The bull run enjoyed by ASX lithium shares stumbled in November when lithium prices began a sharp fall from all-time highs.
As you'd expect, that led to some short-term share price losses among S&P/ASX 200 Index (ASX: XJO) lithium stocks including Pilbara Minerals Ltd (ASX: PLS), Allkem Ltd (ASX: AKE) and IGO Ltd (ASX: IGO).
But since the price of the battery critical metal bottomed on 24 April, the ASX lithium share bull run is back in action.
Since 24 April the Pilbara share price has gained 21%; the Allkem share price has rocketed 39%; and IGO shares have gained 10%.
Now, here are three reasons I think the bull run on ASX lithium shares is only just getting started.
Why ASX lithium shares could continue to outpace the market
Firstly, the lithium space is anything but stagnant.
Tremendous amounts of research and development funds are pouring into the industry each year, spurring ongoing advancements.
Today's semi-solid lithium-ion batteries already represent a major improvement from the batteries in use 10 years ago.
But engineers are hard at work on the next generation of battery tech, solid lithium-ion batteries. These are intended to greatly reduce charging times, weight, and vehicle ranges.
Commenting on the outlook for lithium-ion batteries, Motley Fool analyst Trevor Muchedzi said, "Simply put, we are still very much in the first innings of the battery revolution."
The second reason I believe the bull run on ASX lithium shares has a lengthy road ahead yet is expectations of an ongoing supply and demand imbalance.
While new supplies are coming online, those supplies may well lag rocketing demand.
Research house Benchmark, for example, is forecasting lithium demand will hit 1 million tonnes in 2023 and soar to 2.8 million tonnes in 2030.
Commenting on this imbalance, Muchedzi said:
At the current investment run rate, the structural mismatch between demand and supply is expected to persist well into 2030 (global demand of approximately 5,300GWh versus supply of approximately 4,100 GWh) and therefore present a favourable pricing environment for both lithium and batteries.
Which brings us to the third reason I believe the ASX lithium share bull run is in its early days yet.
And that's because, with an almost blind eye to the immediate costs, the world is intent on decarbonising. And for the foreseeable future, lithium-ion batteries are likely to remain the go-to technology for storing power that's increasingly produced from sustainable sources.
"Regardless of battery chemistries, the common thread across the majority of commercially viable designs is lithium," Muchedzi said.
