The Lithium Market Is About to Get a Lot Weirder: Liam Denning

Ever the financial innovator, President Donald Trump seems to be crafting a whole new type of convertible debt. Lithium Americas Corp., which is developing a mine atop the biggest lithium deposit in the US, is the guinea pig. By extension, a grand experiment may be about to begin in the the already weird lithium market.

Toward the end of former President Joe Biden’s administration, Lithium Americas received a $2.3 billion loan commitment from the Department of Energy to fund the majority of developing the first phase of its Thacker Pass project in Nevada. At the same time, General Motors Co. took a stake in the project (having already taken a direct equity stake in Lithium Americas itself) and expanded an offtake agreement for the mine’s output. This all fit with Biden’s push to reshore critical mineral supply chains ceded to China and encourage domestic production of batteries and electric vehicles.

Times have changed. Trump has shown a willingness to not merely “review” commitments to energy transition projects made by his predecessor but outright abrogate them, with offshore wind projects being the most prominent example. Now, with Lithium Americas negotiating modifications to its loan, the Department of Energy has reportedly floated the idea of taking an equity stake in the company as part of that, perhaps up to 10% according to a report from Reuters. It is also reportedly seeking a more robust offtake agreement for Thacker Pass on GM’s part.

It might seem odd that Trump would seek greater US exposure to an EV-linked project, with Biden-era consumer tax credits for those vehicles about to be yanked away. But he is very much enamored with all things pertaining to digging up and selling American minerals.

Even though vehicle batteries account for roughly 75% of global lithium demand today, they also power other things. Grid batteries account for 15% (and rising) of lithium demand and, although they enable other Trump bugbears like solar power, they have emerged as critical components of a power grid already facing a huge challenge in the form of another Trump priority, building datacenters.

Grid batteries notably won a reprieve in the Republicans’ broadly anti-green tax bill. In addition, lithium-ion batteries power an expanding array of military equipment, including drones. China holds roughly a quarter of the world’s lithium mining capacity and four-fifths of its raw lithium refining capacity, as well as dominating the lithium-ion battery value chain in general.

In that context, the administration may simply be taking the opportunity presented by Lithium Americas’ renegotiation to push for a bigger role in a strategic resource. Imagine a particularly aggressive private equity firm known for exercising its own peculiar levers of pressure when it isn’t getting its way. Lithium Americas’ stock more than doubled at one point on Wednesday morning, and was up more than 90% as of writing this. That reflects a large measure of relief at an adversarial administration potentially becoming a partner, juiced by a hefty short position.

But this isn’t just any potential new shareholder, of course, and lithium isn’t just any commodity market. It has gone through an extraordinary boom-and-bust cycle in recent years, soaring from less than $7,000 per metric ton at the end of Trump’s first term to about $80,000 and then collapsing to today’s level of about $10,000.

While it is hard to substitute lithium in applications, supply responds extraordinarily quickly to price increases and China’s grip on the entire supply chain affords Beijing an outsized role in moving prices according to its policy objectives. Suspended production at several Chinese mines, perhaps as part of a broader effort to rein in excess capacity in the country’s EV supply chain, has helped lithium prices recover somewhat this summer.

Suspended output still represents capacity, however, and the risks in lithium are to the downside: Globally, new supply planned through 2028 is almost double what is required to keep stocks of the metal stable relative to demand, according to analysts at Goldman Sachs Group Inc.

Concern that Thacker Pass would start up amid a glut was one factor weighing on Lithium Americas’ beaten-down share price. Now it will potentially have as one of its biggest shareholders an entity driven by strategic considerations to encourage more supply but also committed ideologically to curbing domestic demand by discouraging EVs (on that front, another DoE loan recipient, Rivian Automotive Inc., should be tracking this situation closely).

The result could be an even more state-led lithium market, exacerbating boom and bust cycles but, in the near-to-medium term, tending more toward bust. Not exactly a bullish signal for miners as a whole, but potentially great for battery economics and demand. Just don’t tell Trump that.

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• Billions in Cleantech Spend Is Going Up in Smoke: Liam Denning
• The Intel Stake Is Industrial Policy at Its Worst: Joel Michaels

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Liam Denning at ldenning1@bloomberg.net

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