High raw material prices threaten the boom in electric cars

Munich, Zurich For Yann Vincent, head of the Automotive Cells Company (ACC), the matter is quite simple. By the end of the decade, more than two thirds of new cars in Europe will be fully electric. This is a “calculated consequence of the CO2 regulation,” said the manager of the battery cell manufacturer supported by Mercedes-Benz and Stellantis to the Handelsblatt. “But 70 percent of what? How big will the European car market be then?”

The answer to this question depends heavily on how battery raw material prices develop. Because up to 80 percent of the cost of energy storage – the heart of every electric car – is attributable to metals such as lithium, nickel or cobalt. And some of their listings have more than doubled within a year alone.

“It is clear that if the prices of raw materials such as lithium or nickel remain at current levels, it poses a threat to the ramp-up of electromobility. Because they drive up the cost of electric cars,” warns Vincent. Electric vehicles are still significantly more expensive than diesel and petrol engines. “This gap could widen. That would not be good.”

Vincent is convinced that the prices for battery raw materials will only go down when more mines start producing. “But it will be a long time before these new mining projects for nickel and lithium are finally implemented. That should be the case in 2025 or 2026.” If the manager is right, electric cars will remain expensive for years to come. After all, the battery accounts for around 40 percent of the cost of the entire vehicle.

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In order to prevent the boom in electric cars from stalling, the “societal will” to combat climate change is crucial, says Stefan Bergold, European head of the Chinese battery specialist Farasis. He also emphasizes how important it is to expand the “mining and refining” of lithium and nickel.

Price declines of previous years have stopped

“Only through a significant increase in private and state investments will it be possible in the future to provide sufficient raw materials at normal market prices and to minimize delivery bottlenecks,” Bergold explained to the Handelsblatt.

In any case, the trend towards a steady fall in the price of electric car batteries came to a halt in 2022 as a result of record prices for lithium and nickel. The global average for battery-grade lithium carbonate was around $60,000 per tonne in March, according to industry service Benchmark Minerals. Compared to the average at the end of 2021, the price has more than doubled.

Improvement is hardly in sight in the short term, says George Miller, analyst at Benchmark Minerals. He, too, expects that large quantities of new metal will not come onto the market until 2024 or 2025. Until then, the industry expert expects a “significant shortage” on the lithium market.

The price of nickel even shot up to over $100,000 a ton for a short time in March. Since then, prices have normalized again and leveled off at around $33,000 per ton. However, the analysts at the Swiss investment bank UBS expect the price to remain at this historically very high level.

The International Nickel Study Group (INSG) assumes that the supply of nickel will increase by almost twelve percent to three million tons this year and that the nickel market could be oversupplied this year. However, the supply of nickel is one of the greatest uncertainties on the market.

>>> Read here, what special role Russia plays in the nickel supply.

An important reason for this is that the nickel market has traditionally been divided into two parts: Most of the growth in supply in recent years was due to so-called Class II nickel, which is used primarily for the production of stainless steel. It is not suitable for the production of the nickel sulphate precursor required for batteries.

Up to now, this has mainly been obtained from class I nickel. However, analyst firm Roskill expects Class I nickel supply to grow at an average annual rate of just 0.8 percent through 2040. The additional supply of nickel would therefore not relieve the tight supply situation for nickel sulphate for the time being.

New caution with further investments

At the end of last year, the Chinese producer Tsingshan Holding announced that it would convert material obtained from class II nickel into so-called nickel matte, which in turn can be used as a raw material for nickel sulphate. In the industry, this process is seen as a “game changer” that could solve nickel sulfate shortages.

However, it is still unclear whether automakers outside of China will accept nickel from sources with lower purity in their supply chains, warn analysts at S&P Global Platts. Battery manufacturers such as ACC are therefore currently reluctant to expand their activities.

The company recently announced that it would build a third factory in Europe in Termoli, Italy, after the plants in Kaiserslautern and Douvrin. But this has not changed the planned total capacity of 120 gigawatt hours by 2030. “We are very cautious about further investments. Especially since the car market could also shrink,” explains ACC boss Vincent. “We cannot be sure how the infrastructure and the costs of electric cars will develop.”

More: Volkswagen and BP want to set up 8,000 charging stations

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