GM delays lithium investment amid falling prices and election uncertainty

General Motors' funding delay for a key lithium miner comes down to Lithium Americas' share price decline and a slower-than-expected loan approval process by the Department of Energy, analysts told Automotive News.

The delayed timeline gives the companies the chance to sort out deal terms that would better represent the landscape of lower lithium costs, a drop in Lithium Americas' share price and an uncertain political climate as the mining company moves forward with an enormous extraction and processing project in northern Nevada at Thacker Pass.

Lithium Americas has already received one tranche of funding from GM and is awaiting both the second tranche of $330 million and the finalization of a crucial $2.3 billion Department of Energy loan. Lithium Americas said GM's new timeline is unrelated to the Energy Department's final approval.

"The two parties are working together to explore alternate ways that GM can pay," because "at the current Lithium Americas stock price, that $330 million investment is going to be highly dilutive to all other shareholders," said Seth Goldstein, an equities strategist at Morningstar Research Services. And the DOE is "doing extra due diligence" with lithium prices at "certainly far lower levels than they were in early 2023 when Lithium Americas applied for the loan."

The changing timeline indicates the ground has shifted underneath raw materials companies such as Lithium Americas. The company's stock price has fallen nearly 69 percent since last September, which changed the tenor of the equity deal with GM. Oversupply and softening sales growth of electric vehicles — and therefore for lithium –- have sent prices downward, and the Department of Energy must carefully consider Lithium America's strategy for paying back the loan. The revised timeline aims to provide more cushion to get that federal loan finalized, a condition of the GM funding.

Lithium prices industrywide are down nearly 63 percent from a year ago.

Plus, the Loan Programs Office, which has awarded 21 companies nearly $25 billion in conditional loans, has become a political lightning rod. Former aides to President Donald Trump outlined a plan to shut down the Loan Programs Office in the controversial Project 2025 plan, a blueprint for a conservative presidential administration published by the Heritage Foundation.

"To save tax dollars and reduce current risk, the new administration should not back any new loans or loan guarantees" and "should seek to sunset DOE's loan authority through Congress and eventually eliminate" the Loan Programs Office, the document says.

The loans are already complex and expensive, requiring significant due diligence by a government office strapped for resources. In an election year, the stakes are even higher.

"The political climate is such that it perhaps just behooves everyone to wait for clarity," said David Deckelbaum, a managing director at TD Cowen. The Loan Programs Office "could, in theory, finalize this commitment, and the subsequent administration could theoretically invalidate that commitment, so I don't know why you would want to necessarily create a rush to do something before an administration that might have a different set of objectives."

The Loan Programs Office said in an emailed statement that it is “laser-focused” and working on 209 active applications.
 
“Federal programs like ours regularly continue across administration changes with bipartisan support from Congress,” said Theresa Garner, an office spokesperson. “LPO’s focus has been and will continue to be transforming the energy and transportation economy to benefit Americans.”

Tim Crowley, a Lithium Americas spokesperson, said in an email that the DOE loan process is going well and would close "in the near future." He said the timeline change is "unrelated to the DOE loan" and he pointed to a line in Lithium Americas' press release that said "the parties will explore alternative structures for GM's additional investment in a mutually beneficial manner."

Lithium Americas and GM had previously agreed to a deal whereby the automaker would invest $650 million of equity into the miner's project at Thacker Pass in Northern Nevada. GM invested the first tranche of $320 million in February 2023 and planned to invest the second tranche of $330 million by Aug. 16. The new date for that tranche is Dec. 20.

That original agreement, at the current Lithium Americas stock price, would result in diluted shares and GM owning more than 40 percent of the company. Now, said Deckelbaum, the companies might be looking at other arrangements such as prepayment for product or debt structures "that would allow them less dilution at the corporate level that perhaps otherwise might create some challenges for GM, owning such a large stake of another public company."

At more than 50 percent stake, GM would have to report Lithium Americas' financial results with its own.

The tweaked timeline, analysts said, indicates GM is a committed partner to Lithium Americas, which is tapping what is estimated to be the largest lithium deposit in the world at Thacker Pass. GM has exclusive rights to Phase 1 production for 10 years.

"Sourcing critical EV raw materials like lithium from suppliers in the U.S., Canada and free-trade countries helps make our supply chain more secure, helps us manage battery cell costs and creates jobs," said Kevin Kelly, a GM spokesperson, in an email. Lithium Americas is "making good progress toward scaling commercial production," he said.