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Lithium Americas Stock Loses 63% in 6 Months: Should You Buy the Dip?
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Lithium Americas Corp.'s (LAC - Free Report) shares have lost 62.8% in the past six months, significantly underperforming the Zacks Mining – Miscellaneous industry’s decline of 2.9%. The bearishness reflects the plunge in LAC’s shares following its public offering of 55 million common shares at a deep discount and soft lithium market fundamentals underpinned by a slowdown in demand and a significant decline in lithium prices.
LAC stock is trading at a roughly 80% discount to its 52-week high of $12.38.
Technical indicators show that LAC has been trading below the 50-day simple moving average (SMA) since Aug. 28, 2024, indicating a bearish trend.
LAC’s Shares Trade Below 50-Day SMA
Image Source: Zacks Investment Research
Given the significant pullback in Lithium Americas’ shares, investors might be tempted to snap up the stock. But is this the right time to buy LAC? Let’s find out.
LAC Well-placed on Long-term Lithium Demand Growth
Lithium Americas, a lithium exploration and development company, is well-placed to gain from significant long-term growth in the lithium market. While lithium demand has slowed down and prices have been going downhill amid rising supply since 2023, long-term fundamentals remain solid for lithium, a critical mineral in the global transition to clean energy. The global demand for lithium is expected to experience exponential growth due to the accelerating adoption of electric vehicles (EVs) and renewable energy storage solutions. Lithium is expected to become increasingly valuable as the global push for clean energy and EVs accelerates.
As governments push for carbon neutrality, EV adoption has surged, driven by both policy initiatives and consumer demand. Demand for Lithium, a core component of EV batteries, is expected to accelerate on the back of significant global EV adoption driven by government mandates and consumer preference for greener alternatives. The increasing adoption of lithium-ion batteries in energy storage systems also contributes to this demand surge. Lithium Americas is well-positioned as a significant player in the lithium space to benefit from this trend.
Thacker Pass: The Fulcrum of LAC Stock’s Prospects
Lithium Americas remains committed to developing the fully owned Thacker Pass project located in Humboldt County in Nevada, which hosts the largest known measured and indicated lithium resource in North America. LAC is focused on advancing Thacker Pass, its only material mining project and most significant growth opportunity, toward production. Initial construction of the project commenced in March 2023. LAC targets a nameplate production capacity of 40,000 tons per annum (tpa) of battery-grade lithium carbonate during Phase 1. In the second phase of production (Phase 2), it targets an additional 40,000 tpa, for a total production capacity of 80,000 tpa.
Thacker Pass is one of the largest known lithium deposits in the United States and is crucial for reducing the reliance on foreign lithium suppliers. The U.S. government has shown strong support for domestic lithium production, which is crucial for national security and the development of EV infrastructure. With the increasing focus on developing domestic lithium supply chains in the United States, Thacker Pass could play a vital role in securing the U.S. lithium supply.
LAC is expected to benefit from government backing in the form of favorable regulatory frameworks and support for domestic lithium production, given the growing recognition of lithium’s strategic importance. Thacker Pass is expected to support lithium needs for up to 800,000 EVs annually.
Strong Financial Backing for Lithium Americas
Lithium Americas is committed to engaging with several stakeholders to responsibly develop Thacker Pass. The company has received a conditional commitment for a $2.26 billion loan from the U.S. Department of Energy (“DOE”) under the Advanced Technology Vehicles Manufacturing Loan Program for financing the construction of the processing facilities at Thacker Pass. LAC expects to close the DOE Loan in the second half of 2024.
In January 2023, General Motors Company (GM - Free Report) announced a $650 million equity investment in Lithium Americas to assist the latter in constructing and developing Thacker Pass. The first part of this two-tranche investment was completed in February 2023. General Motors has exclusive rights to all Phase 1 production for 10 years, with an option to extend for an additional five years.
The DOE loan and GM’s investment are expected to provide the bulk of the required capital to fund Thacker Pass Phase 1 construction. Major construction is anticipated to start in second-half 2024, following the expected closing of the DOE Loan and issuance of full notice to proceed. Mechanical completion of Thacker Pass Phase 1 is targeted for 2027, with full-capacity production expected in 2028. In late April 2024, LAC completed a $275 million equity offering, which it expects to use in advancing the Thacker Pass construction.
