GM’s Lithium Americas Deal Positions It for EV Dominance

Key Points

• Lithium Americas and General Motors are entering a $625-million joint venture to develop a lithium mining operation in Nevada.
• The infusion of support from GM should help Lithium Americas to complete the project by 2028.
• Thacker Pass is expected to generate 40,000 metric tonnes of battery-grade lithium carbonate per year and could send LAC stock skyrocketing.

In early October 2024, Rio Tinto Group NYSE: RIO—the third-largest mining company worldwide—shook up the industry by announcing that it would acquire Arcadium Lithium plc NYSE: ALTM for $6.7 billion in cash. The global lithium mining market is valued at around $400 million but is growing fast thanks to surging demand for the metal as a key component in powering electric vehicles, consumer electronics, and mobile devices.

There aren't many publicly traded lithium miners, but companies like Albemarle Corp. NYSE: ALB and Sociedad Química y Minera de Chile NYSE: SQM that are already established could stand to benefit over the long term as demand for battery-grade lithium is expected to continue to rise. This makes lithium mining firms a prime target for acquisition or other involvement from larger mining or automotive companies in particular.

Just a week after Rio Tinto's announcement, car manufacturing giant General Motors Co. NYSE: GM announced a joint venture with another key lithium mining operation, Lithium Americas Corp. NYSE: LAC. The project will see GM offer $625 million in cash and credit to Lithium Americas in order to advance the Nevada-based Thacker Pass lithium project. GM will acquire a 38% stake in the Pass.

Short-Term Impacts for LAC

In the immediate aftermath of the announcement of the joint venture, shares of LAC spiked. Lithium Americas' stock is up more than 40% in the last month, although it remains down about 50% over the last year.

The joint venture is structured to provide Lithium Americas with support over an extended period of time. The first phase will include $330 million in cash from GM upon the closing of the venture, and another $100 million will be provided at an unspecified later date. Additionally, GM will provide a $195-million letter of credit facility that Lithium Americas may use as collateral in support of reserve account requirements.

The benefits to Lithium Americas of this phased support as the company anticipates beginning major construction on the Thacker Pass project to begin this year are significant. The project has already faced hurdles including concern about environmental impact and location relative to culturally significant areas. With all permits now in place, Lithium Americas is prepared to undertake the costly process of preparing the mine to become operational, with an expected initial 40,000 metric tonnes of battery-grade lithium carbonate per year.

Long-Term Implications for Thacker

Prior to the joint venture, Lithium Americas maintained 100% ownership of Thacker Pass. It will now reduce its stake to 62%, with GM holding the remainder. This ownership dilution will impact the mining firm's long-term revenue-generating capacity, but the mine is expected to be productive enough to unlock significant growth potential for LAC in the years to come.

With support from GM and a DOE grant, Lithium Americas should be able to complete the Thacker Pass project in the next three years or so. Analysts predict that shares of the stock will catapult after that time, with projections for share price by 2032 as high as $30, or nearly 10 times the current value.

Investors looking for short-term benefits may be stuck waiting, however. LAC stock is currently rated a Hold despite having a consensus price target of $5.50, or 60% higher than current levels. This is likely due to the waiting period before Thacker Pass will begin to generate revenue. Nonetheless, investors who are bullish on the company's lithium prospects in the years to come may find that this is an opportune time to enter a position at a relatively low point.

Benefits for GM

Lithium Americas is not the only company expected to reap significant benefits from Thacker Pass in the coming years. GM has stated that its priority is to develop a "resilient EV material supply chain" from domestic suppliers. This could help avoid major blockages with various EV components, as seen in recent years.

Keeping lithium sourcing domestic will also help GM keep battery cell costs down and, in turn, maintain lower vehicle prices. GM shares are up nearly 16% in the last month and over 82% in the past year.