Skyrocketing Nickel Prices Threaten Biden’s EV Agenda

Nickel prices have skyrocketed with Russia’s invasion of Ukraine due to fears that Russian supplies may be cut off. The disruption is causing supply problems for carmakers and others that need the metal. Nickel prices surged in the middle of March after which trading was temporarily suspended for several days and new restrictions were applied that did not initially work. A plunge in price at the open of trading several times triggered the exchange’s daily limit, below which no further trades were allowed.  Because nickel is a key component in batteries for electric vehicles, volatile prices could slow the transition away from gasoline and diesel vehicles, which may mean that President Biden does not reach his electric vehicle goal of 50 percent of vehicle sales being electric by 2030.

Background

Earlier this month, nickel’s price more than doubled in a matter of minutes. A large producer, Tsingshan of China, bet that nickel’s price would drop–a wager that went awry when Russia’s invasion of Ukraine threatened to disrupt already tight supplies. The rapid rise in price threatened Tsingshan and others with huge margin calls, prompting the London Metal Exchange, which handles all nickel trading, to halt trading and cancel trades made at the highest prices during the frenzy. Since then, attempts to restart trading and allow the market to settle on a price for nickel have faltered. Analysts expect nickel prices to drop, eventually, but to remain significantly higher than they were a year ago.

Automakers Are Rethinking Suppliers

As a result of the high prices and the suspension of trading, automakers are rethinking where they get the parts and metals they use to make cars and many other products. Automakers and other companies that need nickel, as well as other battery raw materials like lithium or cobalt, are looking for alternatives to shield against future price shocks. For example, Volkswagen is looking to buy nickel directly from mining companies. Besides Russia, there are known nickel deposits in Canada, Greenland and the United States in Minnesota. However, Biden’s Department of the Interior revoked existing federal leases for Twin Metals Minnesota to mine copper, nickel, cobalt, and platinum-group elements in January. Instead of producing these metals domestically, President Biden wants to import them.

Establishing new mining operations here or elsewhere will take years, even decades, because of the time needed to obtain the infrastructure and to acquire permits and financing. Automakers and other big nickel buyers will need to look for alternative suppliers, use more recycled material or switch to battery designs that require less nickel. In the meantime, consumers will have to pay higher prices for goods that need nickel, which also includes goods made from stainless steel. The nickel price increases in March would more than double the cost of the 80 pounds of nickel that an average electric car battery needs to $1,750 a car.

While Russia’s nickel is mainly used for stainless steel, Russian company Norilsk Nickel, also known as Nornickel, is the world’s largest nickel producer, with vast operations in Siberia. Norilsk is among a limited number of companies authorized to sell a specialized form of nickel on the London Metal Exchange. To date, the United States and Europe have not tried to block nickel exports.

Price Expectations for Nickel

Analysts expect nickel prices to come down to around $25,000 a metric ton compared to the peak of $100,000 a metric ton, and remain much higher than a year ago. The price of nickel topped $20,000 a metric ton this year after hovering between $10,000 and $15,000 a metric ton for much of the past five years because of limited production due to the pandemic. After Russia invaded Ukraine in late February, the price rose above $30,000 in a little over a week. Then on March 8, Tsingshan Holding Group of China made a bet that the price of nickel would drop. When the price rose, Tsingshan owed billions of dollars. The price then shot up to a little over $100,000 a metric ton, threatening the existence of many other companies that had bet wrong and prompting the London Metal Exchange to halt trading.

Electric Vehicle Prices Increase

Because the prices of metals used in cars have soared, including aluminum that is used in the bodywork, palladium used in catalytic converters, and nickel and lithium that power electric vehicle batteries, automakers are raising their prices for vehicles. Tesla, for example, raised its prices in China and the United States for the second time in less than a week, after Elon Musk indicated that it was facing significant inflationary pressure in raw materials and logistics. Tesla raised prices for all its models in the United States by 5 to 10 percent, and in China, Tesla raised prices of some China-made Model 3 and Model Y products by about 5 percent.

According to Edmunds data, the average transaction price for a new electric vehicle rose to $60,054 in February, $1,820 more than their average MSRP of $58,234. That compares to the average transaction price for all new vehicles at $45,596 in February. The higher cost of an electric vehicle may make buying one uneconomic even compared to higher gasoline prices. For example, a person who drives 20,000 miles a year in a vehicle that gets 20 miles per gallon will pay $2,250 a year for gasoline at $2.25 a gallon. Doubling the cost means just under an extra $200 per month for fuel. It would take over 6 years of the extra cost for gasoline at $4.50 per gallon to pay the price premium between an electric vehicle and a gasoline vehicle. Electricity prices are also spiking, especially in states retiring baseload power plants and pressing for more market penetration of renewable energy sources, such as California.

Conclusion

Commodity prices soared on supply fears related to Russia’s invasion of Ukraine, with the ongoing war and Western sanctions raising fears of disruption. Russia is a key producer and exporter of metals and grains and is the world’s third-largest producer of nickel—a key ingredient in stainless steel and a major component in lithium-ion batteries. The increase in metal prices is affecting the price of electric vehicles as Tesla recently announced a second vehicle price increase. Automakers are trying to find alternative metal suppliers, but until they do consumers can expect to pay more for an electric vehicle. The increased cost could affect President Biden’s plans for an electric vehicle transition in the United States, particularly as the electric vehicle price premium would take years to pay back compared to the current increase in gasoline prices. But, American consumers need to be vigilant as environmentalists are calling for a national climate emergency that could have Biden evoking even more stringent actions against U.S. oil and gas companies, raising prices further.

*This article was adapted from content originally published by the Institute for Energy Research.