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Thanks to the electronic vehicle (EV) revolution, lithium prices have surged nearly nine times since 2020. Car manufacturers are clamouring to secure lithium reserves after reports show that prices for the soft metal could continue this historic rise. To capitalise, I am looking at two UK shares in the EV space that fit my portfolio.
While most commodity prices have taken a hit in 2022, lithium is still trading close to all-time highs of US$70,000/ tonne. And analysts expect lithium prices to rise anywhere between 150% and 250% year over year until 2028.
To put the current inflation in lithium prices in perspective, let us look at the price action across 2022. In January, lithium cost $10,000 per tonne. Right now, it is trading close to $68,000. This 580% jump in seven months has made it one of the fastest growing commodities in history.
And with European EV sales at an all-time high, I think this is the perfect time for me to look at lithium shares in the UK.
Two top UK shares I’m watching
To cut out crude oil, the first step is to develop the battery tech to power our machines. And Ilika (LSE:IKA) is a British battery manufacturer with a focus on lithium-based batteries for EVs and medical devices.
The firm is working on its ‘Goliath’ battery line, which could become a premium option for the automobile belt in Europe. After years of research, Ilika is finally looking to scale up manufacturing efforts to meet this sudden spike in demand.
The company is already working with the UK Battery Industrialisation Centre (UKBIC) to create a dedicated 100 MWh manufacturing line. Also, Ilika’s tech was recently accepted into the coveted APC programme to help the UK automotive industry reach net-zero emissions.
The next UK share on my list, Rio Tinto (LSE:RIO). The FTSE 100-listed mining giant has actively been securing lithium reserves across the world. These include the Rincon lithium project in Argentina for $825m and the highly promising $2.4bn Jadar lithium project in Serbia.
The Serbian government recently revoked the license for the Jadar project, citing environmental concerns. This forced Rio Tinto to propose a new plan that promises a 15% reduction in emissions. According to estimates, lithium from Jadar would meet 90% of Europe’s current needs. And Rio’s board is confident that a resolution can be reached.
Concerns and verdict
Despite the estimated demand for batteries, projects like Ilika could meet huge roadblocks. The company is yet to become cash-positive given its high R&D budget. And the journey to being a new product to the market is tough, especially for smaller firms.
Miners like Rio always run the risk of government interventions that could affect operations. Also, with lithium prices skyrocketing, some analysts are wary of the instability. If the demand from China cools down, lithium prices could drop again, effectively ending the surge.
However, the EV industry looks unstoppable right now. Even Elon Musk has stated that Tesla could enter the lithium mining market to cut costs. And the two UK shares on my watchlist can help address this demand. If the demand for EVs extends into 2022, I would be tempted to make an investment in both to cash in.
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