UBS sees a "compelling risk-reward" in ASX lithium shares, with the top broker predicting the war in Iran will drive higher demand for electric vehicles (EVs) in the future.
Oil prices have skyrocketed since Israel and the US attacked Iran one month ago.
Over the past 30 days, the Brent crude oil price has jumped 38% while US West Texas Intermediate (WTI) has risen 31%.
UBS analysts see "the potential for another upcycle" in lithium prices, which began rebounding from a two-year rout in mid-2025.
Last year's rebound was driven by greater global demand for batteries, EVs, and power infrastructure due to the green energy transition.
Lithium spodumene prices rose from less than US$600 per tonne in June last year to over US$1,400 per tonne by December.
Today, lithium spodumene is fetching US$2,230 per tonne, according to Shanghai Metals Market.
UBS sees potential for the spodumene price to reach US$4,000 per tonne by the end of the year.
The lithium carbonate price rose to a two-year high of about US$26,200 per tonne in January, before paring back to US$22,650 today.
Let's take a look at the changes UBS has made to its ratings and 12-month price targets for ASX lithium shares.
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ASX lithium shares re-rated
UBS has upgraded IGO Ltd (ASX: IGO) shares from a neutral to buy rating with a slightly improved 12-month price target of $8.55.
On Friday, the IGO share price is $7.94, up 4.1% today, down 7.8% since the war in Iran began, and up 90% over 12 months.
UBS reiterated its buy rating on Liontown Resources Ltd (ASX: LTR) and raised its target by 4.8% to $2.20.
The Liontown share price is $1.72, up 0.7% on Friday, 0.7% higher over the month, and up 161% over the past year.
The broker downgraded the market's largest lithium pure-play miner, PLS Group Ltd (ASX: PLS), from a buy rating to neutral.
UBS put a price target of $4.95 on PLS shares.
On Friday, the PLS Group share price is $5.06, up 1.8% today and down 2.5% since the war began.
PLS shares have ripped 174% over the past year and reached a two-and-a-half-year high of $5.32 last month.
Trading Economics analysts say there are "signs of a momentary pullback in battery demand" as the war in Iran drags on.
On Friday, the analysts said:
Electric vehicle sales by top Chinese manufacturer BYD tanked 40% annually in February, a reversal from the growing trend in the previous months to raise concerns that the Chinese EV market may be slowing.
The data magnifies worries that higher energy costs due to war in the Middle East could hamper large manufacturers from building input goods inventories, driving industrial metals to pull back.
Still, Chinese supply was also expected to remain muted due to Beijing's anti-involution campaign.
Last year, data showed increasing sales of EVs in China, with EVs outselling traditional cars for the first time in October.
Trading Economics reported that EV sales in China grew 20.6% annually to a record of 1.823 million units in November.
