Citi's Top Stocks To Play The Lithium Trend Based On Tesla's Forecasts

At Tesla's recent investor day last week, Tesla executives gave what they called a bullish forecast: their goal is to increase lithium production in the future. It was a positive statement from Tesla executives.

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By 2030, Tesla is expected to sell 20 million battery electric vehicles (BEVs) as part of its global ramp-up program. As a result, that figure is expected to suggest an increase of 23% in lithium demand over the next two years, said analyst P.J. Ajuber in a note released Wednesday outlining the team's top picks to leverage the potential boom in lithium demand over the next two years.

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"While we are not taking a position on Tesla's numbers, we assume that if they reach their target and succeed in reaching these numbers, this will lead to more investments and this could eventually lead to even higher penetration rates," he explained.

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Additionally, Juvekar stated that there could be some short-term weakness in the lithium price, but it is expected that this weakness will not last for more than a couple of quarters.

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"We remain bullish on lithium price S/D, and we think we have some time before the supply catches up with the demand in the long term, " he said.

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It should be noted also that Citi concentrated on Albemarle, Li-Cycle Holdings, Livent, and SQM in addition to Tesla. This is what each stock had to say about what they thought of it.

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As part of our approach, we use a probability weighted analysis of terminal values for Bulls and Bears. There are three scenarios: the Bull case, the Base case, and the Bear case. In our Base Case, we use a DCF-based price model based on our earnings model (assuming a terminal 2030E adj. EBITDA ratio of 19.5% and a 12% discount rate), while our Bear and Bull cases are scenarios based on upside/downside scenarios. This result would yield a $146 blended stock outcome based on Tesla's current price target. "Each scenario is weighted 3/90/7, respectively." Tesla said.

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