Demand for electric vehicles (EVs) is starting to pick up, and that can certainly help keep lithium prices afloat. The current weakness in lithium prices could provide an ideal entry point for investors looking to get lithium exposure to add diversification to a portfolio.
A supply glut of EVs and lithium has been applying downward pressure on prices for the industrial metal the past year. The market for EVs and lithium are often inextricably linked. That’s because the latter is a vital component for manufacturing EV batteries. In turn, demand for EVs has yet to catch up with their petrol-powered counterparts. That makes lithium bulls nervous in the current market environment.
To jump-start demand, EV manufacturers have been implementing deals during the holidays. But final Q4 sales will determine whether or not that strategy was effective. However, according to Investing News, the global EV market is starting to see increased sales. That’s a positive sign.
“The global EV market is now picking back up again, hitting record sales for the second month in a row. Most of the growth is coming from China and Western manufacturers are clearly feeling threatened by this. The US market remains buoyant in part thanks to Inflation Reduction Act (IRA) funding for consumers switching to electric which may be at risk with the start of the Trump presidency,” "said Charles Lester,":https://rhomotion.com/news/record-breaking-month-in-ev-sales/ data manager at Rho Motion.
Policy Weighs Heavy on Lithium
As mentioned, government subsidies can also incentivize consumers to purchase EVs. It will be interesting to see how the new incoming U.S. presidential administration will affect EV demand, and whether policy changes will support prospective EV buyers. The Street noted that President-elect Donald Trump could put an end to a $7,500 tax credit under the aforementioned Inflation Reduction Act. In the meantime, the uncertainty is causing an uptick in buyers to purchase EVs before this tax credit goes away.
“As politics creates a shaky environment for EV buyers, new reports suggest that this uncertainty is driving buyers to scoop up what they can before new models become more expensive,” The Street noted.
In the long-term horizon, if demand for EVs continues to trend higher, the need for lithium miners can also increase. This opens an opportunity for the Sprott Lithium Miners ETF (LITP ). It tracks the total return performance of the Nasdaq Sprott Lithium Miners Index. That index aims to track the performance of a selection of global securities in the industry. That industry includes producers, developers, and explorers.
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