We recently compiled a list of the 11 Best Lithium and Battery Stocks To Invest In. In this article, we are going to take a look at where Rio Tinto Group (NYSE:RIO) stands against the other lithium and battery stocks.
The West Auto Industry Faces Uncertainty with Potential Tariffs and Policy Reversals
According to a Reuters report from November 6, automakers are preparing for potential changes under President-elect Donald Trump, including new tariffs on vehicles imported from Mexico and the reversal of pro-electric vehicle policies. Trump has indicated plans to rescind EPA and Transportation Department regulations and may reduce or eliminate EV tax incentives.
Moreover, the Zero Emission Transportation Association expressed a willingness to collaborate with Trump on future EV development. Trump has also warned of tariffs of up to 200% on Mexican vehicles and is considering similar measures for imports from other regions while encouraging foreign automakers to build plants in the US.
Additionally, in October, Reuters reported that the European Union approved additional tariffs on Chinese electric vehicles, ranging from 7.8% to 35.3%, on top of the existing 10% duty, in response to what it calls unfair subsidies by China. These tariffs, effective October 30, aim to address concerns over subsidized raw materials, batteries, and financing, with China opposing the decision and calling for negotiations to prevent further trade tensions.
China has launched its own probes into EU imports, including pork, dairy, and brandy, potentially retaliating against the EU measures. Chinese EVs currently account for 8% of the EU market, a figure expected to grow to 15% by 2025, with their prices typically 20% lower than European counterparts. The investigation has caused division within the EU, with Germany opposing tariffs while France supports them.
Future of Electric Vehicles in the U.S. Amid Political Changes
GlobalData lowered its 2030 U.S. EV market share forecast from 33% to 28%, citing weakened emissions standards and a focus on lower oil prices after the 2024 elections. Bloomberg reported on November 7 that Mark Wakefield of AlixPartners highlighted that $129 billion in EV investments through 2027 and the $7,500 EV tax credit may be at risk. Automakers are expected to cut EV spending, delay new models, and shift production toward hybrids and gasoline vehicles, like Volkswagen’s adaptation at its South Carolina plant. While reversing Biden’s Inflation Reduction Act could prove challenging, changes to fuel economy standards are likely, though their impact may not be felt until later in the decade.
Optimism for Lithium Demand Amid Market Recovery
The lithium market has experienced a huge decline over the past several quarters due to oversupply and lower demand. However, Ana Cabral, Co-Chair & CEO at Sigma Lithium is positive about the future demand for lithium as discussed in a September interview with CNBC. She noted that lithium prices hit a low point in August but have been recovering steadily. The Chinese recovery package, the largest since COVID, has especially boosted the market, as China accounts for more than half of global EV sales.
While the U.S. has seen slower EV adoption compared to China and Europe, with growth in China outpacing the U.S. and Europe, the fundamentals remain strong. As China continues to dominate the EV market, it plays a crucial role in driving demand and lithium prices. Regarding other uses of lithium, Cabral emphasized that EV batteries remain the primary driver, especially as automakers shift away from combustion vehicles, which is expected to create further demand in the coming years.
Our Methodology
For this article, we used stock screeners to identify around 20 lithium and/or battery stocks and chose the 11 stocks most widely held by institutional investors. The stocks are listed in ascending order of their hedge fund sentiment, as of Q3 2024.
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).
Aerial view of an open pit mine, with workers extracting minerals.
Rio Tinto Group (NYSE:RIO)
Number of Hedge Fund Holders: 30
Rio Tinto Group (NYSE:RIO) is a global mining and metals company involved in sectors like copper, aluminum, diamonds, and lithium. It is set to expand its presence in the lithium market with the acquisition of Arcadium Lithium plc. On October 9, Rio Tinto announced an all-cash deal to acquire Arcadium at $5.85 per share, totaling approximately $6.7 billion.
Arcadium Lithium is a fast-growing, vertically integrated producer of lithium chemicals, with an annual production capacity of 75,000 tonnes of lithium carbonate equivalent. The company, which is a major supplier to Tesla, plans to more than double its production capacity by 2028.
In addition to lithium mining, Rio Tinto’s (NYSE:RIO) joint venture with Sumitomo Metal Mining improves Rio’s position in the copper (another essential metal for EVs) and gold sectors, especially with the development of the Winu project. Rio Tinto announced on December 4 that the company has reached a Term Sheet agreement for a joint venture on the Winu copper-gold project in Western Australia with Sumitomo Metal Mining (SMM). SMM will pay $399 million for a 30% stake, with $195 million upfront and $204 million based on milestones. The companies will also explore further collaboration in copper, base metals, and lithium.
The Winu project, discovered by Rio Tinto (NYSE:RIO) in 2017, is seen as a low-risk, long-life copper-gold deposit with potential for expansion. Rio Tinto will continue to manage the project, with a pre-feasibility study for an initial processing capacity of 10 million tonnes per annum set for completion in 2025. Rio Tinto and SMM aim to finalize definitive agreements by mid-2025 and continue collaborating with the Nyangumarta and Martu Traditional Owners.
Overall RIO ranks 3rd on our list of the best lithium and battery stocks to invest in. While we acknowledge the potential of RIO 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 RIO 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.