Is Piedmont Lithium Stock A Buy?

Piedmont Lithium ADR (NASDAQ:PLL) is one of many companies benefitting from the meteoric rise of Tesla Inc (NASDAQ:TSLA). The company signed a five-year agreement in October 2020 for Piedmont to supply the electric automaker with high-purity lithium ore mineral.

Tesla is buying its ore to power the next generation of electric vehicles, which has some pondering the question: is Piedmont Lithium stock a Buy?

The deal (announced during Tesla’s Battery Day) represents about one third of the company’s 160,000 tonnes-per-year output from its North Carolina spodumene concentrate deposits. It triggered the Australian company to issue 1.5 million American Depository Shares, each worth 100 ordinary shares.

Lithium was always important for our smartphones, but increased interest in electric vehicles and home solar applications drives demand up too. Tesla was rumored to buy a lithium mine directly, but it instead became a major player on the global raw commodity market.

The company is also benefiting from Blue Wave investments pouring into clean energy as a new administration takes control of the federal government.

Can Piedmont Lithium recharge struggling investor portfolios or will it run out of power trying?

Is Piedmont Lithium A Better Buy Than Tesla?

Piedmont Lithium is an Australian lithium miner that operates the Piedmont Lithium Project in North Carolina’s Lithium Belt. This is a stretch of land that houses two major lithium mines and two lithium processing facilities within 20 kilometers of the site.

Both lithium and cobalt are commonly used in battery production, and each has a diminishing supply with future issues down the road.

Lithium is used in more than just car, phone, and home solar batteries though. It’s also used to prevent mania episodes in people with bipolar disorder. Lithium is also used in fireworks.

It’s an alkali metal, like sodium, originally derived from the mineral petalite.

This mining venture has teamed with Tesla as a supplier for its growing need for batteries. Tesla currently produces nickel-cobalt-aluminum (NCA) batteries with Panasonic. It’s also buying nickel-manganese-cobalt (NMC) batteries from LG Chem in China.

Also, its home Powerwall uses a different battery for a different application than its car batteries.

However, the shortage of battery cells in 2018 caused problems for Tesla’s supply chain. This is when it shifted to in-house battery research. It’s pushing away from its current lithium-ion technology because of the reliance on cobalt in both types listed above.

Instead, the company is focused on Lithium Iron Phosphate (LFP) batteries dominating the Chinese market. But regardless of which technology ultimately wins the battery war, it’s clear lithium will remain necessary.

That has some bullish investors proclaiming Piedmont Lithium is a better buy than Tesla if it has enough reserves.

Is Piedmont Lithium Stock A Buy?

Piedmont Lithium started 2021 with a market capitalization around $700 million, and that continued shooting up to about $750 million by month end. Its share prices fell to a 52-week low of $4 per share but quickly recovered to the $8-$9 trading range.

Then, PLL share price exploded.

Shares spiked in late September 2020 and continued to go up after news of Tesla’s contract went public. PLL share price reached over $40.00 per share by October before settling in under $30.00 for the rest of the year.

It experienced a second a second resurgence in the new year. Shares traded as high as $50.00 per share, setting new historic highs each day.

The only other known lithium mine in the United States is in Nevada. Tesla’s first Gigafactory is in the state, enabling easier mining. By September 2020, Musk announced the purchase of right for the 10,000-acre plot.

And the brash Tesla CEO is doing everything he can to corner the domestic lithium market. This brings up some risks for Piedmont Lithium investors.

Piedmont Lithium Has A Concentrated Customer Base

Tesla’s lithium clay extraction project in Nevada is still only one of several it’s sourcing from different suppliers.

Lithium Americas Corp and Ioneer Ltd both have operations Tesla is working to commandeer. And there’s a long application process for mining that could be more difficult with the new U.S. administration.

President Biden halted the Keystone Pipeline project as one of his first executive orders upon taking office. This means a lot of mining operations could face backlash from environmentalists. And the government’s own Environmental Protection Agency (EPA) could pick up any slack given by state and local legislators.

But Tesla faces a lot of hurdles in its Nevada operations, so it’s eager to get a head start with this five-year contract. After that, both companies have the option to extend for another five years. But that’s no guarantee for the long term.

A lot can happen in the lithium market over the next five years, and there’s competition from around the globe to both Tesla and Piedmont.

Piedmont Lithium Faces A Barrage Of Competitors

Battery metal exploration is a business as innovative as oil exploration was a century ago, and several global companies are involved. Bolt Metals Corp (BOLT.CX), for example, specializes in production-grade battery metals mining in the Asia-Pacific market.

On top of that, companies like Chevron (CVX) have partnerships for Prussian Blue technology that can disrupt the battery industry.

And lithium-free hydrogen fuel cells are gaining popularity in industrial uses. Tesla proved EVs work for smaller vehicles, but they still don’t have the power of semitrucks. This market isn’t as straight of a road to success as it seems.

Is Piedmont Lithium Stock A Buy? The Bottom Line

Piedmont Lithium is an Australian lithium exploration company that owns a major deposit in North Carolina. It’s one of at least three major mining developments Tesla is involved with in the U.S., and they signed a five-year supplier deal worth approximately a third of the mine’s annual output.

This is one of many steps needed for Tesla to build out its EV and home solar network. Scaling EV supply isn’t easy, and this key ingredient covers several generations of EV battery technology. But there are others looming on the horizon, and whichever provides the most energy in the lightest package will ultimately win the race.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.