Surging nickel prices are bad news for electric car manufacturers

The price of nickel doubled to $100,000 per ton today (March 8), causing the London Metal Exchange to suspend trading for the rest of the day. The war in Ukraine is causing commodities with Russian exposure to surge, and the price increases could spell trouble for electric vehicle (EV) manufacturers already struggling to keep costs down in the face of supply chain disruptions.

While Russian metals haven’t yet been targeted by Western sanctions, shipments fell after the country was hit with economic penalties over its invasion of Ukraine. Raw materials used in batteries that power EVs, including nickel and lithium, are rising due to fears that exports from Russia could be disrupted.

Nickel surge could add $1,000 to EV production cost

Russia is the third largest producer of nickel, a primary component used in the lithium-ion batteries. The material is so valuable to EV maker Tesla said the company signed a deal with Minnesota’s Talon Metals in January to secure its own nickel supply for car batteries. Other US automakers are also working on developing their own battery technology for EVs so they can withstand supply chain disruptions in the future.

In a note to clients Morgan Stanley analysts estimated that today’s nickel price surge would raise the average input cost of manufacturing an electric vehicle by about $1,000.

Putin’s war could impede EV affordability

Automakers are in a race to catch up to Tesla and are making some progress in the US. More Americans bought EVs last quarter compared to the previous year, accounting for 4.5% of total US sales. But the upfront cost of EVs tends to be higher than gas-powered vehicles, and makes some potential buyers anxious. Cost or price premium was among the top concerns cited by US buyers regarding EVs in a recent Deloitte survey, after driving range and lack of charging infrastructure.

The price of lithium-ion battery packs fell by 89% between 2010 and 2021 but could go up this year, BloombergNEF estimates, due to rising commodity prices driven by the supply chain crunch and now war in Ukraine. Industry officials told Reuters that automakers typically have long-term contracts with battery makers, who raise prices when the cost of key raw materials such as nickel and lithium increase.

Despite fears of surging production costs, at least one factor may make EVs look more attractive in the coming weeks: The average price of US gasoline is now higher than at any other time in history.

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