Is it too late to buy ASX lithium shares?

Some investors have done pretty well out of ASX lithium shares in recent years as the element saw rising demand from battery and electric car makers.

However, those stocks have fallen somewhat in recent weeks as lithium prices have topped out.

So the big question from those who haven't yet jumped on the bandwagon is: Is it too late? Is the current dip a buying opportunity, or has the peak passed?

Shaw and Partners portfolio manager James Gerrish gave his thoughts recently on whether it's still a good idea to buy into these companies.

Lithium can't be substituted easily 

Regardless of the short-term dip, lithium demand is here to stay, according to Gerrish.

"Lithium ties into the electrification thematic that is taking over the globe," he said in a Market Matters Q&A.

"The reason for the hype is [that] lithium has unique characteristics that are difficult to replicate. It is a light metal but is able to store large amounts of energy and is an excellent conductor of electricity."

Gerrish added that while other battery minerals can be substituted with other ingredients, lithium demand is "relatively immune to these risks".

"Demand for lithium has grown at [approximately] 20% compound annual growth rates through 2017 to 2022 and we think that will continue, while lithium deposits that are technically and economically viable to exploit are rare," he said.

"This all paints a positive backdrop for the sector, and particularly the higher quality hard rock producers in Australia — the question comes down to timing."

Which is the ASX share to buy to jump on the lithium bandwagon?

So if you were to become a new ASX lithium share investor right now, which is the stock Gerrish would buy?

"We recently bought IGO Ltd (ASX: IGO), which is highly correlated to fellow battery metal stocks on the ASX," he said.

"We like IGO given it also has a very solid nickel business that has been [expanded] through the sensible purchase of Western Areas (WSA)."

The IGO share price is down around 20% since its last peak on 4 April.

Gerrish's team still likes the other two major producers, Pilbara Minerals Ltd (ASX: PLS) and Allkem Ltd (ASX: AKE), but they're "a crowded play" as with many other green-themed stocks at the moment.

"For that reason we have left room to average our IGO position into weakness," he said.

"We are also contemplating adding Pilbara or buying Allkem in the Emerging Companies Portfolio using the same philosophy."

For comparison, Pilbara shares have plunged 35% since 4 April, while the Allkem stock price has also headed south 14% over that period.