Electric cars

How the recent commodity boom will affect electric cars

Electric vehicles rely heavily on raw materials such as lithium, nickel, palladium and cobalt. Photo: John Walton/PA Images via Getty

Commodities are rising due to the Russian-Ukrainian conflict as fears mount that supplies will be disrupted by the ongoing war and sanctions imposed on Moscow.

The global automotive industry is also bracing for further impact from the crisis, with the recent rally expected to drive up the price of electric vehicles (EVs), which are heavily dependent on raw materials such as lithium, nickel, palladium and cobalt. .

It also comes as consumers are already grappling with record high gasoline and diesel prices as oil hits new highs.

Morgan Stanley says soaring nickel prices could raise the input cost of an electric vehicle by up to $1,000 (£762.44), while the total cost of batteries for electric cars has more than doubled since the beginning of the year, according to Rystad Energy.

While Indonesia has been touted as an alternative supply option, the process of turning nickel into the type used in an electric car is much more difficult.

“This will have significant long-term implications for electric vehicle sales, costs and production. Automakers will have to choose whether to absorb the cost of rising battery metals or pass it on to the consumer,” said Daniel Clarke, analyst at Global Data.

Read more: Nickel hits record high $100,000 a ton amid supply issues in Russia

On Tuesday, the three-month nickel contract soared above $100,000 a tonne for the first time on a short squeeze on the London Metal Exchange (LME).

The price of the commodity, which is used in stainless steel and lithium-ion batteries for electric vehicles, more than doubled during the day, after surging 70% in the previous session, traders having large short positions rushing to cover their positions.

Russia is the world’s third-largest nickel producer, which means the current conflict is putting pressure on supplies of the raw material. This will in turn affect the cost and production of electric vehicles, with nickel being the most expensive component.

Nickel contains more energy in batteries and allows producers to reduce the use of cobalt, which is more expensive and has a less transparent supply chain.

Watch: How the need for EV battery metals is creating a new gold rush

Last year, Tesla (TSLA) chief executive Elon Musk tweeted that nickel was the company’s main concern for scaling up lithium-ion cell production, so shortages and rising prices could slow the transition to electric vehicles.

Musk has previously pleaded with miners to produce more nickel.

Palladium (PA=F), which is used in catalytic converters, also hit a record high of $3,439 this week, after jumping 80% this year.

Aluminum, used in car bodywork, also hit $4,000 a ton on Monday, and rose another 3.8% on Tuesday, from stabilizing at $2,600 from November to mid-December.

Meanwhile, copper has surged above $10,800 a ton and lithium prices are up 118% since January.

Bogdan Maioreanu, market analyst and commentator at eToro, said: “Although the cost of materials is not automatically passed on to consumers, if the shortage is long and severe enough that automakers decide or are forced to manufacture less of vehicles, the prices for the vehicles would increase.

Read more: European stocks climb despite Russia’s threat to cut gas supply

Typically, automakers have long-term commodity agreements and purchase materials under multi-year agreements. However, prices are expected to remain high in the medium term, with commodity prices likely to impact future deals.

“Rising metal costs add further risk to global supply chains already impacted by inflationary pressures, component shortages and rising energy prices,” said Mike Hawes, chief executive of SMMT.

“UK carmakers are very adaptable, but raw material prices are often fixed in international markets and volatility is expected for some time. The immediate future is unclear and we are working with the government and our members to help understand what the long-term impacts of this situation may be and how to deal with them.

In addition to the effects of raw material prices on electric vehicles, the automotive sector will also face strained supply chains and halted production of some models inside and outside Russia and from Ukraine.

Reports are currently predicting a worsening microchip crisis as critical raw materials come from the region. An estimate by Gina Raimondo, U.S. Secretary of Commerce, found that “median chip inventory fell from 40 days in 2019 to less than five days.”

But Russia accounts for 42% of palladium, 70% of neon, 40% of nitrogen and 30% of global exports of xenon, which are essential ingredients for the production of semiconductors. The fear of stagflation could also dampen auto sales by postponing non-essential purchases.

Read more: Shell pledges to stop buying Russian oil and gas

“Several leading manufacturers have already confirmed production disruptions,” Maioreanu said.

“Due to a lack of parts from Ukraine-based suppliers including Fujikura, Nexans and Leoni who produce essential wiring harnesses for German cars, production of Audi A4 and A5 models at the original factory in Audi in Ingolstadt, Germany is suspended from March 7-11.

He added: “Audi has also imposed an order freeze for its hybrid models due to production disruptions, while Porsche suspends production of Macan and Panamera, and the BMW Group (BMW.DE) halts production in the factories in Munich and Dingolfing next week.

“Production will also be suspended at the group’s Mini plant in Oxford, England, and Mercedes-Benz (MBG.DE) plans to cut production at some of its European plants as supplies of parts produced in Ukraine become scarce. .”

On Tuesday, a spokesperson for German automaker Volkswagen (VOW.DE) said: “It is clearly too early to say what the situation looks like in the medium and long term. That said, as a global company, with around 10 million car sales in a normal year, we clearly have significant buying power and are an attractive partner for commodity companies.

“Volkswagen continues to hope for a cessation of hostilities and a return to diplomacy. We are convinced that a lasting solution to the conflict is only possible on the basis of international law.

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