Investing in Canadian lithium projects is one of the strongest ways to play North America's adoption of electric vehicles (EVs), according to broker Stifel GMP.
The companies with such projects control domestic lithium supply, which original equipment manufacturers (OEMs), or in other words, vehicle makers, increasingly require, said analysts in an industry note.
They believe the 'Canadian Shield' encompassing Ontario and Québec are an "emerging cradle" of critical minerals in the North American battery metals space.
"Global events are causing governments to adopt friend-shoring policies for increased supply chain security," said Stifel analysts.
"Coupled with supportive electric vehicle (EV) adoption policy, we see a trend towards localizing EV supply chains."
READ: Tesla recalls vehicles on mass for the third time in a month
The analysts cited five key reasons for the regional dominance and importance of the two Canadian provinces.
Firstly, they highlighted that the US government was quickly driving policy to try and decrease foreign critical mineral dependence, which will thus drive North American lithium demand.
"The DoE recently allocated US$2.8B under the Infrastructure Investment and Jobs Act in part as grants to critical mineral projects – a significant shift towards focusing on upstream resources. Importantly, the U.S. Department of Defense considers Canada as domestic, meaning product mined in Canada qualifies," they noted.
The US Department of Energy (DoE) has also outlined US$57 billion via the Advanced Technology Vehicle Manufacturing Loan Program, for which domestic critical mineral processing qualifies, while the Canadian 2022 Budget has outlined $4 billion in critical mineral infrastructure and advancement, the analysts pointed out.
Secondly, North American policy has the ability to drive down the cost of capital for lithium projects, said the analysts, while, thirdly Michigan and Ontario represent two of the largest automotive manufacturing geographies in North America.
Ontario is home to five global OEMs (Toyota, Ford, Stellantis, Honda, GM) and the province has set an EV production goal of 400,000 units by 2030 as well as over $16 billion in downstream EV supply chain investment.
Québec has taken a similar tact, having attracted global players in battery component/ manufacturing.
In total, Stifel estimates that at least 711GWh of battery manufacturing capacity by 2030 has been announced in US and Canada worth at least US$50 billion with at least US$10.8 billion pledged by US states in corporate subsidies, intimating as much as around 600,000 tonnes of lithium carbonate equivalent (LCE) demand per year.
Fourthly, Québec is the world’s fourth largest hydroelectric producer, and together with Ontario rank in the top 10 for wind generation in North America.
Québec also has the lowest electricity cost in North America, 6.4 times' less than the EU average, and 52% lower than US 'Auto Alley'.
Finally, noted the broker, the largest hardrock lithium pegmatites occur in geologic terrains that are "old and cold" such as in Western Australia and also the geology, which spans through Ontario and Québec - home to multiple lithium bearing deposits that have the potential to feed the emerging North American EV supply chain.
"Global OEMs have taken notice, with VW and Mercedes signing MOUs with the Federal Government for critical mineral supply," added the Stifel analysts.
Contact the author at giles@proactiveinvestors.com