The supply chain fallout from the war in Ukraine could make electric vehicles more expensive to build as raw material prices jump higher.
That could hamper consumer EV adoption just as automakers plan to roll out many new battery-powered models, warns a report out this month by S&P Global Mobility.
The new logistics problem could affect the batteries used in several popular EV models, potentially eating into their manufacturers’ profits.
As a result of the Ukrainian situation, the Tesla Model Y crossover, the most popular EV on the U.S. market, could see input costs for battery raw materials surge by almost $8,000 per vehicle this year, S&P Global Mobility estimated.
Battery raw materials costs for the Mercedes-Benz EQS could skyrocket by about $11,000 compared with 2021 prices. Mercedes CEO Ola Källenius said last week that the company will hold firm on its EV investment plans despite higher costs.
S&P Global Mobility, formerly IHS Markit’s automotive team, said Russia’s invasion of Ukraine has exacerbated price pressures by inflating raw material prices. Nickel is of particular concern, since Russia is the world’s third-largest supplier of the metal. Norilsk Nickel, the world’s biggest producer of high-grade nickel used in EV batteries, is based in Russia.
German chemicals giant BASF, which manufactures nickel and cobalt for automotive batteries, said it will not sign new agreements with Norilsk because of the invasion. S&P said other manufacturers have suggested they will do the same.
While Norilsk has not been the target of economic sanctions imposed by the U.S. or other countries, uncertainty about where companies will source nickel has rattled the market, as has the lingering threat of further sanctions, among other factors.
Nickel, which has traded for between $10,000 and $20,000 per ton over the past decade, traded for more than $100,000 per ton on March 8, triggering a weeklong suspension of nickel trading on the London Metal Exchange. Prices have since dropped.
“It’s clear that at current prices, we will see, at a minimum, any price reduction linked to batteries’ economies of scale wiped out by increased input costs,” the March 9 report reads.
“It is also clear that should these elevated price levels continue into 2023 and beyond, the likelihood of a delay of the tipping point for [internal combustion engine] versus BEV cost parity — a critical metric to measure battery-electric vehicle adoption — markedly increases.”
According to S&P, nickel has become a popular metal for battery manufacturers to use as a substitute for cobalt. Cobalt has been linked to human rights abuses in Congo, which produces much of the world’s supply of the metal.
Other problems continue to arise for the global auto industry as a result of the Russian invasion. Among last week’s developments:
- Mercedes said about $2.2 billion of its assets in Russia are at risk if the country decides to expropriate the property of foreign companies that have exited Russia because of its invasion. Russian lawmakers have proposed taking temporary control of departing companies where foreign ownership exceeds 25 percent.
- Stellantis said it will move van production from Russia to western Europe and will freeze investment plans in Russia. It owns a plant with Mitsubishi in Kaluga, about 120 miles southwest of Moscow. Stellantis makes Peugeot, Opel and Citroen-brand vans there.
- Volkswagen CEO Herbert Diess said the company will shift more vehicle production to China and North America because of the Ukraine war. As a result, American VW dealers anticipate higher crossover inventory in the coming months. Diess said he anticipates volatility in commodities markets until 2026.
- Michelin, the first international tire company to begin making tires in Russia in 2004, said it will suspend industrial activity in the country and also halt exports to it.
- Audi last week shut down a plant in Germany that builds the A4, A5, A6 and A7 models because of supply shortages stemming from the war and the semiconductor shortage.
- BMW said it anticipates lower profit margins for its automotive business in 2022 because of the war, forecasting earnings before interest and taxation in a range of 7 to 9 percent, down from more than 10 percent in 2021. It previously expected EBIT of between 8 and 10 percent this year.
BMW also said it plans to resume full output this week at two factories in Germany and one in the U.K. that were down because of parts shortages stemming from the conflict.
Reuters and Bloomberg contributed to this report.