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 Tesla, Inc. (NASDAQ:TSLA) 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).

Tesla, Inc. (NASDAQ:TSLA)

Market Capitalization as of September 5: $673.206 billion

Number of Hedge Fund Holders: 85

Tesla, Inc. (NASDAQ:TSLA) has firmly positioned itself as a leading force in the EV and renewable energy sectors, continually pushing the boundaries of innovation and production capabilities. Known for its EVs powered by high-performance lithium-ion batteries, the company is significantly expanding its battery manufacturing capacity. It tops our list of the biggest lithium stocks to buy right now.

It is currently investing $3.6 billion in a new battery factory in Nevada, aimed at producing its larger 4680 battery cells. By mid-2023, the company had already manufactured over 50 million of these advanced cells at its Gigafactory in Texas.

This expansion is expected to meet the growing demand for its Cybertruck, which alone requires about 7 GWh of battery capacity annually. During the Q1 earnings call, the company’s Vice President of Vehicle Engineering, Lars Moravy, noted that the production of 4680 batteries has increased by 18% to 20% from the previous quarter, and this upward trend is expected to continue.

Moreover, Tesla’s (NASDAQ:TSLA) focus on vertical integration is evident in its $1 billion investment in a new lithium refinery in Texas. The refinery is designed to produce battery-grade lithium hydroxide using a novel, acid-free process that avoids hazardous chemicals. The refinery will process various lithium feedstocks, including recycled batteries, and is expected to have a production capacity of 50 GWh of battery-grade lithium per year. Elon Musk has referred to this facility as a “money-printing machine,” which highlights its expected impact on the company’s battery supply chain and cost structure.

In addition to its advances in battery production, the company continues to make strides in autonomous vehicle technology and other sectors. Morgan Stanley has expressed optimism about the long-term potential of autonomous vehicles to revolutionize transportation networks. Despite cautioning investors to manage expectations in the short term, the firm sees the company as its “Top Pick” in the U.S. auto industry.

The firm mentioned that the company is focused on improving its core auto business. It is also expanding into stationary energy, computing infrastructure, and robotics, integrating artificial intelligence into various aspects of its operations. The firm maintained an Overweight rating on the stock with a $310 price target.

As of the second quarter, 85 hedge funds tracked by Insider Monkey had stakes in Tesla (NASDAQ:TSLA), with positions worth $5 billion. Catherine D. Wood’s ARK Investment Management emerged as the company’s largest shareholder as it owns a $1.05 billion stake in the stock, as of June 30.

Baron Partners Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q2 2024 investor letter:

“Tesla, Inc. (NASDAQ:TSLA) manufactures electric vehicles, related software and components, and solar and energy storage products. The stock contributed as Tesla continued to drive vehicle manufacturing costs lower, accelerate the launch of new models, and invest heavily in its lucrative AI initiatives. Shareholders reaffirmed the CEO’s compensation plan, alleviating personnel and legal uncertainties. Despite material operational complexities resulting in significant shutdowns of key manufacturing facilities and lower sales volume, Tesla presented better-than-expected margins in the quarter. It expects to launch a lower cost model as soon as late 2024, which should result in accelerated revenue growth, reduced manufacturing costs, and increased factory utilization. The company continued to advance its autonomous driving capabilities, expanding its already significant data centers and developing its humanoid robot Optimus. These investments increased confidence in the attractive growth opportunities that remain ahead.”

Overall TSLA ranks 1st on our list of the best lithium stocks to buy. While we acknowledge the potential of TSLA 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 TSLA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

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