Tesla's forecast means boom times ahead for lithium demand. Citi's top stocks to play the trend

Published Wed, Mar 8 202311:05 AM ESTUpdated Wed, Mar 8 20231:34 PM EST

Citi analysts are optimistic about the lithium market after Tesla executives gave what they called a bullish forecast at its latest investor day . Tesla said it could sell 20 million battery electric vehicles (BEVs) by 2030 . That could imply as much as 23% growth in demand for lithium, said analyst P.J. Juvekar in a note Wednesday that highlighted the team's top picks to play the potential boom in lithium demand. "While we are not taking a view on TSLA's numbers … if TSLA goes after this target and succeeds, we assume it would trigger others to invest and possibly reach even higher penetration rates," he said. Juvekar also noted there could be short-term weakness in lithium prices but that it's only expected to last a couple of quarters. "Longer term, we remain bullish on lithium S/D and think supply will struggle to catch up with demand," he added. Other than Tesla , Citi highlighted Albemarle , Li-Cycle Holdings , Livent and SQM . Here's what they had to say about each stock. Albemarle "Our $310 target price is based on a 2024E sum-of-the parts analysis. We apply ~8x EV/EBITDA multiple to Energy Storage, ~9x to Specialties, and ~10x to Ketjen, all of which are in line with comparable peer valuations." Li-Cycle Holdings "Our $7 target price is based on the average of EV/EBITDA and a DCF analysis to 2027. By applying 3.5x EBITDA in 2027E, we derive a valuation of ~$9. Our multiple is more conservative than lithium mining/refining companies & recyclers as LICY is a new company and growth depends on execution of capital projects. Our DCF analysis returns a target price of ~$5 assuming a terminal growth rate of 4.0% and a WACC of ~10.2%." Livent "Our $28 target price is based on a target EV/EBITDA of ~9.5x applied to our FY24 estimate. This multiple is in line or at a slight premium to LTHM's closest peers, as LTHM is a pure-play lithium company." SQM "Our $92 target price is calculated using [sum of the parts] valuation on 2024E segment EBITDA. We apply ~5x EV/EBITDA to Lithium, ~6.5x to Iodine, ~7x to SPN, ~8x to Industrial Chemicals and ~7x to Potassium. SQM's Lithium multiple is at a discount to LTHM as LTHM is a pure-play lithium hydroxide company. The multiples applied to SQM's other segments are generally in-line with peers." Tesla "Our approach is to use a probability weighted Bull vs. Bear terminal value analysis. We construct a Bull case, a Base case and a Bear case. Our Base case is DCF-driven based on our earnings model (assumes 19.5x terminal 2030E adj. EBITDA and 12% discount rate), while our Bear and Bull cases draw downside/upside scenarios. ... Our current price target assigns 3/90/7 weightings, respectively, to these three scenarios — yielding a $146 blended stock outcome."