Why SQM is the Lithium Leader to Buy Now: Cost Dominance and the EV Boom Ahead

The lithium market is in turmoil. Prices have plunged 40% since late 2022, triggering production cuts, mine closures, and a wave of consolidation. Yet amid this chaos, SQM (NYSE: SQM) stands apart as the ultimate survivor—and future winner. Its $4,500/ton lithium production cost, unmatched scale, and diversified revenue streams position it to dominate the EV boom long after the dust settles. Here's why investors should act now.

Cost Leadership: The Bedrock of Survival

While rivals like Rio Tinto and Albemarle grapple with $8,000–12,000/ton production costs for hard-rock lithium, SQM's brine-based operations in Chile's Salar de Atacama offer a decisive edge. Its $4,500/ton cost structure isn't just a competitive advantage—it's a lifeline. Even as lithium carbonate prices hit rock-bottom at $9,200/ton in early 2025, SQM remains profitable, while peers like Pilbara Minerals and Tianqi are slashing output or shutting mines.

This cost gap isn't accidental. SQM's vertically integrated operations—from brine extraction to refining—eliminate dependency on volatile spodumene markets. Its upcoming 240,000-ton lithium carbonate expansion in Chile (set to begin in 2026) will further lower per-unit costs through economies of scale. By contrast, high-cost producers in Australia and the U.S. are already folding, creating a self-cleansing market that will eventually rebalance supply and demand.

Diversified Profits: Iodine as a Cash Machine

SQM isn't just a lithium play—it's a chemical powerhouse. Its iodine division, which supplies 58% of the global market, is a hidden cash cow. With prices hitting record highs in 2024 due to supply constraints, iodine contributed over 30% of SQM's Q1 2025 net income. This diversification acts as a financial buffer, shielding shareholders from lithium's volatility while competitors like Albemarle or Ganfeng burn cash in the downturn.

The EV Contract Tsunami: SQM's Secret Weapon

SQM isn't waiting for lithium prices to rebound—it's locking in demand. The company has long-term supply agreements with Tesla, CATL, and BYD, ensuring steady revenue streams even during market slumps. These contracts aren't just about volume; they're pricing-protected, shielding SQM from spot-market swings. Meanwhile, peers like Rio Tinto and PLS lack such contractual depth, leaving them vulnerable to spot-price collapses.

2026: The Inflection Point

Analysts project lithium demand to grow at 20% annually through 2030, driven by EV adoption and grid storage. SQM's 240,000-ton capacity expansion—paired with its $4,500 cost base—will position it to capture 20–25% of global lithium demand by 2026. By then, oversupply will have cleared weaker producers, and prices could rebound to $15,000/ton or higher. SQM's margins, currently compressed at 15%, are primed to soar to 30–40% once the cycle turns.

The Stock: Undervalued and Ready to Explode

SQM's shares have lagged lithium prices this year, trading at just 8x forward earnings—a stark discount to peers like Albemarle (15x) or Ganfeng (20x). This mispricing ignores SQM's fortress balance sheet (debt-to-equity <0.5) and its 2026 margin recovery. Even a modest 15% rise in lithium prices could boost SQM's earnings by 50%, sending shares soaring.

Historically, a simple strategy of buying SQM on the announcement date of quarterly earnings and holding for 20 trading days delivered an average return of 13.65% between 2020 and 2025. While this underscores the stock's upside potential, the strategy also faced a maximum drawdown of -39.21% and a Sharpe ratio of 0.09, signaling significant volatility. This performance aligns with SQM's role as a high-reward, high-risk play in the lithium sector—ideal for investors with a long-term horizon and tolerance for short-term swings.

Risks? Manageable, Not Dealbreakers

• Regulatory headwinds in Chile: While SQM's joint venture with state-owned Codelco introduces some uncertainty, its existing contracts (valid until 2030) provide stability.
• EV demand delays: China's EV subsidies and U.S. tax incentives ensure demand growth remains on track.

Conclusion: Buy SQM Now—The Lithium Recovery Starts Here

The lithium market's current slump is a buying opportunity for investors with vision. SQM's cost leadership, diversified earnings, and contractual demand moats make it the safest, highest-reward play in the sector. With shares undervalued and 2026's margin rebound on the horizon, SQM is poised to outperform when lithium's next boom begins.

Act now—before the herd catches on.