Discover The Art Of Publishing
Electric cars

Soaring battery material prices complicate automakers’ electrical plans

Soaring battery material prices complicate automakers' electrical plans

The auto industry’s multi-billion dollar bet on electric vehicles was built on one premise: that batteries would continue to be cheaper.

In 2019, Volkswagen executives even held up charts predicting steadily falling battery costs as they set out their ambition to make the combustion engine history.

For years, the industry has been right: battery costs have gone from $1,000 per KWH for early models over a decade ago to around $130 in 2021, making them affordable for middle-income families.

But Russia’s invasion of Ukraine threatens to arrest the slide.

Prices for nickel, lithium and cobalt – key raw materials for battery manufacturing – were already rising due to global demand. But with Russia accounting for 11% of the world’s nickel and already strained supply chains, the war has sent the cost of these raw materials skyrocketing.

The price of these three metals required in a 60KWh battery, enough for a large family sport utility vehicle, rose from $1,395 a year ago to more than $7,400 in early March, according to battery group Farasis Energy.

Battery makers, automakers and suppliers now face the prospect that electric cars will be less profitable or require cheaper materials if they are to remain financially competitive.

Battery raw material prices don’t rise in isolation © Andrey Rudakov/Bloomberg

“At the moment, raw material prices are weighing on our goal of reducing battery costs,” said Audi chief financial officer Jürgen Rittersberger, whose brand has pledged to launch battery-only electric cars in from 2026.

However, neither Rittersberger nor most of his fellow European auto executives are yet sounding the alarm about the impact of rising prices on the rollout of electric cars.

For starters, battery material prices aren’t rising in isolation – the costs of aluminum, steel, and copper that are also used in powered models have also risen since the invasion.

“We have to keep in mind that we need specific materials for batteries. . . but we also need, for example, rhodium, palladium and platinum to [catalytic] converters in our [combustion engine] cars, so we should expect the cost of both cars to increase,” said Volkswagen CFO Arno Antlitz.

BMW sustainability boss Thomas Becker said the Munich-based automaker was also not affected. “We have long-term supply contracts with all battery cell suppliers. So I wouldn’t say there was an imminent effect on the supply structure,” he said.

“It would be premature to make predictions about a more sustainable and structured impact on our supply chains at this stage.”

In addition, the prospect of higher prices for electric vehicles comes as demand for battery-powered cars has increased, helped by the sharp rise in the cost of gasoline.

More than 1.1 million battery cars were sold in the first two months of the year, according to Bernstein’s figures, an increase of almost 90% compared to the same period last year.

Interest has grown even faster since the invasion of Ukraine, as rising fuel prices heighten consumer concerns about running costs.

“Demand [for EVs] has been staggering over the past few weeks,” said British Kia boss Paul Philpot.

AutoTrader, Britain’s biggest online marketplace for cars, found that almost a quarter of searches in March were for electric cars, up from 15% a month earlier.

The company’s chief commercial officer, Ian Plummer, said fuel prices are still “the main driver of consumer interest in electric vehicles”.

But in the longer term, prices for electric cars could rise further, as battery material costs represent about a third of the prices of electric vehicles paid by motorists, according to industry estimates.

Chang Jung-hoon, an analyst at Samsung Securities, calculated that a 10% rise in nickel prices would lead to a 2.4% rise in cathode prices. If the nickel spot price of $42,995 on March 7 directly translates to battery prices, the cathode will rise by 26% and the price of the entire battery by 6%.

A conveyor moves a Hyundai Motor Co. Ioniq 5 electric vehicle,
Negotiations between automakers and suppliers will be key to determining who will shoulder the higher prices © Seong Joon Cho/Bloomberg

It all depends on whether higher commodity prices trickle down to batteries and cars and, eventually, to consumers.

SK On, one of the world’s largest producers of high-nickel batteries, “actively hedges against fluctuations in the prices of these metals, but the surge in prices will certainly have a negative impact on our profitability,” said the Purchasing Manager, YJ Kim.

LG Chem, another battery maker, said: “If the uncertainty persists in the long term, it will have a negative impact on the battery and electric vehicle industry as a whole, so we are monitoring the situation closely.”

Negotiations between automakers and suppliers, notoriously robust at the best of times, will be key to determining who will shoulder the higher prices.

Vitesco, a German auto supplier that makes powertrains, assumes it can pass around 80% of higher costs to manufacturers, said chief financial officer Werner Volz.

Analysts say automakers’ recent enthusiasm for battery-powered cars may even fade when they realize they can’t make as much money out of them as expected.

“Automakers are likely to switch to premium gasoline cars for higher profitability as their EV profitability is likely to deteriorate,” predicted Kim Young-woo, analyst at SK Securities.

“Thus, higher prices for nickel and other metals are likely to fuel concerns among electric vehicle and battery manufacturers, as higher prices would dampen consumer appetite for electric vehicles.”

A cut reveals the battery of a BMW iX electric SUV
Even as prices rise, electric car sales have a momentum that makes them nearly unstoppable © Krisztian Bocsi/Bloomberg

VW still expects its mass-market rollout, as well as its collaboration with Ford, to help the company rein in electric vehicle costs.

Andy Palmer, chief executive of Hindujah-backed electric bus maker Switch Mobility, which oversaw Nissan’s launch of the Leaf electric car in 2010, says the long-term trajectory of battery prices continues to fall.

“Over time, I think we’ll continue to see the cost of batteries come down through technology changes and economies of scale,” he said.

“When we started production of the Nissan Leaf, we were paying around $1,000 per kilowatt hour,” he added. “The price is now around a hundred dollars per kilowatt hour. So over time you definitely see a reduction in the price of batteries, and that’s obviously driven by demand and supply.

Even as prices rise, electric car sales have a momentum that makes them nearly unstoppable.

“Electric vehicles and batteries are tied to the industry trend of regulating carbon emissions,” said SK On’s Kim. “They can’t just be approached from a profitability perspective.”

“Rising nickel prices may impact EV demand, but it’s a stretch to assume EV demand will decline.”

Bi-weekly newsletter

Energy is the world’s must-do business and Energy Source is its newsletter. Every Tuesday and Thursday, straight to your inbox, Energy Source brings you essential news, cutting-edge analysis and insider information. register here.