We recently compiled a list of the 11 Biggest Lithium Stocks to Buy Right Now. In this article, we are going to take a look at where Enovix Corporation (NASDAQ:ENVX) stands against the other lithium stocks.

Despite challenges like pricing and demand headwinds in 2023, the U.S. and Canadian lithium sectors are set to make progress in 2024, with several construction projects potentially starting to boost domestic lithium supply. According to an S&P Global report, while the lithium market has seen slow activity and falling prices, especially in Asia, long-term demand fundamentals remain strong due to the global transition toward electric vehicles (EVs) and energy storage.

Even though lithium prices dropped in 2023 after reaching record highs in 2022, the long-term outlook for the EV market remains promising. According to the report, EV sales are expected to reach 30.81 million units by 2027, and lithium prices are expected to stabilize between $20,000 and $25,000 per metric ton in the coming years. Despite the industry’s cyclical nature, current pricing remains strong enough to attract investment, especially with regulatory support driving the EV transition in countries like Canada.

According to industry experts like Rahul Sen Sharma, setbacks are common in large-scale industry transformations, and the lithium market is no exception. Jean-François Béland of Ressources Québec compared lithium’s importance in the 21st century to that of coal and oil in previous eras, which shows the crucial role of lithium in electrifying transportation.

Long-Term Outlook for Lithium

According to the International Energy Agency (IEA), lithium demand is projected to rise tenfold in the Net Zero Emissions scenario and could reach 1,700 kilotonnes (kt). The market is further supported by developments in battery storage, with lithium demand for storage expected to grow more than ten times by 2050.

While alternative technologies like sodium-ion and vanadium flow batteries may slightly impact lithium demand, the metal’s role in battery production remains dominant. Moreover, solid-state batteries could create a new demand for lithium metal by 2040.

On the supply side, lithium production has significantly increased, with current global output at 190 kt, mainly from Australia and Latin American countries like Chile and Argentina. By 2030, global supply is projected to rise to 450 kt in a base scenario, but further investments will be necessary to meet future demand, especially in meeting climate goals.

Dealing With Supply Shortages

According to Benchmark Mineral Intelligence, lithium-ion battery demand is projected to nearly quadruple by 2030, reaching 3.9 terawatt-hours. The market intelligence firm forecasts lithium surplus till 2029, but despite that, the firm says that the supply of environmentally and socially responsible lithium is currently insufficient to meet demand.

Sustainably sourced lithium is not enough to meet growing demand. By 2026, only 45% of lithium demand is expected to be met by recycled or sustainably mined lithium, dropping to 35% by 2030.

In light of that, Direct Lithium Extraction (DLE), is gaining traction as a more efficient and sustainable alternative. According to BloombergNEF, DLE is expected to contribute significantly to lithium supply by 2030 and could potentially rival the output of evaporative methods, if commercialized successfully.

Lithium can be sourced from hard rock deposits like spodumene and lepidolite, as well as from brine. The main challenge with the evaporative method is its slow processing time, taking up to 18 months to extract lithium. On the other hand, DLE can reduce this timeframe to two weeks while using land and water more efficiently. Despite a decline in lithium prices, investments in DLE continue, as it offers faster and more sustainable extraction from brine sources.

According to Benchmark, DLE is a promising technology that could help prevent future lithium supply shortages by efficiently extracting lithium from brines. It is expected to contribute 14% of the global lithium supply by 2035, especially from brines, geothermal, and oil fields. However, DLE faces challenges such as high costs, scalability issues, and inflation, which have increased project expenses.

DLE offers higher recovery rates (80-90%) compared to traditional evaporation methods (20-50%). Major oil companies like Exxon are investing in DLE due to its similarities with oil extraction. Despite its potential, DLE alone won’t solve the lithium market’s structural deficits in the short term.

Our Methodology

For this article, we scoured through ETFs and stock screeners to find the 25 biggest players in the lithium and lithium battery industry that are listed on the NYSE or NASDAQ. We then narrowed down our list to 11 stocks most widely held by institutional investors. We listed the stocks in ascending order of their hedge fund sentiment which was taken from Insider Monkey’s database of over 900 elite hedge funds.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Enovix Corporation (NASDAQ:ENVX)

Market Capitalization as of September 5: $1.4 billion

Number of Hedge Fund Holders: 22

One of the best lithium and battery stocks, Enovix Corporation (NASDAQ:ENVX) is engaged in designing, developing, and manufacturing lithium-ion batteries. The company has introduced a distinctive 3D silicon lithium-ion battery that utilizes a 100% silicon anode, which is a significant advancement over the traditional graphite anodes used in most batteries.

The breakthrough design allows the company to achieve energy densities exceeding 900 Wh/l while ensuring a cycle life that surpasses 500 cycles. Its patented 3D cell architecture effectively addresses common issues associated with silicon anodes, such as swelling and lithium trapping, enhancing both the safety and efficiency of their batteries.

In the second quarter, 22 hedge funds had investments in Enovix (NASDAQ:ENVX), with positions worth $153.245 million. Electron Capital Partners is the most prominent shareholder in the company as of Q2 with a stake worth $89.7 million.

Enovix (NASDAQ:ENVX) is building a substantial $1.2 billion high-volume manufacturing plant in Malaysia. The facility is set to boost its production capacity significantly, which will allow the company to meet the increasing demand for its advanced batteries across various applications, from mobile devices to electric vehicles.

The construction is progressing well, with the Site Acceptance Testing (SAT) for the Fab-2 Agility line already completed. The first batch of EX-1M samples has been produced and sent to customers. The SAT for the Fab-2 high-volume manufacturing line is expected to be finalized shortly, with initial production projected to begin in the third quarter of 2024 and ramping up through 2025.

In recent developments, Enovix (NASDAQ:ENVX) has entered into a Memorandum of Understanding (MOU) with Elentec, a prominent battery pack manufacturer in Asia with significant clients like Samsung. The partnership is set to strengthen the company’s position by leveraging Elentec’s expertise in battery pack design and high-volume manufacturing.

Furthermore, in May, the company signed a development agreement with one of the top five smartphone OEMs globally. The company also announced a non-binding MOU in July with a major global automotive OEM to explore scaling its battery technology for the EV market. The agreement focuses on optimizing the company’s cell design to improve performance at various levels, including the cell, pack, and vehicle. These developments make Enovix (NASDAQ:ENVX) one of the best battery stocks.

Massif Capital Real Assets Strategy stated the following regarding Enovix Corporation (NASDAQ:ENVX) in its Q2 2024 investor letter:

“Enovix Corporation (NASDAQ:ENVX): Enovix is perhaps a bit of an outlier in our portfolio given that it is a battery manufacturer selling into consumer goods markets, but it fits nicely in what we believe to be the Massif Capital analytical sweet spot, businesses where science/technology, geopolitics/geoeconomics and energy/materials overlap. While some would argue that Enovix is inappropriate for a liquid real asset portfolio, the traditional definition of real asset businesses is dated.

Traditionally, real asset businesses are those that own and operate real estate, infrastructure, and natural resource assets. While this definition is workable, and most of the companies we invest in fall into one of these categories, it does not consider the ever-growing role of applied physical sciences in specific manufacturing fields, nor does it take into account the growing importance of material sciences and the changing nature of energy in general. Enovix is a material sciences business aiming to transform an ever-growing list of unique, highly refined materials into energy storage devices. They create value by understanding materials’ physical and electrochemical properties better than others…” (Click here to read the full text)

Overall ENVX ranks 5th on our list of the best lithium stocks to buy. While we acknowledge the potential of ENVX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ENVX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.