Exxon Mobil (NYSE:XOM) has been one of the best-performing energy stocks this year. After hitting a fresh all-time high in September, XOM stock has since given up some of its gains. Shares now trade around 13% below that all-time high at the time of this writing.
That said, XOM stock is on the move today, having gained roughly 1% in afternoon trading on news that the oil producer is making a big move into lithium. In fact, the company says it plans to become one of the biggest global suppliers for lithium used in electric vehicles (EVs) by the end of this decade, signaling an aggressive move to diversify the company’s cash flows into other non-fossil-fuel-related businesses.
These expectations are based on growth projections from a key project in southern Arkansas that the company intends to mine using novel methods. While Exxon Mobil isn’t expected to pull its first ton of lithium out of the ground until 2027, if scaled as the company expects, this mining project could produce around 100,000 tons per year.
Today’s price action with XOM stock suggests the market likes what it’s hearing so far on this front. Let’s dive more into what this news may mean for existing and prospective shareholders.
XOM Stock Soars on Key Lithium Announcement
For an oil and gas producer, electrification is one trend that isn’t generally bullish for the sector. As governments and corporations around the world shift their fleets to battery-electric options, demand for refined oil products is likely to take a hit and global oil demand should plateau at some point in the near to medium-term.
As such, this strategic shift to diversify a portion of Exxon’s business to more renewable sources of energy makes sense. The company can effectively leverage its expertise in mining to develop new cash flow-producing business segments which should offset any production declines from lower oil demand over time. Additionally, the fact that this lithium will be produced domestically provides the company with some relative safety, given the ramped-up geopolitical environment of late.
There are some execution risks tied to Exxon’s proposed technology, which hasn’t yet been tested at scale. And while the company appears to be confident in its approach, we’ll have to wait and see how lucrative this business ultimately turns out to be.
Still, investors appear to be ascribing a significant benefit to the company’s willingness to explore mining alternative materials. Today’s surge in XOM stock appears to be warranted in this regard.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