Uncertainty Over Financing May Impact LAC’s Prospects
Lithium Americas is yet to generate revenues from operations and relies on equity and other financings to fund operations. LAC is heavily dependent on the successful development of Thacker Pass and bringing it into production. Production from Thacker Pass is also not expected to ramp up until 2028. LAC and General Motors recently agreed to postpone the $330 million second tranche investment until the end of 2024.
The companies agreed to explore alternative structures for the second part of the investment during this time and extended the deal closure date to Dec. 20, 2024. If the deal is not closed by then, LAC will need to grant additional rights related to Thacker Pass Phase 2 to General Motors. The conditions for the second tranche include the successful execution of the loan agreement with the DOE. The delay has raised risks regarding the closing of financings.
Lithium Americas’ Earnings Estimates Going Down
The Zacks Consensus Estimate for 2024 for LAC has been revised downward over the past 30 days. The consensus estimate for 2025 has also been revised lower over the same time frame.
Image Source: Zacks Investment Research
LAC Stock Underperforms Industry and S&P 500
LAC’s shares have lost 61.6% year to date, underperforming the industry’s 14.9% decline and the S&P 500’s rise of 19.9%. A couple of key players in the lithium mining space, Albemarle Corporation (ALB - Free Report) and Sociedad Quimica y Minera de Chile S.A. (SQM - Free Report) have lost 37.4% and 34.9%, respectively, this year, reflecting the significant decline in lithium prices due to slowing demand growth for EVs, inventory glut and increased supply. Lithium prices nosedived more than 80% year over year in 2023 after peaking in 2022, and the weakness continues.
LAC’s YTD Price Performance
Image Source: Zacks Investment Research
How Should Investors Play the LAC Stock?
Lithium Americas presents an attractive investment opportunity driven by exposure to the growing demand for lithium across various industries. As the world transitions from fossil fuels to electrification, LAC is well-placed to capitalize on this transformation as a supplier of this critical material, making it worth considering for long-term growth.
Investors seeking to capitalize on the booming demand for lithium can gain early exposure to a company that is set to play a crucial role in meeting the world’s future energy needs. However, there remain risks around the closing of the second tranche of GM financing and the DOE loan. Therefore, it is not advisable to buy the dip in this Zacks Rank #3 (Hold) stock. Holding onto LAC stock will be prudent for investors who already own it.
Image: Bigstock
Lithium Americas Stock Loses 63% in 6 Months: Should You Buy the Dip?
Lithium Americas Corp.'s (LAC - Free Report) shares have lost 62.8% in the past six months, significantly underperforming the Zacks Mining – Miscellaneous industry’s decline of 2.9%. The bearishness reflects the plunge in LAC’s shares following its public offering of 55 million common shares at a deep discount and soft lithium market fundamentals underpinned by a slowdown in demand and a significant decline in lithium prices.
LAC stock is trading at a roughly 80% discount to its 52-week high of $12.38.
Technical indicators show that LAC has been trading below the 50-day simple moving average (SMA) since Aug. 28, 2024, indicating a bearish trend.
LAC’s Shares Trade Below 50-Day SMA
Given the significant pullback in Lithium Americas’ shares, investors might be tempted to snap up the stock. But is this the right time to buy LAC? Let’s find out.
LAC Well-placed on Long-term Lithium Demand Growth
Lithium Americas, a lithium exploration and development company, is well-placed to gain from significant long-term growth in the lithium market. While lithium demand has slowed down and prices have been going downhill amid rising supply since 2023, long-term fundamentals remain solid for lithium, a critical mineral in the global transition to clean energy. The global demand for lithium is expected to experience exponential growth due to the accelerating adoption of electric vehicles (EVs) and renewable energy storage solutions. Lithium is expected to become increasingly valuable as the global push for clean energy and EVs accelerates.
As governments push for carbon neutrality, EV adoption has surged, driven by both policy initiatives and consumer demand. Demand for Lithium, a core component of EV batteries, is expected to accelerate on the back of significant global EV adoption driven by government mandates and consumer preference for greener alternatives. The increasing adoption of lithium-ion batteries in energy storage systems also contributes to this demand surge. Lithium Americas is well-positioned as a significant player in the lithium space to benefit from this trend.
