Pilbara Minerals Ltd (ASX: PLS) shares have extended their downtrend in September and are now down more than 40% this year.
ASX lithium miners are facing a unique challenge tied to the evolving electric vehicle (EV) market.
Lithium prices are heavily depressed from their all-time highs amid a slump in demand for electric vehicles and higher input costs for miners.
Despite being a key player in the lithium space, these developments in the EV sector could have major implications for the company's future growth. Let's take a closer look.
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Lithium demand cools, so do Pilbara Minerals shares
The global demand for lithium has seen its ups and downs, with 2024 bringing a notable slump in lithium prices, affecting many miners – Pilbara Minerals shares included.
At the time of writing, lithium carbonate is fetching CNY 72,500 per tonne, down from highs of CNY 189,500 per tonne in September last year.
Despite this, Pilbara Minerals increased production by 16% to 707,100 tonnes during the FY24 period – an interesting move given the weaker market conditions for EVs.
But the sharp decline in lithium prices, alongside a broader slowdown in the EV transition, has put corkscrew-like pressure on Pilbara's revenues.
Even with the jump in production, the company reported a 69% decline in revenue to $1.25 billion.
This came with an 86% drop in net profit. No final dividend was declared either.
While the profit decline is alarming, it isn't surprising, considering lithium prices have fallen by a similar amount over the past two years.
This hasn't stopped investors from selling down Pilbara Minerals shares, though. They are 24% in the red in the past month.
Global EV market slow to electrify
Compounding matters, large automakers – once pushing hard for an all-electric future – are beginning to pull back on their EV production.
Companies like Volvo, Mercedes-Benz, and Toyota have revised their EV targets, citing supply chain issues, consumer range anxiety, and the slow rollout of charging infrastructure.
Meanwhile, George Washington University has found some EVs depreciate their value faster than fuel-powered cars, impacting resale values.
And while many were expecting a swift transition to electric vehicles, the reality has been slower, with hybrid models gaining more traction.
Hyundai, for instance, is set to double its range of hybrid options, citing a slump in the uptake of electric-only vehicles. Toyota is in a similar camp.
These industry changes could spell a slower growth path for lithium demand, impacting Pilbara Minerals shares.
Analysts' mixed views on Pilbara Minerals shares
If things couldn't be more complex, analysts remain divided on Pilbara Minerals' shares outlook.
Some, like Bell Potter, have a hold rating with a price target of $3.15. This implies a potential upside of around 34% from current levels.
The broker remains cautiously optimistic about Pilbara's low-cost production and strong balance sheet.
This could provide it the resilience needed to weather the current downturn, it says.
On the flip side, some market watchers are less optimistic. Consensus rates it a hold, according to CommSec.
This is made up of eight buy ratings, six holds, and four recommendations to sell the stock.
As mentioned, analysts are divided on Pilbara shares.
Foolish takeaway
Pilbara Minerals shares are in a difficult spot. While the company's balance sheet is sound, the price of lithium continues to plague the sector.
The stock is down 47% in the last 12 months.
