A Macquarie note said EV sales will rise due to oil prices. Now PLS Group is up +6%

If you’re wondering why Pilbara Minerals – now called PLS Group (ASX:PLS) – has jumped as much as +6% heading into Monday’s afternoon trades, look no further than a note put out by Macquarie late last week.

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That note sent to private clients and then disseminated into the larger media asserted a fairly pedestrian investment thesis, which I think anybody would have been able to figure out had they spent time thinking about it.

That thesis runs: In the current (chaotic) oil price environment, EV sales are very likely to rise. This Market Link journalist can’t help but think Well, duh.’

But that note alone appears to have been enough to drive widespread faith in lithium upside during the current oil shock. Perhaps that makes sense on a certain level, given that tumbling gold prices leave the market less confident in what has been the (literal) ‘gold standard’ safe haven over the last two years or so.

(You can see fairly similar effects in the price of companies like HotCopper darling 4DMedical (ASX:4DX) over the last few weeks; investors are hungry for liquid targets not directly linked to oil-based sentiment.)

PLS Group’s share turnover on Monday morning was evidence of that argument – some $81.24M worth of shares had traded hands by 1pm Sydney time.

But, getting back to Macquarie’s Week 13 note, the question now becomes: How reliable is the thesis, really? Should PLS Group be up as much as +6% on Monday on the back of a view that EV sales will rise?

I argue no. Just look at BYD’s 1Y price chart on Chinese markets, as well as recent sales volatility. I say BYD and not Tesla because the latter fell behind a good while ago. The EV prestige now sits with BYD, largely because it doesn’t overprice its cars for the sake of it.

But with lithium prices still well below CY22 levels, it’s unclear to me, at least, that PLS will suddenly start selling even more spodumene than it did in those heady years to match EV demand. Of which BYD now holds the majority share, and is based in China – meaning it could very well have enough lithium for the time being.

Macquarie’s analysts may have thought of that when they noted that they still view the lithium market as going into under-supply later on this year, and that was even before the Iran War broke out a month ago.

The thinking behind lithium’s recent mini-recovery has been that big battery storage demand will eat into the global lithium pool, thereby driving up prices.

I had my doubts about that, too, at the time. But with Brent Crude now ~US$116/bbl, well, that could just turn out to be a good call.

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