The Pilbara Minerals Ltd (ASX: PLS) share price has been a top performer in the last few months. Can the ASX lithium share keep going?
Since the start of October, it's up by 18%. Over the past month it's up more than 35%. From the middle of June, it has gone up by over 160%.
It has outperformed the S&P/ASX 200 Index (ASX: XJO) significantly over each of those time periods. For example, the ASX 200 is close to flat over the past month.
What could drive the Pilbara Minerals share price higher?
One of the most important elements that can affect investor sentiment about the business is the resource price.
A commodity business is heavily reliant on the price of its resource for how well its profit margins perform. It's a price taker.
It essentially costs Pilbara Minerals the same to produce one tonne of production. So, higher revenue for that tonne can translate largely into more profit and higher cash flow, after paying more to the government in taxes.
I like how the company has been using the digital Battery Material Exchange (BMX) platform to sell off small, but regular, parts of its production.
The latest auction was its ninth BMX auction. It presented a cargo of 5,000 dry metric tonnes (dmt) for sale with a target grade of around 5.5% lithia.
Pilbara acknowledged that there was strong interest in both participation and bidding by a broad range of quality buyers with a total of 22 bids received online during the 30-minute auction window.
The ASX lithium share said that it intends to accept the highest bid of US$6,988 per dmt, on a pro rata basis for lithia content (and adjusted to be inclusive of freight costs), it equates to a price of around US$7,708 per dmt.
In the first BMX auction it carried out, in July 2021, the highest bid was US$1,250 per dmt.
Lithium demand grows with electric vehicle growth
The quarterly resources and energy report from the chief economist of the Department of Industry, Science and Resources referred to the growing global demand for lithium as electric sales "take off". I think it's worth including most of the section about world demand because it explains some of the positive support for ASX lithium shares and the Pilbara Minerals share price:
Global lithium demand continued to grow strongly in the June quarter 2022, driven by rising demand for electric vehicle batteries. Despite faltering global economic growth in the June quarter, sales and production of electric vehicles (EVs) continued their rapid growth trend.
Global sales of all types of EVs increased 36% in the year to June 2022 compared with the same period in 2021 — with Chinese sales up 110%, European sales up 6%, and North American sales up 27%.
In China, total EV sales have averaged almost half a million vehicles a month so far in 2022, reaching a peak of 650 thousand vehicles in June. Overall, auto production and supply chains in China have now largely recovered from the COVID lockdowns, when EV sales fell to just over 300 thousand vehicles in April 2022.
In May, the Chinese Government cut purchase taxes on some low-emission passenger vehicles by 50%, while some municipal governments have also provided subsidies and incentives to encourage EV purchases. Global passenger EV sales are expected to continue to grow strongly, albeit at a slower rate than in 2021 — when passenger EV sales more than doubled to an estimated 6.8 million vehicles. Passenger EV sales are expected to hit 11.2 million in 2022 and 14.5 million in 2023.
Key global automakers continue to accelerate plans to transition to EVs by developing new product lines and converting existing manufacturing capacity. The global market share for passenger EVs has quadrupled since 2019, with EV sales representing about 9% of the car market in 2021.
Broker ratings on the Pilbara Minerals share price
The broker UBS rates it as a sell, with a price target of $2.65. That implies a possible drop of 50% over the next year because of its valuation.
Even Macquarie's bullish price target of $5.60 has almost been met. The broker thinks that the ASX lithium share will sell more through the platform when Ngungaju increases production.
