Russia’s invasion of Ukraine puts an end to dreams of cheaper electric vehicles

Why is it important: The most optimistic automotive industry forecasts suggest that electric vehicles will reach price parity with combustion engine vehicles sometime in the next three years. However, rising commodity prices lower these expectations, especially in the context of the ongoing Russian-Ukrainian conflict.

The electrification of the automotive industry may face more challenges than expected in the near future. Automakers have already had to deal with shortage of chips as well as increased prices for various materials, and now the dream of more affordable electric vehicles is starting to fade even more.

According to analysis conducted by Benchmark Mineral Intelligence on the state of the supply chain, the prices of materials such as nickel, lithium and other materials required for the production of electric vehicles have risen sharply in recent years and are already influencing adoption rates. This means it will take longer than expected for companies to achieve cost parity between electric vehicles and internal combustion engines, which currently dominate the market.

While the cost of lithium-ion batteries has plummeted over the past three decades, that trend could be reversed this year. Russia’s invasion of Ukraine has only exacerbated the rising material costs of electronics and batteries, as many in the industry fear disruptions in supplies of materials such as platinum, palladium, nickel, copper and aluminum coming from the two countries. Chinese suppliers see this as the main possibility as prices remain relatively stable in the region, the local auto industry could soon experience similar price inflation for electric vehicles.

The average selling price for electric vehicles in the US was about $63,000, 35% higher than the industry average. Last year, Tesla hiked prices on its base car models despite posting healthy profits. A much-needed network of electric vehicle charging stations may have been expanding in various regions, but several research conducted by market research firms seem to indicate that consumers are not willing to pay more upfront for an electric vehicle despite lower maintenance and operating costs.

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