Thacker Pass: The Fulcrum of LAC Stock’s Prospects
Lithium Americas remains committed to developing the fully owned Thacker Pass project located in Humboldt County in Nevada, which hosts the largest known measured and indicated lithium resource in North America. LAC is focused on advancing Thacker Pass, its only material mining project and most significant growth opportunity, toward production. Initial construction of the project commenced in March 2023. LAC targets a nameplate production capacity of 40,000 tons per annum (tpa) of battery-grade lithium carbonate during Phase 1. In the second phase of production (Phase 2), it targets an additional 40,000 tpa, for a total production capacity of 80,000 tpa.
Thacker Pass is one of the largest known lithium deposits in the United States and is crucial for reducing the reliance on foreign lithium suppliers. The U.S. government has shown strong support for domestic lithium production, which is crucial for national security and the development of EV infrastructure. With the increasing focus on developing domestic lithium supply chains in the United States, Thacker Pass could play a vital role in securing the U.S. lithium supply.
LAC is expected to benefit from government backing in the form of favorable regulatory frameworks and support for domestic lithium production, given the growing recognition of lithium’s strategic importance. Thacker Pass is expected to support lithium needs for up to 800,000 EVs annually.
Strong Financial Backing for Lithium Americas
Lithium Americas is committed to engaging with several stakeholders to responsibly develop Thacker Pass. The company has received a conditional commitment for a $2.26 billion loan from the U.S. Department of Energy (“DOE”) under the Advanced Technology Vehicles Manufacturing Loan Program for financing the construction of the processing facilities at Thacker Pass. LAC expects to close the DOE Loan in the second half of 2024.
In January 2023, General Motors Company (GM - Free Report) announced a $650 million equity investment in Lithium Americas to assist the latter in constructing and developing Thacker Pass. The first part of this two-tranche investment was completed in February 2023. General Motors has exclusive rights to all Phase 1 production for 10 years, with an option to extend for an additional five years.
The DOE loan and GM’s investment are expected to provide the bulk of the required capital to fund Thacker Pass Phase 1 construction. Major construction is anticipated to start in second-half 2024, following the expected closing of the DOE Loan and issuance of full notice to proceed. Mechanical completion of Thacker Pass Phase 1 is targeted for 2027, with full-capacity production expected in 2028. In late April 2024, LAC completed a $275 million equity offering, which it expects to use in advancing the Thacker Pass construction.
Uncertainty Over Financing May Impact LAC’s Prospects
Lithium Americas is yet to generate revenues from operations and relies on equity and other financings to fund operations. LAC is heavily dependent on the successful development of Thacker Pass and bringing it into production. Production from Thacker Pass is also not expected to ramp up until 2028. LAC and General Motors recently agreed to postpone the $330 million second tranche investment until the end of 2024.
The companies agreed to explore alternative structures for the second part of the investment during this time and extended the deal closure date to Dec. 20, 2024. If the deal is not closed by then, LAC will need to grant additional rights related to Thacker Pass Phase 2 to General Motors. The conditions for the second tranche include the successful execution of the loan agreement with the DOE. The delay has raised risks regarding the closing of financings.
Lithium Americas’ Earnings Estimates Going Down
The Zacks Consensus Estimate for 2024 for LAC has been revised downward over the past 30 days. The consensus estimate for 2025 has also been revised lower over the same time frame.
LAC Stock Underperforms Industry and S&P 500
LAC’s shares have lost 61.6% year to date, underperforming the industry’s 14.9% decline and the S&P 500’s rise of 19.9%. A couple of key players in the lithium mining space, Albemarle Corporation (ALB - Free Report) and Sociedad Quimica y Minera de Chile S.A. (SQM - Free Report) have lost 37.4% and 34.9%, respectively, this year, reflecting the significant decline in lithium prices due to slowing demand growth for EVs, inventory glut and increased supply. Lithium prices nosedived more than 80% year over year in 2023 after peaking in 2022, and the weakness continues.
LAC’s YTD Price Performance
How Should Investors Play the LAC Stock?
Lithium Americas presents an attractive investment opportunity driven by exposure to the growing demand for lithium across various industries. As the world transitions from fossil fuels to electrification, LAC is well-placed to capitalize on this transformation as a supplier of this critical material, making it worth considering for long-term growth.
Investors seeking to capitalize on the booming demand for lithium can gain early exposure to a company that is set to play a crucial role in meeting the world’s future energy needs. However, there remain risks around the closing of the second tranche of GM financing and the DOE loan. Therefore, it is not advisable to buy the dip in this Zacks Rank #3 (Hold) stock. Holding onto LAC stock will be prudent for investors who already own it.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.