Lithium Americas (NYSE: LAC) stock price continued its recovery on Thursday as investors cheered two important news. It rose by over 21% in the pre-market session, reaching a high of $7, its highest point since December 15th. It has soared by over 80% from its lowest point this year.

Lithium Americas stock has staged a strong comeback, helped by the improving lithium prices. While prices remain sharply lower than their highest point during the pandemic, they have bounced back recently. 

Data by TradingEconomics shows that the price of lithium carbonate was trading at 115,500 yuan, higher than the year-to-date low of 80,000 yuan. 

This rebound is happening even as the sector goes through substantial challenges. The world is simply oversupplied as companies rush to take advantage of the energy transition. 

On the positive side, many lithium miners have announced plans to slow their production as lithium and other battery metals become unprofitable.

LAC stock price also soared after a report by Bloomberg said that the American government would provide the company with $2 billion in loans. The company confirmed this report in a press statement.

These funds will be used to build the giant mine in Nevada. The American government believes that the mine in Nevada will help it increase its independence from China, a country that dominates the lithium industry.

Critics of the loan argue that it is unnecessary since it is a form of corporate welfare. Besides, Lithium Americas can use other means to raise the money. Like other mining companies, it can issue debt or even sell its stock to fund these projects. 

These critics point to a company known as Solyndra, a company that received funds from the Obama administration to build solar plants and then filed for bankruptcy. Other companies like Abound Solar and Calisolar received over $600 million and then failed.

Fisker Automotive also received $193 million of loan guarantees and filed for bankruptcy. This week, we wrote that Fisker, the maker of Ocean,  was considering filing for bankruptcy. 

Further, critics argue that the government is choosing winners and losers, thus harming honest companies that don’t have access to such funds. Think of companies like Atlas Lithium, Standard Lithium, and Sigma Lithium.

Still, a government loan is a better outcome for Lithium Americas investors since it will not need to dilute its shareholders by selling equity.

In the long term, however, Lithium Americas will likely struggle because of demand and supply dynamics. While EV adoption is growing, experts believe that lithium demand will grow slowly. 

In a recent note, the head of Albermarle said that lithium demand will peak at 3.3 million tons by 2030. His view was lower than the expected 3.7 million tons. 

LAC stock by TradingView

The daily chart shows that the LAC stock price has been rising gradually in the past few weeks. This is a sign that some insiders or market players knew about the loan. The stock has crossed the important resistance at $5.83, the lowest swing on December 13th. It has also flipped the 50-day and 25-day moving averages.

Therefore, I suspect that the stock will continue rising in the near term as traders embrace FOMO. However, in the long term, I believe that the stock will retreat and move below $5 as concerns about lithium remain.

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