"Lithium Stocks Crashed. Now We Know Why. What It Means for Tesla, EV Battery Stocks"

The writer of this piece, Al Root, is very good.

Cutting directly to the chase, From Barron's, February 21:

Lithium stocks cratered on Friday. The reason was a mystery. Now investors have an answer—it was down to the world’s largest electric-vehicle battery maker, Contemporary Amperex Technology Co. , or CATL, did it.

A move by CATL (300750.China) is significant, but investors may have drawn the wrong conclusion. The bigger risks from the decision might be to battery and EV makers such as Tesla (TSLA). On Friday, shares of lithium miners Albemarle (ALB), SQM (SQM), Livent (LTHM), Piedmont Lithium (PLL), and Lithium Americas (LAC) fell 9.7% on average, wiping out about $6.6 billion in market value. The S&P 500 dropped 0.3%. The Dow Jones Industrial Average rose 0.4%. There were no sector upgrades or downgrades from Wall Street on which to pin losses and no big changes in commodity prices. Instead, a CATL pricing strategy unnerved investors.

The battery maker, according to J.P. Morgan and Citi research, will price its batteries on a lithium price-linked basis with 50% of the batteries embedding a price for lithium carbonate, the benchmark price for lithium products, of 200,000 yuan per metric ton, or about $30,000. The rest of the batteries will embed the spot market price of lithium carbonate.

Spot prices today amount to about 428,000 yuan per metric ton, about $64,000, and are up about ninefold over the past few years as the growth in EV demand has stressed the global lithium supply chain. CATL’s move amounts to a big discount for batteries.

CATL didn’t respond to a request for comment about its pricing strategy. But one reason it can effectively discount is because it mines some of its own lithium. Essentially, CATL is accepting lower earnings from its mining operations to sell more batteries. CATL mines less than 10% of the world’s lithium supplies.

While eating into profit margins, it would give CATL an advantage against other battery makers, wrote Citi analyst Jack Shang in a Sunday report. He rates CATL shares Buy....

....MUCH MORE

Also at Barron's, Friday February 17, 1:16 pm EST:
Albemarle, Lithium Stocks Beat the Market for Years. Until Now.

And earlier today from Bloomberg:
"Lithium's Plunge Is Pitting Cathie Wood Against Sector Veterans" (ALB)