Is Arcadium Lithium plc (ALTM) the Best Small Cap EV Stock to Invest In?
We recently published a list of the 11 Small Cap EV Stocks to Invest In. In this article, we are going to take a look at where Arcadium Lithium plc (NYSE:ALTM) stands against the other small-cap EV stocks to invest in.
The electric vehicle (EV) industry was growing at a strong pace over the last few years. However, it’s facing some challenges that have slowed down the growth. It does not mean that the industry is at a halt. Over time, it is on track to take over the internal combustion engines entirely.
The transition to EVs is proving more difficult than anticipated, with consumer demand not matching expectations, partly due to a lack of charging infrastructure and the complexity of switching from long-established fuel technologies.
A CNBC report from September 10 states that European car manufacturers are facing a range of challenges in their shift toward EVs, which is leading several companies to rethink their timelines. Volvo recently abandoned its goal of selling only EVs by 2030. Instead of that, it is opting to remain flexible and include hybrid models in its lineup.
Other major automakers, such as Volkswagen, Ford, and Mercedes-Benz, have similarly delayed plans to phase out internal combustion engine vehicles due to market uncertainties, including slower infrastructure development and changing government incentives.
Despite these short-term setbacks, experts believe automakers will continue investing in EVs to remain relevant in the market.
The Competitive Edge of Chinese Electric Vehicle Makers
While the growth in the US and Europe is slowing down, China is picking up a significant pace and dominating the EV landscape. According to a World Economic Forum report, Chinese EVs are much cheaper than their Western counterparts, with an average price of $34,400, compared to $55,242 in the U.S. The price gap is driven by lower labor costs, favorable government subsidies, and more affordable battery sourcing.
Chinese automakers now produce more than half of the world’s EVs and are using their cost advantages to potentially dominate the global market. As Chinese brands gain scale and expertise, their competitive pricing could allow them to challenge Western automakers.
The Western EV Market Compared to China
While Tesla remains a strong competitor to China, other U.S. and European automakers have been slower to compete effectively due to high prices and limited EV options. However, the US government and the private sector are also trying their best to expand the industry and become a dominant force in the EV industry.
According to a Reuters report published on September 23, Monroe Capital LLC announced its intention to launch a new fund, the Drive Forward Fund LP, aimed at raising up to $1 billion to provide loans for smaller auto suppliers as the industry transitions from ICE vehicles to EVs.
The White House supports the intention and said that this fund will help small and medium-sized auto manufacturers to access affordable capital to refinance, grow, and diversify their operations and will benefit the over 250,000 employees in this sector.
The recent implementation of new U.S. tariffs on Chinese EVs, along with the need for compliance with strict emissions regulations, is pushing automakers to adapt their supply chains.
Monroe CEO Ted Koenig stated that the fund would be vital for stimulating growth and innovation in the automotive supply chain. Many small and medium suppliers currently struggle to secure financing, which limits their ability to move toward EV part production.
Apart from that, we also discussed DOE’s move to boost EV operations in the US in our article about the 8 Best EV Stocks to Buy According to Short Sellers. Here is an excerpt from the article:
“…the U.S. Department of Energy (DOE) said on July 11 that the Biden administration, through the DOE, announced $1.7 billion in grants aimed at converting 11 at-risk auto manufacturing facilities across eight states to produce electric vehicles (EVs) and their components.
This move is part of President Biden’s broader “Investing in America” initiative, which seeks to revive manufacturing communities and protect union jobs. The grants are designed to keep the U.S. auto industry competitive, especially as global rivals invest heavily in EVs. The program, funded by the Inflation Reduction Act, will help retain over 15,000 union jobs and create nearly 3,000 new positions across the selected facilities. These facilities will manufacture a wide range of EV-related products, from parts for electric motorcycles to batteries for heavy-duty trucks.”
Erin Keating of Cox Automotive is also bullish on the US EV industry as she pointed out in a CNBC Power Lunch interview that competitive lease deals are putting downward pressure on used EV prices. She sees it as a positive, as more leased vehicles will eventually enter the used market, and ensure a steady supply of affordable EVs.
