Four Things to Know About Tianqi Lithium’s Reversal of Fortunes

Tianqi Lithium Corp. (002466.SZ) has experienced a challenging year, marked by plummeting lithium prices and an ongoing conflict with the Chilean government over its significant overseas investment. This year, the company's share price has dropped by 48%, closing at 28.73 yuan ($3.95) per share, its lowest since late 2020. Analysts have lowered profit estimates due to concerns about the company's performance and the impact of the SQM-Codelco partnership on its interests in Chile's lithium reserves. In the first quarter of 2024, Tianqi reported a net loss of 3.9 billion yuan, compared to a 4.9 billion yuan profit in the same period last year [para. 1][para. 3][para. 5][para. 6].

The decline in lithium prices only partially explains Tianqi's difficulties. Much of the company's woes can be traced back to two aggressive overseas investments made during the 2010s, which gave it access to some of the world's best lithium reserves but also saddled it with enormous debts. The combination of leveraged investments, an unfavorable business cycle, political risks, and poor term agreements has turned the company’s initial advantages into liabilities [para. 6][para. 7][para. 8].

Tianqi made a significant gamble in 2018 by acquiring a 23.77% stake in Sociedad Quimica y Minera de Chile SA (SQM) for nearly $4.1 billion at a time when electric vehicles' popularity was on the rise. However, political changes in Chile, including a move to nationalize lithium assets, have jeopardized that investment. In May 2023, SQM and Chile's state-owned Codelco agreed to form a joint venture to produce lithium, effectively diluting Tianqi's interest in the business [para. 14][para. 17][para. 19].

Additionally, in 2014, Tianqi's parent company acquired a 51% stake in Australia's Greenbushes, the world's largest hard-rock lithium mine. Both investments were highly leveraged, financed in part by a $3.5 billion syndicated loan, and included compromises such as giving up any right to a seat on SQM’s board [para. 20][para. 21][para. 22][para. 27].

Tianqi's expansion was driven by market opportunities and a desire to scale quickly, yet lacked a seasoned management team to effectively navigate crucial factors such as timing and macroeconomic conditions. The company’s founder noted that the investments were somewhat rushed, coinciding with a slide in lithium prices that slashed profits and increased liabilities, which exceeded 80% in 2019 and 2020. Tianqi’s net losses amounted to nearly 6 billion yuan in 2019, following a profitable year in 2018 [para. 30][para. 33][para. 34].

In July 2021, Tianqi sold half its stake in the Greenbushes mine, a move criticized for undermining the company's competitiveness. The deal’s impact was evidenced when the company reported another net loss due to falling lithium prices and lower investment returns from SQM [para. 38][para. 39]. Analysts have since lowered Tianqi’s 2024 profit forecasts, with some predicting it barely breaking even or experiencing more significant losses [para. 43][para. 44][para. 45].

Tianqi’s plight reflects broader trends affecting the global lithium industry. Falling prices, surplus inventory, and geopolitical risks—especially nationalistic policies in South America aimed at retaining profits from natural resources—pose ongoing challenges. Chinese investors remain wary about the business environment in countries like Chile, further clouding Tianqi’s future prospects [para. 47][para. 49][para. 52].