Nickel prices rise as investors assess a new global reality: Russia, the metal’s key supplier, is now facing sweeping sanctions following its invasion of Ukraine.
The London Metal Exchange took the unusual step of suspending nickel trading on Tuesday morning after three-month contract prices more than doubled to over $100,000 a tonne.
Nickel is a critical component in the lithium-ion battery cells used in most electric vehicles sold or planned to be sold in the US market. The price spike is causing analysts and investors to ask serious questions about automakers’ ambitious EV programs.
Morgan Stanley auto analyst Adam Jonas was one of the most vocal people to voice concerns. In a note published on Monday, he said: “At the time of this writing, nickel is up 67.2% today alone, representing an increase in the cost of manufacturing an average U.S. electric car by about $1,000.”
Jonas wrote that investors should lower their expectations for automaker earnings and EV sales penetration over the next few years as a spike in nickel prices could undermine ambitious EV plans put forward by global automakers including General Motors and Ford Motor.
Why nickel is important for electric vehicle batteries
The cells of a lithium-ion battery are made up of three layers:
- a cathode that contains lithium mixed with nickel and other minerals such as cobalt, manganese or aluminum
- carbon graphite anode, and sometimes silicon
- porous polymer separator
There is also a liquid electrolyte, usually made from a lithium salt dissolved in a solvent.
When a battery is charged, lithium ions move from the cathode to the anode. When the cell is discharged, the ions return to the cathode, releasing energy.
In recent years, automakers have discovered that adding more nickel to the cathode can increase the battery’s energy density, resulting in more range per pound of battery.
Older lithium-ion batteries used cathodes that were about a third nickel. But in recent years, automakers have increased the percentage of nickel in the cathodes to increase the energy density of the batteries and extend the vehicle’s range. Most of them now use cathodes containing at least 60% nickel.
Some use even more, partly to reduce or eliminate cobalt and partly to increase density for premium applications: cathodes in cells that the Korean battery giant Deliveries of LG Chem for Tesla 90% nickelfor example.
Batteries with a high nickel content offer significant benefits for electric vehicles. But even before the Russian invasion of Ukraine, nickel was not cheap, and experts raised concerns about a possible shortage as global automakers ramped up production of electric vehicles.
Analysts at Rystad Energy warned last fall that global demand for the high-quality nickel needed for electric vehicle batteries was declining. likely to exceed supply by 2024 the message that has since been repeated other commodity analysts, including Jonas’ colleagues at Morgan Stanley.
Given the relatively high cost of nickel and supply concerns that were raised before Russia invaded Ukraine, automakers have signaled that lithium-ion batteries with nickel-rich cathodes are likely to be limited to premium applications. They either require energy density (as is the case with heavy trucks) or is a key selling point (as is the case with luxury sedans).
What could be the outcome of this price hike?
Assuming the rise in nickel prices is sustainable, the quick and obvious conclusion is that the cost of EVs will rise, and more so for more expensive EVs.
Automakers that did not lock in nickel supplies at pre-invasion prices face a difficult choice. They can absorb cost increases by cutting their profit margins, or they can try to pass it on to consumers. Most will probably do both.
Not all electric vehicles will be affected. There is an alternative battery type that is already being used for low-cost electric vehicles, albeit with compromises. Lithium iron phosphate batteries, or LFPs, use iron phosphate in the cathodes and do not require nickel or cobalt.
LFP cells cost less than Li-Ion cells, but they also have a lower energy density, meaning that LFP battery packs are heavier per mile of range than their Li-Ion counterparts. This weight has made LFP batteries less than ideal for higher-end vehicles, as the extra weight limits performance and can make the vehicle difficult to steer. This is less of a concern for price-limited mass-market models. Chinese automakers, under pressure from the government to encourage the adoption of electric vehicles, have been using LFP batteries in their low-cost electric vehicles for several years.
LFP technology became widespread in the US when Tesla last fall began using LFP batteries in its entry-level “standard range” models. At the time, switching to the LFP was seen by Tesla as a way to reduce the cost of producing these models, or in other words, increase the profitability of these entry-level vehicles without raising prices.
Now that nickel prices are skyrocketing, we may once again see major global automakers follow Tesla’s lead.