Shares of Lithium Americas Corp. LAC surged nearly 6.7% yesterday following the closure of its joint venture with General Motors GM. The agreement centers on the Thacker Pass lithium project, a pivotal initiative aimed at bolstering North America’s critical minerals supply chain.

Inside the LAC-GM Partnership

Lithium Americas and GM joined forces to develop the Thacker Pass project in Humboldt County, NV. This site is among the largest lithium reserves in the United States and ranks among the top five globally. GM has acquired a 38% stake in the project for $625 million, which includes $430 million in direct funding to the joint venture for Phase 1 construction and a $195 million letter of credit facility. Lithium Americas holds a 62% interest and will oversee project management.

Initial funding has already begun, with GM contributing $330 million in cash and Lithium Americas adding $138 million. The remaining contributions from both parties will be made once the final investment decision for Phase 1 is reached, which is expected in early 2025.

For GM, this joint venture is more than just securing a lithium supply. It’s a strategic move to bolster EV production and maintain eligibility for federal consumer incentives. The automaker’s $650 million investment in Lithium Americas represents the largest commitment by a car manufacturer to secure raw battery materials, highlighting the growing need to secure long-term lithium supplies.

A Glimpse at Thacker Pass’ Potential

Thacker Pass ambitiously targets an annual production capacity of 80,000 tonnes of battery-quality lithium carbonate, split into two phases of 40,000 tonnes each. Phase 1 production is anticipated to commence by late 2027, aligning with the growing demand for domestically sourced lithium. GM’s exclusive access to Phase 1 output ensures a steady supply of lithium carbonate for its proprietary battery cells, a key component of its electric vehicle (EV) lineup.

Lithium Demand to Grow

Lithium is a cornerstone of lithium-ion batteries, prized for its high energy density, rapid charging capability and durability. Since 2023, lithium prices have faced downward pressure due to a surge in global supply, particularly from major producers in Australia and South America.

But as the world transitions to clean energy, the demand for lithium is projected to remain robust. The United States, in particular, is pushing to reduce reliance on foreign suppliers, especially in the wake of clean energy tax incentives that favor domestically sourced materials.

Should You Buy LAC Stock Now?

Lithium Americas’ partnership with GM provides a substantial vote of confidence in the Thacker Pass project. The joint venture’s financial backing and operational support from a major automaker de-risk the project significantly.

But investing in Lithium Americas is not without risks. LAC currently doesn't generate any revenues. The company’s success hinges heavily on the timely and cost-effective development of Thacker Pass, its most significant growth opportunity. Delays or cost overruns could weigh on the stock’s performance.

Bottom-line estimates for LAC have been revised downward, which may signal caution. In the past seven days, estimates for 2024 and 2025 loss per share have been widened by a cent each. LAC currently has a Value Score of D. At this moment, Lithium Americas remains more of a speculative play.

Therefore, it's advisable to adopt a wait-and-see approach on the stock. LAC currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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