The global electric vehicle (EV) industry continues to grow despite a slowdown in demand for EVs following the coronavirus outbreak.
Yet, the market for EVs will remain resilient in the future as the world shifts to superior technologies and governments look to reduce carbon emission footprints.
The global shift towards green energies has led to a growing demand for lithium – the mineral that is essential in making the batteries that power EVs.
According to consultancy McKinsey:
“The growing adoption of EVs and need for EV batteries with higher energy densities will see the demand for lithium increase more than threefold from 214 kt to 669 kt LCE1 between 2017 and 2025”.
With rapid growth, lithium will be one of the most sought-after raw materials on earth in the near future. The irreplaceability of lithium has made the element a vital component for automotive battery applications.
Naturally, securing access to raw materials in the market is therefore the top priority for those companies that aims to stay ahead in the EV industry.
With that, here’s one market leader in the lithium industry that investors should buy now.
World’s largest lithium producer
Jiangxi Ganfeng Lithium (SEHK: 1772) is the fastest-growing lithium company in the world. It is currently China’s No.1 compound producer of lithium and the world’s largest lithium metals producer.
The company has a vertically-integrated business model that operates along all the critical stages of processing the element lithium.
As I mentioned before, given there is no other element that offers comparable properties for the EV battery aside from lithium, this element shall remain a crucial commodity for electronics.
Furthermore, despite the increase in demand for lithium having been brought on by the EV revolution, lithium-ion batteries are not just an essential component for EVs exclusively.
It is also an essential part of all other electronic devices that we use in our everyday lives, for example consumer electronics and energy storage.
Vertical supply chain
Needless to say, the lithium industry has high barriers to entry. Ganfeng’s business currently runs from upstream lithium extraction, midstream lithium compounds and metals processing, to downstream lithium battery production and recycling.
By owning a complete value chain in the lithium market, Ganfeng is in a favourable position as it can secure lithium supply at competitive costs and achieve operational efficiency.
Furthermore, it can obtain valuable synergies between business lines, and gather the latest market information while also developing cutting-edge technologies.
If the world progresses on tackling global warming, Ganfeng’s business shall continue to grow sustainably with the obvious advantages it can offer to clients across its vertical lithium supply chain.
Being the largest lithium producer, Ganfeng currently sources its high-quality supply of lithium raw materials resources across the globe, including Mexico, Australia, Argentina, China and Ireland.
It’s also worth mentioning that Ganfeng also owns an equity interest in seven out of eight of those miners.
By taking ownership and partial control, there is added flexibility for Ganfeng. This indicates its strong capabilities to gain strategic advantages over competitors and optimised profit margins from improving downstream efficiency.
Furthermore, Ganfeng currently owns four long-term supply contracts that last between five to ten years with Tesla, Volkswagen, BMW, and LG Chemistry.
By locking in deals with the largest players in the EV industry, it shows that EV makers remain optimistic on future sales. This once again shows Ganfeng’s ambition to dominate the global battery market.
Overall, all of the above support the long-term growth in demand for lithium as a compound metal.
Despite EVs being a very policy-driven market (with demand largely determined by subsidies and emissions regulation), Ganfeng is ideally-positioned as a vertical monopoly in the China market. This should continue to benefit the company in years to come.