Addressing concerns about EV infrastructure and range anxiety, Keating reassured consumers that used EV batteries are holding up well, with minimal degradation. As infrastructure improves, she expects consumer confidence and EV adoption to grow.
Our Methodology
For this article, we made a list of 20 small-cap companies that are involved in the EV industry, as of September 25. Our small cap threshold is between $1 billion to $10 billion. We narrowed our list to 11 stocks most widely held by institutional investors. The 11 small cap EV stocks to invest in are listed in ascending order of their hedge fund sentiment.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A fleet of electric vehicles charging at a station in Beijing.
Arcadium Lithium plc (NYSE:ALTM)
Number of Hedge Fund Holders: 19
Arcadium Lithium plc (NYSE:ALTM) is focused on the production of lithium chemicals products in the Asia Pacific, North America, Europe, the Middle East, Africa, and Latin America. Lithium is a critical component of EV batteries. The company is one of the best EV stocks to invest in.
The company excels in a variety of lithium extraction methods, including hard-rock mining and direct lithium extraction (DLE), which enables the creation of high-purity lithium products such as lithium hydroxide and lithium carbonate.
During the inaugural Investor Day on September 19, management shared ambitious plans for the future. They expect a 25% increase in combined lithium carbonate and lithium hydroxide volumes for 2024 and 2025.
The growth stems from completed expansion projects at the Fénix and Olaroz sites, which are currently operational and do not require additional capital investment. Beyond these immediate advancements, the company is focused on expanding its extensive portfolio of resources in a manner that aligns with market demands and customer needs.
Arcadium Lithium (NYSE:ALTM) outlined a two-wave expansion plan across its high-quality and cost-effective assets located in Argentina and Canada. The first wave, containing four existing projects at various stages of development, is set to be completed by 2028, with projections indicating a doubling of current sales volumes.
Following this, the second wave of initiatives, still in the development and planning phases, presents the opportunity to ramp up production capacity significantly, targeting an increase of between 125,000 and 295,000 metric tons of lithium carbonate equivalent (LCE) beyond 2028.
The company has a clear path toward achieving an anticipated $1.3 billion in Adjusted EBITDA by 2028, dependent on certain market conditions.
The forecast is supported by low-cost operations and multi-year customer agreements, which help maintain healthy profit margins. Furthermore, anticipated price increases in the lithium market could improve revenue and incentivize supply growth across the industry.
Since the merger of Allkem and Livent in January 2024, which formed Arcadium Lithium (NYSE:ALTM), the company has been proactive in implementing cost-reduction measures. With expected savings of up to $80 million in 2024, the company now expects nearing its initial target of $125 million in savings by the end of 2025, approximately two years ahead of schedule.
The efficiencies result from organizational restructuring, operational synergies, and a streamlined supply chain, which indicates the potential for even greater savings in the long term.
First Pacific Advisors stated the following regarding Arcadium Lithium plc (NYSE:ALTM) in its Q2 2024 investor letter:
“Arcadium Lithium plc (NYSE:ALTM) is an integrated, low-cost, well-managed lithium producer formed by the merger of Livent, which the Fund owned, and Allkem in Australia. The merger was completed at the beginning of the year and we received, and decided to hold, shares of Arcadium. The share price has declined because of volatile lithium prices that collapsed from bubbly levels at the beginning of 2023.27 Estimates for electric vehicle production are slowing and capacity got ahead of demand; the industry is now waiting for a supply response.
Arcadium is an unusual investment for us. We normally avoid the commodity and materials sectors, and have kept our position in Arcadium small. But we believe Arcadium has a unique position in an industry with a strong long-term outlook. The company has low-cost production assets, is virtually debt-free, and has considerable capacity additions planned near-term.”
Overall, ALTM ranks 8th on our list of the small-cap EV stocks to invest in. While we acknowledge the potential of ALTM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ALTM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.