Is this the End for Lithium, Cobalt and Graphite stocks?

What happened to lithium, cobalt and graphite stock prices?

Shares of companies involved in lithium, cobalt and graphite plunged yesterday. Syrah Resources [ASX:SYR] (graphite), Orocobre Ltd [ASX:ORE] (lithium) and Cobalt Blue Holdings [ASX:COB] (cobalt) were down 6.11%, 15.15% and 7.46% respectively. And there were plenty of others.

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What’s going on with the stock prices for lithium, cobalt and graphite companies?

There are a number of key elements that go into the production of lithium-ion batteries. These include lithium, cobalt and graphite. Hence the fortunes of companies like Syrah Resources, Orocobre and Cobalt Blue are directly linked to the success or failure of the global lithium-battery market.

Currently, much of the hype surrounding lithium-ion batteries is based on future demand from car companies making electric vehicles (EVs). In particular the hype surrounding Tesla Motors [NASDAQ:TSLA]. So when Tesla flies, these companies typically fly as well. But the reverse is also true.

And yesterday Goldman Sachs downgraded their view on Tesla to a ‘SELL’ rating. This sent the poster-boy for EVs plummeting 6% in early trading. This sent shockwaves through the Aussie market for companies involved in lithium, cobalt and graphite.

What now for lithium, cobalt and graphite stocks?

Is Goldman Sachs on the money? Are they seeing something that the rest of the world doesn’t see…or doesn’t want to see?

We’ve actually been quite bearish on Tesla for around a year or so now. We think the EV maker is running more on hubris than any actual delivery of targets. They are yet to actually deliver a model on time, and are yet to even get close to their future production figure estimates.

We think that Tesla has too much debt, won’t make or sell enough cars, and is actually now lagging other car companies in the development of a mass-market, affordable EV. In fact General Motors has already released and is selling an EV for less than $40,000 that has a range of around 238 miles. They call it the ‘Bolt’, and it’s the first ‘affordable’ long range EV.

However while Tesla’s battles are one thing, it’s another to punish lithium, cobalt and graphite stocks across the board. The EV market is one that will last for many years. In fact, in the future we view lithium-ion battery power as one of multiple energy sources for cars. As there is petrol and diesel at the bowser today, tomorrow it will be electric and fuel cell options.

As such, there is long term potential for many lithium, cobalt and graphite stocks. But for now all of these markets are showing signs of overheating. And it’s quite possible there will be pullbacks short term. But into the future, these could be one of the best resource plays on the ASX today.

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Sam Volkering,
Money Morning


Sam Volkering is an Editor for Money Morning and is small-cap, cryptocurrency and technology expert.

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