The demand for lithium is increasing significantly as electric vehicles (EVs) powered by lithium-ion batteries go mainstream across the globe. This looks like one of the largest trends of this century. So should I be investing in lithium miners inside my Stocks and Shares ISA next year?
The bull case
The case for owning lithium stocks boils down to the energy transition. This seismic shift will require the large-scale deployment of clean energy technologies, and lithium-ion batteries are essential for storing energy generated from renewable sources such as solar and wind.
Additionally, there’s the unstoppable rise of EVs. According to Bloomberg, there could be as many as 700m EVs globally by 2040, up from 27m at the end of 2022.
Data from Benchmark Mineral Intelligence suggests the world will need more than 20 times the amount of lithium mined in 2021 to meet demand by 2050.
The bear case
Those projections make me want to load up on lithium stocks right now! However, there are some things to consider.
First, after soaring to all-time highs last year, lithium prices collapsed in 2023. This was due to a supply glut combined with higher interest rates negatively impacting demand for new EVs.
This inherent cyclicality is unavoidable when investing in lithium producers. They have very little control over the price of the commodity, so their profits (and therefore dividends and share prices) can swing wildly from one year to the next.
For example, in Q3 2023, Chilean lithium giant Sociedad Quimica y Minera de Chile (or SQM) reported a 45% year-on-year fall in revenue for lithium and derivatives.
Next, I’d highlight political risk, especially in Chile, which has the world’s largest reserves of lithium.
The Chilean government wants to create a national company that calls the shots in partnership with miners. Reports suggest SQM could even lose its operations once its contract expires in 2030.
To me, this muddies the waters and presents significant risk.
Finally, there’s always the possibility that a new technology breakthrough reduces long-term demand for lithium.
UK stocks
While the biggest pureplays are listed abroad, there are some lithium producers listed in the UK.
Below are three popular ones that might be worth considering, though they all come with their own individual risks. I certainly wouldn’t be backing up the truck.
| Market cap | Operations | |
| Atlantic Lithium | £139m | Ghana, West Africa |
| Kodal Minerals | £82m | Mali, West Africa |
| CleanTech Lithium | £31m | Chile, South America |
Safety in numbers
Speaking personally, I don’t have the time or inclination to closely monitor political developments in Chile or West Africa. And this is obviously what I’d have to do if I was invested in a lithium miner there.
Yet this is a massive potential growth market, so I don’t want my ISA to miss out, especially as I expect lithium prices to trend higher over time as global demand surges.
So, I’m happy to get this exposure from BlackRock World Mining Trust, which manages a diversified global mining portfolio. The trust faces the same cyclicality issues as all miners, but I prefer its safety in numbers.
It has Rio Tinto as a top holding. The FTSE 100 miner, already an iron ore giant, is committed to significantly expanding its lithium operations.
