The moment a new sector gains ride-along interest, often it’s the underappreciated penny stocks that later steal the spotlight. These are typically firms that entered early, laid groundwork while others watched, and now stand ready if demand finally kicks in.
With electric vehicle (EV) adoption accelerating fast, lithium — a key component in battery chemistry — is primed for a surge. Many lithium shares are currently trading below what some analysts believe to be fair value, which could make them appealing to early investors.
But volatility has pummeled this space in recent years, so any tilt into it requires a dose of caution. The question beckons: will 2026 be the breakout year for lithium, and which UK penny stocks might ride the wave?
The lithium industry outlook in 2026
Arcane Capital Advisors believes that the lithium market’s current oversupply could begin to flip in 2026. Its forecast suggests demand may hit 2m tonnes of lithium carbonate equivalent (LCE) next year, climbing toward 4.6m by 2030.
In recent months, lithium prices have shown early signs of stabilisation. Goldman Sachs projects that lithium carbonate in China, currently priced around £7,850 a tonne, might rise above £9,800 a tonne in 2026 — roughly a 22% increase.
Such dynamics hint at a market slowly shifting from slack conditions toward tighter supply, particularly if supply growth fails to keep pace or if battery demand surprises on the upside yet again.
A British lithium stock worth a look
The UK’s by no means a leader in lithium mining, but one London-listed company is interesting: Kodal Minerals (LSE: KOD). At about 0.3p per share, it’s among the cheaper lithium-adjacent stocks still above the £50m market-cap line.
The stock’s slumped roughly 33.8% this year, though over a five-year period, it’s up nearly 253%.
Kodal’s principal asset is the Bougouni Lithium Project in Mali, where it aims to produce lithium superoxide (Li₂O) – an intermediate compound in batteries. In early September, the company secured a 125,000 tonne export permit for lithium-rich spodumene concentrate, clearing a major regulatory hurdle and solidifying its path toward first shipments.
On the flip side, it currently has no meaningful revenue and posted a loss of about £11m in its half-year 2024 results. Plus, its liabilities appear to outweigh its assets by a factor of four. It holds cash reserves of around £16.9m but has no free cash flow, so the company may soon need fresh funding.
The fact that it doesn’t yet generate operating cash raises a real risk of dilution or funding shortfalls if delays happen. Valuing early-stage mining firms is notoriously tricky, so while Kodal has potential, its path is littered with execution and financing risks.
Cautious allocation
An EV boom could well be the catalyst for a lithium revival. If demand tightens and prices rebound as many forecasts indicate, penny stocks like Kodal could become darlings of the mining sector.
But the flipside’s real: project delays, capital constraints, licensing risk or commodity price slides could undo much of the promise. I think investors inclined toward this space should consider only a small allocation, and always balance any exposure with more stable stocks in a portfolio.
