[Company & Issue] Trump Boost Sends 'Lithium Americas' Shares Soaring Twofold... Will It Reduce Dependence on China?

Anticipation of U.S. government equity investment... 140% surge
Potential to reduce dependence on China, but concerns over excessive expectations

Mineral extractor at the Lithium Americas plant. Lithium Americas website

Shares of Lithium Americas, a Canadian mining company, more than doubled following news that the U.S. government is considering an equity investment. There is growing anticipation that government investment will accelerate the development of the lithium mine being jointly developed with General Motors (GM), and that U.S. electric vehicle companies will become less dependent on Chinese lithium. However, experts warn that, despite these positive developments, market expectations reflected in the current share price are excessive. They advise caution, citing the need to consider the pace of mine development and financial stability given the company's debt burden.

Stock price surges 140% in two days... Anticipation of U.S. government equity investment

On the Nasdaq in the United States, shares of Lithium Americas closed at $7.37 on September 25 (local time), continuing a sharp rally for a second consecutive trading day. After surging 95.77% on September 24, the stock jumped another 22.73% on September 25. Having traded between $2 and $3 earlier this year, the stock soared more than 140% in just two days, reaching the $7 range.

The main driver behind Lithium Americas' stock surge was news that the U.S. government is considering an equity investment. On September 24, the White House announced that the Department of Energy (DOE) had proposed an equity investment in Lithium Americas. If the investment goes through, the U.S. government will own a 10% stake in Lithium Americas.

The Donald Trump administration has recently been making direct investments in domestic defense and key rare earth minerals industries, and the move to secure a stake in Lithium Americas is part of this initiative. In July, the U.S. Department of Defense also announced plans to invest in a 15% stake in MP Materials, a rare earth mining company.

The possibility of an equity investment from the U.S. government is being viewed as a major positive for Lithium Americas. Seth Goldstein, an analyst at investment research firm Morningstar, explained, "If the U.S. government's equity investment is accompanied by price guarantees, the project could remain profitable even if lithium prices stay low for an extended period."

Thacker Pass mine under joint development with GM... Reducing dependence on Chinese lithium is key

Map view of the 'Thacker Pass' mine located in Nevada, USA, jointly developed by Lithium Americas and General Motors (GM). From the Lithium Americas website.

As its name suggests, Lithium Americas is a company that mines lithium, a key raw material for electric vehicle batteries. It is currently developing the Thacker Pass mine in Nevada, the largest lithium mine project in North America. After the U.S. Bureau of Land Management (BLM) approved the development of Thacker Pass in 2021, Lithium Americas began joint development of the mine with General Motors in 2023.

In 2023, GM invested $650 million in Lithium Americas, acquiring a 38% stake. Last year, under the previous Biden administration, a $2.26 billion loan (approximately 3.165 trillion won) was approved to secure the lithium supply chain. Since then, full-scale development of the Thacker Pass mine has been underway. Lithium Americas plans to complete the first phase of mine development and begin lithium production by the end of 2027.

If development proceeds as planned, the Thacker Pass mine will be able to produce 40,000 tons of lithium annually starting in 2028. This is enough to manufacture batteries for 800,000 electric vehicles. Once all development phases are completed by 2033, annual lithium production will increase to 80,000 tons. In both the U.S. and abroad, there are high expectations that full-scale lithium production at Thacker Pass will reduce dependence on Chinese lithium.

According to CNN, U.S. lithium production last year was only about 5,000 tons, a fraction of China's 460,000 tons. As of last year, China produced 30% of the world's lithium minerals and 70% of refined lithium, effectively dominating the global lithium market.

Uncertainty over development timeline and loan funds... "Expectations excessively reflected"

Lithium Americas Homepage

However, experts warn that, since Thacker Pass mine development is still underway and the company faces a significant debt burden, investors should exercise greater caution.

On September 24, U.S. investment bank TD Cowen downgraded Lithium Americas from "Buy" to "Hold" and maintained a target price of $5, stating, "While the U.S. government's equity investment may accelerate mine development and support potential expansion, these expectations are already excessively reflected in the share price. It is important to consider that revenue generation is unlikely until after the completion of the first phase of mine development in 2028."

In fact, Lithium Americas has been posting losses since 2021. After recording a net loss of $67.79 million in 2021, the company posted a net loss of $5.08 million in 2022, $42.52 million in 2023, and $42.62 million last year. If mine development is delayed or lithium production plans are disrupted, losses are likely to deepen further.

CNBC, citing a Trump administration official, also reported, "The U.S. government's equity investment is intended as a cash buffer to secure rare earth elements and reduce the risk to public funds. There are discussions that Lithium Americas failed to meet the initial disbursement requirements for the government loan, requested a renegotiation of the terms, and this could potentially result in repayment issues in the future."