Could This New Piece of Legislation Mean Good Things for ASX Lithium Shares?

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The Australian Securities Exchange (ASX) has seen some of the best-performing firms on the market over the last year, with lithium stocks among them.

ASX Lithium Stocks

Over the previous year, Pilbara Minerals Ltd.’s (ASX: PLS) stock price has risen 61%, and Allkem Ltd’s (ASX: AKE) share price has increased 61%. During the same period, Core Lithium Ltd (ASX: CXO) has advanced 299%, and this is over a year in which the All Ordinaries Index (ASX: XAO) has dropped 7%.

Although ASX lithium shares have been on a good run lately, there may still be more upside potential.

electric vehicle

The World’s Fifth Largest Economy Is Transitioning to Electric Vehicles

California, the US state with the highest population at over 39 million people, has stated that by 2035 all newly sold vehicles within its borders must be powered either by electricity or hydrogen.

If California were a country, its 2021 GDP of US$3.4 trillion (AU$4.9 trillion) would make it the fifth largest economy in the world, surpassing Germany and France.

In a state that Autoblog reports as selling some two million new vehicles each year, that represents a big boom for EV sales in the future. EVs made up approximately 15% of recent vehicle sales in California during the first half of 2021.

The first phase of California’s switch to EVs will begin in 2026. The pending shift appears to provide a few potentially beneficial tailwinds for ASX lithium shares, which will be necessary for the vehicles’ lithium-ion batteries. As a result of this, additional states will likely enact similar legislation.

Best Lithium Stocks ASX

“Lithium is an essential metal for the production of modern batteries used in everything from electric vehicles to mobile phones and laptops,” says Will O’Neill, head of research at Australia-based investment bank Argonaut. “As global economies transition from fossil fuels towards greener energy sources, demand for lithium will only increase.”

While it’s not yet sure how the switch to EVs will affect the price of lithium, O’Neill says,  “If history is anything to go by, we could see prices for lithium increase significantly as demand ramps up.” 

Given the size of California’s economy and its status as a trendsetter in environmental legislation, other states may soon follow its lead in transitioning to EVs. This could significantly boost the demand for lithium and, by extension, ASX lithium shares.

Lithium shares may be worth considering if you’re looking for ASX stocks with upside potential. With California’s pending switch to electric vehicles, there could be increased demand for lithium batteries, which would boost the share prices of ASX-listed companies that mine or produce the metal. However, it’s essential to do your research before investing, as there are risks involved in any stock market investment.

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