The Biggest Investment Story in 2022?

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In today’s Money Morning…a wide market sell-off…EV sales show impressive growth…lithium prices could continue to soar in 2022…and more…

It’s been a tough week for markets with almost everything in the red because of fear of inflation and worries of rising interest rates.

In particular, Rio Tinto Ltd [ASX:RIO] shares got hit by a double whammy.

Yes, there was the wider market sell-off…

But Rio’s share price also took a hit late last week after Serbia revoked Rio’s lithium exploration licences for their Jadar project.

Rio had high hopes for Jadar.

The project is one of the largest greenfield lithium projects in the world that at peak capacity could produce around 58,000 tonnes of lithium carbonate.

But also, because the project would have boosted Europe’s lithium production. If the project had gone full steam ahead, it would have accounted for about 27% of Europe’s lithium production by 2030, according to Benchmark Mineral Intelligence.

As S&P Global reported:

European battery and EV manufacturers could now face a “real problem” in sourcing more local lithium that does not depend on a supply chain otherwise dominated by China for processing and South America and Australia for mining, [George] Miller said [from Benchmark Mineral Intelligence]. Assuming Jadar does not move forward, there are no other European projects of Jadar’s size waiting in the wings to fill the continent’s lithium supply gap.

Europe has been working hard to create a battery supply chain because well…cars in Europe are big business, they make about 7% of the EU’s GDP.

Especially as the share for electric vehicle (EV) sales continues to grow.

EV sales show impressive growth

In December, for the first time, EV sales were higher than diesel cars in Europe.

If you’ve ever been to Europe, you know that diesel cars are — or were — pretty popular. In fact, I really struggled to sell my gasoline car when I moved to Australia in 2015. All the buyers wanted diesel.

At that time, diesel cars made up about half of new cars sold in Europe. And while they’ve fallen out of favour in recent years, they still make a large chunk of car sales, about 32% in 2019.

So this is an impressive milestone.

As the New York Times put it:

The December figures illustrate how electric vehicles are fast becoming mainstream. Sales of battery-powered cars soared in Europe, the United States and China last year while sales of conventional vehicles stagnated. Government incentives have made electric vehicles more affordable, the variety of electric cars to choose from has grown and buyers have become more conscious of the environmental cost of vehicles powered by internal combustion engines.

Yep, it’s something that we’re seeing everywhere. That is, EV sales growing faster than petrol and diesel cars.

In the US, while new car sales increased by 3.2% in 2021, EV sales increased by 87%.

Even in Australia, while overall car sales went up by 14.5% in 2021, EV car sales saw an increase of a whopping 191.1% from 2020.

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And it’s something that’s certainly happening in China, the largest EV market in the world. While new auto car sales increased by 3.8% in 2021, EV sales in China increased by 160% from the previous year.

What’s more, in the month of December alone, China registered 400,000 EVs, a 35% month-on-month increase, according to the China Automotive Technology and Research Center.

Granted, EVs still make up a small number of overall car sales, however, this is impressive growth and one that’s accelerating.

And, of course, all this is hitting lithium prices.

Lithium prices could continue to soar in 2022

We saw lithium prices skyrocket in 2021. And, with lithium in high demand and supply not keeping up, it doesn’t look like prices will ease anytime soon.

In fact, lithium prices are soaring.

Bloomberg has even declared lithium has hit ‘ludicrous mode’. As they wrote:

Lithium prices are continuing their breakneck ascent in China, with surging electric-vehicle sales underpinning a fivefold gain over the past year.

The sales figures offer the latest evidence that the electric-vehicle revolution is now arriving in full force, fueling sharp gains in the shares of carmakers and mining equities alike. Ganfeng Lithium Co., which signed a long-term supply deal with Tesla in November, said its profits for 2021 will be up as much as 437%, fueled by the “fast development” of the EV industry.

And despite the bumper profits on offer, many analysts see the lithium market moving into deeper deficits in the years ahead as producers struggle to bring new projects online.

With EV car sales accelerating demand, it appears lithium can only go up.

So while lithium stocks may have tumbled alongside the overall market, the future is looking good for the white metal.

Until next week,

Selva Freigedo Signature

Selva Freigedo,
For Money Morning

PS: Selva is also the Editor of New Energy Investor, a newsletter that looks for opportunities in the energy transition. For information on how to subscribe, click here.

About Selva Freigedo

Selva Freigedo is an analyst at Money Morning. She has a background in financial economics, but what makes Selva´s experiences different to many are the places she has lived and worked. Born in Argentina, she has also lived in Brazil, the US, Spain, and now Australia. She has seen up…

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