ASX lithium shares have struggled in recent years but I’ve got 3 reasons why shares like Orocobre Ltd (ASX: ORE) can surge higher in 2021.
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ASX lithium shares have been something of a perennial disappointment. Many of the top companies have had a lot of potential without delivering the returns investors are after.
Here’s why that could be about to change in 2021.
3 reason why ASX lithium shares can surge in 2021
1. Prices appear to be stabilising
With the benefit of hindsight, lithium pricing around 2015 was pretty crazy. There was something of a bubble as everyone expected it to be the next big thing, largely through electric vehicles and battery storage.
However, lithium prices have fallen significantly and appear to be finally stabilising. That’s good news for producers who can more reliably predict future revenues with less volatility in commodity prices.
Any rebound in pricing would be good news, but I think stability is the key as investors can rebase their expectations for the ASX lithium shares.
2. Demand is starting to ramp up
According to a report by the International Energy Agency, electric vehicles accounted for ~1% of global car stock in 2019, up 40% from 2018.
I think demand is slowly starting to pick up and a rejuvenated Tesla Inc. (NASDAQ: TSLA) is a key cog. Tesla is finally making waves after years of production promises and ramp-up.
That’s not to say that Tesla is out of the woods yet, but I’m cautiously positive about its sales and production pipeline.
If demand for electric vehicles (EVs) continues to grow, I think ASX lithium shares can benefit from stronger pricing and more absorption of volume.
3. Government support remains strong globally
There’s also the potential for the coronavirus pandemic to actually have a positive effect on pricing. As governments worldwide look to stimulate their economies with more EV investment, that could drive up demand even further.
There have been a number of key initiatives announced which are good for ASX lithium shares and their potential earnings.
Atlassian co-founder Mike Cannon-Brookes is in talks with Elon Musk for a second major battery storage project. This comes after the 2017 Hornsdale Power Reserve which is the largest lithium-ion battery in the world.
Overseas, Britain is looking at banning the sale of new petrol, diesel or hybrid cars by 2035. That would boost demand for EVs and drive up demand for the commodity which is good news for ASX lithium shares.
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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