The Wheels Are Falling Off
The wheels are falling off the lithium boom.
Giant miner Sibanye Stillwater (NYSE: SBSW) changed its mind on the giant Rhyolite Ridge lithium project in Nevada. That kills a $450 million investment alongside former partner Ioneer Ltd (ASX: INR) in. Ioneer will continue alone.
Sibanye Stillwater backed out even with a $996 million loan guarantee from the Department of Energy. This is a giant project that will produce enough lithium for 370,000 EVs per year.
As you know, we were never big lithium fans. We always believed that the cure for high lithium prices was high prices. And eventually, we’d see more than enough lithium come to market.
That is the case now. But it’s not simply oversupply. Demand isn’t hitting forecasts.
The price of lithium carbonate fell 35% over the past twelve months. It’s down over 80% over the last two years. And the price forecast trends lower. According to analysts with House Mountain Partners, lithium is oversupplied in 2025.
https://tradingeconomics.com/commodity/lithium
We believe that one driver of falling demand for lithium lies with the EV market. This may be short-term, but electric vehicle demand growth peaked.
China, the world’s largest EV maker, continues to struggle to sell cars in Europe and the U.S. due to massive tariffs. Chinese EV makers’ market share in Europe peaked at 11.1% in June 2024, according to Bloomberg. It fell to 7.8% in January 2025.
Battery makers responded. Giant battery maker LG Energy Solutions announced major spending cuts for 2025. It will reduce capital spending by 20% to 30% in 2025. These are the batteries that go into EVs from GM, Tesla, and Volkswagen.
A bit of this, for the U.S. market is the current administration’s plan to remove tax breaks for EVs. That, in part, led to massive decline in Tesla stock, the largest EV maker in the U.S.
Tesla shares fell 30% year to date. That works out to more than $570 billion in market value.
Much of that loss is related to politics. The new U.S. government threw all sorts of uncertainty into the market. Huge cuts to government spending. Massive workforce layoffs. Sweeping taxes on imported goods, which spawned reciprocal taxes from trade partners.
And that leads us to where we are today…on a precipice.
Markets hate uncertainty. And investors are sitting on staggering gains from the last couple of years. This feels like we are primed for a bear market. We haven’t seen one since 2022:
But that was a brief nine-month bear market. Few investors today remember the bad days of the post dotcom bust:
That market lasted for three years. It was a brutal market that saw a diverse list of airlines, domestic steel makers, movie theaters, grocery store chains and restaurants go bankrupt. Not to mention Six Flags and Penthouse Magazine…
Anyway, that’s the worst-case situation facing us right now. That the disruptions we face in 2025 come in so fast and create so much uncertainty, that it disrupts the market.
The scariest parallel to that period was a massive spike in gold prices right before the crash:
That’s a 27% jump in gold price, from September to October 1999. We have seen a 45% jump in the gold price in the past year. That’s more than a bit worrisome.
Gold is a haven when global economics are misbehaving. We see gold as disaster insurance. And when you see the price of gold spike, it means big institutions are looking to get out of dollars.
That’s the backdrop we find today. It’s not the kind of situation that we want to buy stocks without a compelling reason. That’s why we are not recommending anything this month. We do recommend you watch your trailing stops, because they can save us if the market falls.
As we write this, we are at a desk in our hotel room in Toronto. It’s time for the giant Prospectors and Developers Conference (PDAC). This is a great place to look for compelling stocks to buy. And we will be looking at many companies.
But we’ll also be talking to commodity analysts, to see what changes they made to their models in the current political environment. We also won’t be making any “51st State” comments. If you watched the Canada/US hockey match recently, you know that the Canadians are ready to fight!
For the Good,
The Mangrove Investor Team
