Chile Lithium Expansion Will Fuel Global EV And Storage Demand

Key Takeaways

• Major investment in lithium capacity and vertical integration positions SQM to capitalize on surging global demand and maintain strong earnings leverage.
  
• Diversified specialty fertilizer business provides stable cash flow, supporting resilience against lithium market volatility and funding ongoing growth initiatives.
  
• Geopolitical, market, environmental, and financial risks threaten SQM’s lithium-focused growth strategy, potentially weakening margins, earnings stability, and shareholder returns.

Catalysts

Operates as a mining company worldwide.

• SQM’s ongoing large-scale investments in expanding lithium production capacity in Chile and internationally position the company to capture outsized revenue growth as global electric vehicle adoption and energy storage demand are expected to drive double-digit annual increases in lithium consumption over the coming years.
  
• Record lithium sales volumes achieved in 2024 and guidance for continued volume growth in 2025 and beyond, with capacity expansion in place to reach 240,000 metric tons in Chile and additional growth from Australia, support both future revenue growth and increased earnings leverage as fixed costs are spread over larger volumes.
  
• Long-term, supply growth for lithium is expected to moderate relative to demand growth, with global supply projected to rise significantly less than demand in 2025, setting the stage for improved pricing dynamics and margin recovery, and positioning SQM to benefit from structurally higher long-term lithium prices.
  
• SQM’s commitment to vertical integration and focus on high-value battery-grade lithium products—supported by new contracts and refinery expansions in Chile, China, and Australia—will further enhance profitability and net margins as the company moves up the value chain to capture higher pricing and premium contracts.
  
• The continued global push for food security and higher crop yields is driving robust and sustained demand for specialty fertilizers, providing diversified and stable cash flow that supports SQM’s reinvestment strategy and underpins long-term earnings resilience even in periods of lithium price volatility.

Sociedad Química y Minera de Chile Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Sociedad Química y Minera de Chile compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Sociedad Química y Minera de Chile's revenue will grow by 19.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -8.9% today to 36.3% in 3 years time.
• The bullish analysts expect earnings to reach $2.8 billion (and earnings per share of $10.37) by about April 2028, up from $-404.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 10.5x on those 2028 earnings, up from -24.7x today. This future PE is lower than the current PE for the US Chemicals industry at 19.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.88%, as per the Simply Wall St company report.

Sociedad Química y Minera de Chile Future Earnings Per Share Growth

Risks

• Intensifying geopolitical scrutiny and resource nationalism in Chile could produce more unpredictable royalty, tax, and regulatory structures, which has already resulted in a significant one-time charge of approximately one point one billion dollars, and threatens to erode net margins and reduce future earnings stability.
  
• Global lithium market oversupply, due to aggressive expansion from a surge of new producers in Australia, China, and Argentina, is contributing to both price declines and volatility even as SQM ramps up production, directly pressuring revenues and gross margins.
  
• SQM remains heavily dependent on lithium as over sixty percent of its revenues derive from this segment, so any acceleration in technological shifts towards lithium alternatives or non-lithium battery technologies would directly dampen long-term revenue growth and elevate earnings risk for the company.
  
• Mounting environmental and social pressures, especially regarding high-water-use mining in Chile, are already causing rising compliance and operational costs, and could further limit production expansions or require additional capital outlays, ultimately pressuring both net earnings and free cash flow.
  
• The company’s ambitious expansion plans—requiring up to three point eight billion dollars in capital expenditures through 2027—may force SQM to adjust dividend policies or rely on external financing, especially if lithium prices remain at current levels, which would increase financial risk and could dilute returns for current shareholders.

Valuation

• The assumed bullish price target for Sociedad Química y Minera de Chile is $80.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Sociedad Química y Minera de Chile's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $80.0, and the most bearish reporting a price target of just $35.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $7.7 billion, earnings will come to $2.8 billion, and it would be trading on a PE ratio of 10.5x, assuming you use a discount rate of 8.9%.
• Given the current share price of $34.96, the bullish analyst price target of $80.0 is 56.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.