Chevron Corporation CVX is contemplating producing lithium for electric vehicle (EV) batteries in a significant shift toward embracing clean energy and electric mobility. The move comes as part of Chevron's efforts to align with the changing landscape of the energy sector and capitalize on its core capabilities in extraction and production. In a recent interview, chief executive officer Mike Wirth highlighted the company's interest in venturing into the lithium market while underlining its focus on other adjacent areas of the fossil fuel business.
The Lithium Market Landscape
The lithium market is experiencing rapid growth, largely driven by the increasing demand for electric vehicles. Lithium-ion batteries are the primary power source for EVs, and ensuring a stable and sustainable supply of lithium is important for the mass adoption of electric mobility. Although there are significant lithium reserves around the world, lithium extraction and refining is a complex process that demands expertise and investment.
The Growing Lithium Demand in the EV Revolution
As the global drive toward reducing carbon emission gains momentum, EVs emerge as a critical solution to curb pollution and combat climate change. EVs, powered by lithium-ion batteries, have seen a remarkable surge in demand, prompting a race to secure a stable supply of essential battery materials such as lithium.
Chevron's Unique Position in the Transition
Unlike some European oil majors that have been more aggressive in renewable energy pursuits like wind, solar and power services, US-based companies have adopted a different approach. Chevron, for instance, has chosen to focus on adjacent areas of its traditional fossil fuel businesses. These include carbon capture and storage, hydrogen production, and now, lithium extraction.
Wirth emphasized that Chevron's vast experience in producing oil and gas allows it to explore opportunities in lithium production. The skills and knowledge required for oil and gas extraction can be translated effectively to extract lithium, making it a logical extension of the company's core capabilities.
Chevron's Future Plans
While Wirth divulged CVX's interest in lithium production, specific details about the company's plans were not disclosed in the interview. It remains to be seen how Chevron will manage this potential venture and whether it will take place through partnerships, acquisitions, or internal development.
Interestingly, the oil major’s stance on not investing significantly in large-scale wind and solar projects reflects its cautious approach to renewable energy. It expects the returns on such projects to be relatively low, and the competition in the renewable energy sector to be high. Such scenarios might not align with Chevron’s long-term strategic goals.
Conclusion
CVX’s plans for lithium production underscore the ever-changing landscape of the energy sector and the need for traditional fossil fuel companies to adapt and embrace a sustainable and cleaner future.
Zacks Rank and Key Picks
Currently, CVX carries a Zacks Rank #3 (Hold).
Some better-ranked stocks for investors interested in the energy sector are Evolution Petroleum EPM, sporting a Zacks Rank #1 (Strong Buy), and Murphy USA MUSA and NGL Energy Partners NGL, both carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Evolution Petroleum is worth approximately $273.80 million. EPM currently pays a dividend of 48 cents per share, or 5.38% on an annual basis.
The company currently has a forward P/E ratio of 7.62. In comparison, its industry has an average forward P/E of 11.90, which means EPM is trading at a discount to the group.
Murphy USA is valued at around $6.93 billion. In the past year, its shares have risen 17.5%.
MUSA currently pays a dividend of $1.52 per share, or 0.48% on an annual basis. Its payout ratio currently sits at 6% of earnings.
NGL Energy Partners is valued at around $497.37 million. In the past year, its units have risen 167.4%.
The partnership currently has a forward P/E ratio of 4.33. In comparison, its industry has an average forward P/E of 15.80, which means NGL is trading at a discount to the group.
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Chevron Corporation (CVX) : Free Stock Analysis Report
Murphy USA Inc. (MUSA) : Free Stock Analysis Report
NGL Energy Partners LP (NGL) : Free Stock Analysis Report
Evolution Petroleum Corporation, Inc. (EPM) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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