from here?
Strong outlook
According to recent reporting by the Australian Financial Review on Benchmark research, there will need to be US$561 million invested in critical minerals by 2030 like lithium, cobalt and graphite to ensure that the global battery minerals supply chain can keep up with demand, with lithium being essential.
Benchmark said:
Benchmark's view is that lithium, more than any other part of the supply chain, will be the bottleneck for the growth of the battery industry.
Over the medium to longer term, we expect China to match Europe in EV penetration rates by the end of this decade, followed by the US. The global EV penetration, which includes mild hybrid EVs, could exceed 60% by 2030.
A gigafactory can be built in two to five years. A refinery can be built in two. But the mines needed upstream of them take between five and 25 years to develop. So even though gigafactories require the largest amount of investment, it is imperative that investment is made now in the mines.
Lithium mining is expected to achieve 1 million tonnes of production for the first time in 2023. Benchmark's estimate for demand implies that production needs to rise to 2.8 million tonnes by 2030.
Pilbara Minerals itself has pointed out that by 2040, the lithium deficit is expected to be between 13 to 21 Pilgangooras, depending on the potential supply coming online.
While the long-term demand for lithium looks good, the commodity price has fallen compared to the peak several months ago, and costs may be under pressure due to inflation, which is a headwind for ASX 200 lithium shares.
Electric vehicle production is increasing
Things are looking good on the electric vehicle production side of things. In the second quarter of 2023, Tesla sales increased by 9% to around 480,000.
Meanwhile, It was reported that Chinese electric car maker BYD saw June sales increase by 88% to almost 252,000, according to reporting by Reuters on CPCA data.
If electric vehicle production continues to grow then this can only be a strong tailwind in FY24 and beyond.
