Australia Markets close in 1 hr 22 mins

Could Tesla throw ASX lithium miners a lifeline?

Sebastian Bowen
electric car recharging

A few years ago, ASX lithium shares were all the rage.

Take the Pilbara Minerals Ltd (ASX: PLS) – currently the ASX’s biggest lithium company. Today, Pilbara shares will cost you just 38 cents each (at the time of writing), but back in January 2018, the same shares would have set you back $1.20.

Let’s also look at Galaxy Resources Limited (ASX: GXY). Unfortunately for anyone who bought Galaxy shares in that same January for $4.24, the price you’d be looking at selling today (if one was so inclined) would be $1.24.

It’s an interesting industry to look at. The trends that were driving the ‘lithium craze’ two years ago haven’t gone away and are indeed accelerating. Most pundits are expecting a massive ramp-up in the electrification of the transport grid in the coming decade.

In addition, lithium-ion batteries and energy storage are often touted as potentially playing a significant role in the electricity market of tomorrow by reducing the need for base-load coal-fired power plants.

But you wouldn’t think that from looking at the Pilbara and Galaxy share prices.

What’s next for lithium?

But perhaps there’s a light at the end of the tunnel.

According to reporting in the Australian Financial Review (AFR), the American electric vehicle giant Tesla Inc. has just negotiated a long-term supply contract with British miner Glencore for the supply of cobalt to Tesla’s new ‘gigafactory’ in Shanghai, China.

Along with lithium, cobalt is a rare metal essential to the operation of modern lithium-ion rechargeable batteries.

Tesla shares have rocketed recently as the new factory opened and concerns about the company’s viability have faded.

As demand for both lithium and cobalt is likely to accelerate in tandem with growing viability and production of electric vehicles, it makes sense that Tesla is locking in supply contracts.

Australia is home to some of the largest deposits of lithium in the world so, in my opinion, it’s entirely possible that Tesla will also be looking to negotiate supply contracts with lithium miners like Galaxy and Pilbara, perhaps even in the near future.

Foolish Takeaway

Such a deal would potentially give Pilbara and Galaxy some long-term certainty, which I’m sure their weary investors would crave. It might be worth considering this possibility as Pilbara and Galaxy shares are trading at multi-year lows. The crazy-brave investors out there might see this as a ‘beat-the-crowd’ opportunity.

The post Could Tesla throw ASX lithium miners a lifeline? appeared first on Motley Fool Australia.

If you're not feeling so crazy-brave, you might want to check out these top dividend shares instead!

Top 3 Dividend Shares To Buy For 2020

When Edward Vesely -- our resident dividend expert -- has a stock tip, it can pay to listen. With huge winners like Dicker Data (up 126%) and Collins Food (up 79%) under his belt, Edward is building an enviable following amongst investors that are planning for retirement.

In a brand new report, Edward has just revealed what he believes are the 3 best dividend stocks for income-hungry investors to buy now. All 3 stocks are paying growing fully franked dividends giving you the opportunity to combine capital appreciation with attractive dividend yields.

Best of all, Edward’s “Top 3 Dividend Shares To Buy For 2020” report is totally free to all Motley Fool readers.

Click here now to access this free report.

More reading

Sebastian Bowen owns shares of Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020