China's battery discounts could hurt Tesla, EV battery makers more than lithium names
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Lithium producers are taking their lumps for a second straight session, following reports Friday that big Chinese battery maker CATL has offered discounts to some automakers it supplies, reflecting a downturn in lithium prices.
Albemarle (NYSE:ALB) is one of Tuesday's biggest losers on the S&P. 500, -5.8%; other hard-hit names include Lithium Americas (LAC) -4.2%, Livent (LTHM) -2.9%, SQM (SQM) -1.9% and Piedmont Lithium (PLL) -1.2%.
Al Root at Barron's thinks CATL's move is significant, but "investors may have drawn the wrong conclusion. The bigger risks from the decision might be to battery and EV makers such as Tesla."
CATL's move could pressure lithium suppliers to lower prices, but that isn't certain to happen, Root said; a price war would mean lower battery profits for all battery makers, and shares of battery makers including CATL, LG Energy, Panasonic, SK Innovations, Samsung SDI are all ~4% lower since the CATL pricing plan was reported.
Oversupply in the Chinese EV industry could mean lower margins for the likes of Tesla (NASDAQ:TSLA), Li Auto (LI), NIO (NIO) and XPeng (XPEV), but "what isn't clear is whether CATL's pricing strategy will hurt lithium miners," Root wrote. "What's more, the 200K yuan/metric ton ($30K) pricing level is $10K more per ton than Albemarle (ALB) suggested in January is needed to guarantee supply of lithium to the auto industry in the long run."
However, Sigma Lithium (NASDAQ:SGML) +16.1% following a Bloomberg report late Friday that Tesla is considering a takeover offer for the company.