ASX-listed lithium shares have rebounded over the past month as supply constraints ease and demand for battery-based storage systems improves.
But while the shift in market sentiment is positive for the market overall, not every lithium stock is expected to grow.
In a recent note to investors, analysts at Macquarie Group Ltd (ASX: MQG) have highlighted three lithium stocks to avoid.
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Macquarie maintains its underperform rating on two ASX lithium shares
The Liontown Resources Ltd (ASX: LTR) share price is 0.55% lower at the time of writing, changing hands at 91 cents per share. For the year, the share price is trading 44.44% higher.
But Macquarie analysts have an underperform rating on the share price and a 65 cents target price. At the time of writing, that represents a potential downside of 28.6% over the next 12 months.
It's the same case for Mineral Resources Ltd (ASX: MIN). The share price is 0.64% higher at the time of writing on Tuesday, at $39.29 a piece. For the year, Mineral Resources shares are 6.88% higher.
But Macquarie has an underperform rating and $30 target price on the stock. That represents a potential 23.6% downside for investors over the next 12 months.
Lithium supply challenges remain
Macquarie notes that there are several near-term supply challenges in the lithium market. It also said it thinks the market's reaction to the "earlier-than-expected restart" of CATL's Jianxiawo lithium mine "may have been overdone".
Meanwhile, civil unrest and ongoing political tensions in Mali, West Africa, present material risks to local mining operations.
"We anticipate short-term disruptions to trucking and shipping logistics, with potential medium- to long-term impacts on mining productivity due to constraints from shortages of key consumables," the broker said in its investor note.
Lithium producers in Brazil are also facing permitting challenges. Macquarie explained that this is mostly due to insufficient consultation with local and traditional communities around Minas Gerais.
"While we expect these permitting issues to be resolved over time, there is a risk of production and shipment disruptions in the near term. According to Brazil customs data, spodumene exports from Minas Gerais in August totalled 20kt, representing a 36% year-on-year decline. Notably, export volumes year-to-date in CY25 have materially decreased compared to the same period in CY24."
In the medium term, Macquarie thinks productivity in the Jiangxi region during Q4 of CY25 and H1 of CY26 could be "significantly constrained by ongoing policy uncertainties".
But lithium demand is robust
Macquarie notes that battery energy storage system (BESS) demand has exceeded expectations in the second half of CY25. This has been a positive surprise for lithium consumption.
"We highlight that ESS sales instead of installation should be a more appropriate metric to track the demand for lithium given the long supply chain."
Strong electric vehicle (EV) sales have alleviated market concerns about a potential slowdown in lithium demand. Battery-powered vehicles now represent the most significant source of demand for lithium.
"In China, trade-in policies have been a key driver of EV sales and overall automotive consumption. Importantly, EV adoption continues to maintain strong momentum, with penetration rates reaching 12%/55%/31% for US, China and Europe, respectively, in August to date," Macquatrie said.
