The rising cost of raw materials, exacerbated by Russia’s military offensive in Ukraine, may jeopardize Tesla CEO Elon Musk’s and other auto executives’ plans to develop cheaper electric vehicles.
According to Gregory Miller, an analyst at industry forecaster Benchmark Mineral Intelligence, rising prices of nickel, lithium, and other materials are likely to slow and even reverse the long-term trend of falling costs of batteries, the most expensive part of EVs, impeding broader adoption of the technology.
That’s on top of a supply chain that’s already been hampered by the Covid-19 outbreak and a global chip scarcity.
“Rising raw material prices have the potential to postpone the timescale for cost parity between EV and ICE vehicles, which might stymie greater adoption of EVs,” Mr Miller said, referring to the market’s internal-combustion engine vehicles.
The average price of lithium-ion battery cells could rise for the first time this year, he predicted.
The conflict in Ukraine has escalated the stakes, sending nickel prices to an 11-year high on fears that exports from Russia, the world’s largest producer, may be hampered. Lithium prices have also risen, more than doubling since the end of the year, as supply has fallen short of demand.
Russia produces around 7% of the world’s nickel and is a significant supplier of aluminum and palladium.
Rising EV pricing, as evidenced by increases by Tesla and Rivian Automotive in the last year, are important because mainstream consumers are unlikely to pay a high premium for technology that many have yet to completely accept.
According to research firm Cox Automotive, the average EV sold for about $63,000 in January in the United States, roughly 35% more than the overall industry average for all vehicles of little more than $46,000.
According to a Cox survey, while consumers are less concerned about being stuck without power on the side of the road, price remains a key concern.
“Anything that raises the cost will stymie EV adoption,” said Michelle Krebs, a Cox analyst.
According to the International Energy Agency, electric vehicles accounted for roughly 9% of total worldwide car sales last year, and consulting firm AlixPartners predicts that percentage will rise to around 24% by 2030.
Despite lower operating costs, more than half of consumers in the US, China, and other countries are unwilling to pay $500 more upfront to acquire an electric vehicle, according to a 2021 survey conducted by OC&C Global Speedometer on consumers in the US, China, and other countries.
This might put automakers in a bind if they want to appeal to general shoppers rather than the high-end clients they currently serve.
Since December 2020, Tesla has increased the price of its least priced Model 3 sedan by 18% to $44,990, citing supply chain issues as a major factor. Mr Musk stated in January that he will not construct the $25,000 automobile he promised during 2020 battery day because he was too busy.
Some US dealers have taken advantage of vehicle shortages to raise EV prices, prompting Hyundai and Ford to issue warnings.
Rivian attempted to push through a 20% price rise on its electric trucks and SUVs last week to meet increasing parts prices, but when faced with a response that included prospective sale cancellations, the company backed down for those who had already placed orders.
Lucid Group, another EV start-up, hasn’t raised prices yet, but its chief financial officer Sherry House stated in February that the business was “absolutely examining price” to offset rising supply chain expenses.
Lithium price increases in China have put pressure on manufacturers of entry-level models like Great Wall’s Ora EV and Wuling Hong Guang’s Mini EV, according to investors, because they have less room to justify a higher price tag.
The pressure is especially high for start-ups.
“You don’t have the ability to tell your suppliers to give you a lower price if you’re a small firm,” said Brett Smith, technical director at the Centre for Automotive Research.
According to industry officials, battery makers typically have long-term contracts with car manufacturers, under which prices rise to reflect rising costs of critical raw materials such as lithium, nickel, and cobalt.
LG Energy Solution, a Tesla and General Motors supplier, claims that raw materials account for 70% to 80% of the cost of their batteries.
Battery companies began raising lithium-ion cell prices late last year in reaction to increased raw material prices projected until 2021, according to Benchmark Mineral Intelligence.