Russia’s invasion of Ukraine is beginning to have negative effects on dozens of industries, including the automotive industry. In particular electric mobility, impacted by the scarcity of raw materials for the manufacture of key components such as batteries. You’re herebeing the largest manufacturer of electric cars, will be among the most affected, yes. But they will certainly not be the only ones..
The situation raises concerns about the short-term and long-term impact on the price of components for the manufacture of electric vehicles in general. Added to this are past supply chain issues caused by the COVID-19 pandemic and the semiconductor crisis.
The news that Tesla has again raised the price of its long-range models, i.e. larger capacity batteries, was the trigger to understand how electric car manufacturers are feeling the effects of the confrontation. Russian-Ukrainian. And while it is true that some of the challenges go beyond the context of war, it is also a reality that they have been amplified by events that are common knowledge.
So, in the last few days, what’s been happening with the nickel. We are talking about a fundamental metal for producing high energy density battery cells for electric cars, and Russia is a key player in this market. In recent days there has been strong pressure on its price, to the point that the London Metal Exchange stopped trading it when its price per ton exceeded 100 thousand dollars in Asia.
This sharp increase in its value was not only a response to Vladimir Putin’s decision to ban the export of raw materials, in return for sanctions imposed by other countries. The large number of short sales and bets against the asset also have a lot to do with it; Thus, when there is an unexpected increase in it, the traders they had to go out to buy more to cover their position, driving up their price even more.
What role does Russia play in the nickel market and how does it affect electric cars?
Russia controls just over 9% of global nickel mining and has 7.5 million tons of this metal in reserve, as recently published fortune. Besides, South China Morning Post indicates that nornickel, Russia’s largest miner, produces around 20% of the world’s supply of the highest purity Class 1 nickel. This is the variant used in electric car batteries.
In the specific case of You’re herein recent days there have been price increases on two models, the long-range versions of the Model 3 and ModelYas well as in the variant Performance of the last batch. Either way, it’s a $1,000 increase and only in the US market.
And if it is impossible to affirm a direct link with what is happening with Russia and the world nickel market, it is true that the new increase this only affects cars with batteries that use said metal and not those that incorporate lithium-ferrophosphate (LFP) batteries as is the case with the standard version of the Model 3.
But nickel is not the only protagonist of the price increases recorded in the raw materials used in the batteries of electric cars. the aluminum It has also faced several days of heavy price pressure since early March. In fact, it reached a record price of 4 thousand dollars per ton, although later it declined; At the time of this article’s publication, the London Metal Exchange was trading one tonne for approximately $3,500.
Currently, the firm Russianoriginating in Russia, is the main producer of aluminum outside of China and accounts for approximately 6% of the world supply, which was estimated at 70 million tons for that year, before the war broke out. In fact, at the beginning of March, the company stopped production at the Nikolaev alumina refinery in Ukraine, according to what was published. Reuters.
Thus, the hypothetical interruption of Russian nickel and aluminum exports could have very negative effects on Tesla and other electric car manufacturers. It is that, according to LG Energy Solutionsbetween 70 and 80% of the price of the batteries of these vehicles corresponds to the raw materials used for its manufacture.
No one loses sight of lithium
While much of the electric car industry’s attention right now is focused on what’s going on between Russia and Ukraine, no one is losing sight of another issue: the rise in the price of lithium. An important point to keep in mind here is that this increase has not so much to do with the war in Eastern Europe, but mainly with the strong demand from China that has been recorded in recent weeks and the scarcity supply of this material.
However, the Kremlin’s invasion of Ukrainian territory could worsen the prospects for Tesla and other e-mobility benchmarks. Australia is currently the world’s largest producer of lithium, followed by Chile. And South America has more and more interference in this market due to what is called the “lithium triangle”, completed by Argentina and Bolivia. According to an Argentine government report published in October 2021, around 65% of the world’s resources of this metal are found in this region.
Of course, this has generated significant interest from leading companies in the e-mobility industry. Tesla representatives will soon meet with authorities in the province of Catamarca in northwestern Argentina to learn more about the lithium-related operations taking place there. It is important to mention that Liventone of the companies that supplies Elon Musk’s company, operates there and has committed an investment of more than a billion dollars to triple the production of lithium in Argentina.
Now well, Ukraine also intends to play a role important in the lithium industry. In fact, his plans before the war broke out were already very ambitious. As published by New York Times beginning of March, in the eastern region of the country there would be about 500,000 tons of lithium oxide. If this estimate is correct, it would make it one of the largest lithium reserves in the world.
The data would not have gone unnoticed by major market players. Late last year, the Ukrainian government began auctioning off exploration permits, and the first interested parties were reportedly Australian and Chinese companies. Specifically mentions cases of European Lithium and Chengxin Lithiumwhich allegedly targeted deposits in the Donetsk and Kirovohrad regions.
Logically, the war in Ukraine disrupted any plans that might exist to deal with this eventuality. And this undoubtedly represents an opportunity that Europe has not been able to take advantage of (at least for the moment), being one of the regions in which electric mobility has developed the most.
The challenge for Tesla and other auto brands is to preserve access to electric cars
In order to make electric cars more and more widely adopted in the world, manufacturers must make their models cheaper. It is clear that this is easier said than done and that the war between Russia and Ukraine has become one more obstacle to its realization.
If we take the case of Tesla, the recent price increase of long-range versions of the Model 3 and Model Y is not an isolated case. Elon Musk’s company has made several increases to the retail value of the aforementioned models over the past year, making them around 20% more expensive than in December 2020.
These increases were justified by the impact of the coronavirus pandemic and supply difficulties. But to this we must also add the – possibly temporary – cancellation of Model 2 (Model C), which was supposed to go on sale for around $25,000. This vehicle was the great hope that many had for the technology of the American company to reach a much larger number of potential users.
It is clear that not all cases are the same. Rivian, for example, recently announced increases of up to 20% for almost all reservations of its electric vehicles. The company argued that the measure was due to inflation issues, but that is not entirely true. A former director denounced that the values of the R1T pickup and the R1S SUV they were underperformingbut that company officials chose not to take any action prior to the public offering to avoid a negative effect on share value.
Public reaction was overwhelmingly negative, which forced the company to back down. Be that as it may, the misstep has already left its mark. And I repeat that we are not talking about the same thing as with Tesla, but I am talking about it because there is always the possibility that companies hide the controversial decisions behind the current problemsto make it easier for them to get away with it.
This does not necessarily mean that all companies act in bad faith, far from it. But when talking about a topic as sensitive as electric mobility and the widespread use of clean energy, each determination has a truly profound impact.
Electric cars accounted for 9% of global car sales last year, and the outlook looks very promising for the future. Indeed, it is expected that the market share of this type of vehicle exceed 20% by 2030, but there are several challenges to achieve this; among others, the impact of the war between Russia and Ukraine on the supply and price of the raw materials essential to their manufacture. In the meantime, Tesla and its competitors will have to continue working to make access to electric mobility more affordable.