Why Standard Lithium Stock Is On Fire Today

Key Points

• The U.S. government wants to boost domestic lithium supply in the nation.

• It just bought a stake in Lithium Americas to advance its key lithium project.

• Can Standard Lithium be the next target?

• 10 stocks we like better than Standard Lithium ›

Standard Lithium (NYSEMKT: SLI) stock surged 10% through 11:30 a.m. ET Wednesday following the explosive rally in shares of rival Lithium Americas (NYSE: LAC) on a significant development. Investors are hoping Standard Lithium is next in line for a big breakout.

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The story behind Lithium Americas stock's rally

Lithium Americas stock jumped over 20% today after the U.S. government bought a stake in the lithium miner.

Lithium Americas is jointly developing the Thacker Pass lithium project in Nevada with General Motors. It has reached an agreement with the Department of Energy (DOE) to draw $435 million on a previously agreed-upon loan of $2.3 billion to finance the construction at Thacker Pass for lithium carbonate manufacturing. In exchange, the DOE will acquire a 5% stake in Lithium Americas and a 5% stake in the joint venture through warrants.

Thacker Pass site contains the largest lithium resource in the continent and is expected to produce 40,000 metric tons of battery-grade lithium carbonate per year once fully operational.

All of that is great news for Lithium Americas, but why is Standard Lithium stock soaring? The answer is tied to the reason behind the U.S. government's decision to take a stake in Lithium Americas.

Time to load up on Standard Lithium stock?

Here's how the U.S. Energy Secretary Chris Wright explained the rationale behind the move: "Despite having some of the largest deposits, the United States produces less than 1% percent of the global supply of lithium. Thanks to President Trump's bold leadership, American lithium production is going to skyrocket."

Trump is moving to reduce the nation's reliance on imports for critical materials. Before Lithium Americas, the U.S. government bought a stake in MP Materials, the largest rare-earth miner in the U.S.

Lithium is a critical raw material for batteries that power electric vehicles, energy storage systems, and consumer electronics like laptops and smartphones. Given that the U.S. imports nearly all of its lithium, the government is unlikely to rely on one company and could strike multiple deals. Investors in Standard Lithium hope their company is next in line.

Standard Lithium is focused on the Smackover Formation, a major lithium-brine resource, in Arkansas and Texas and is developing projects in partnerships, including with energy giant Equinor. Standard Lithium is targeting first production in 2028 with an initial capacity of 22,500 tons per annum of battery-grade lithium carbonate.

Lithium Americas, however, already had a big loan from the DOE that has now been renegotiated. Standard Lithium received a $225 million grant from the DOE earlier this year. At the end of the day, it's pure speculation that's driving Standard Lithium shares higher for now.

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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool recommends Equinor Asa, General Motors, and MP Materials. The Motley Fool has a disclosure policy.