Russian Nickel Compounds Pain For Carmakers Contending With Chip Shortages

A computer chip shortage that shows no sign of easing has caused carmakers to struggle to maintain production levels for over a year. The auto industry's efforts to ramp up electric vehicle output may be hampered by a spike in nickel prices, which are mined in Russia and used for advanced batteries.

The price of nickel shot up to more than $100,000 a ton on the London Metal Exchange. The result of tough, broad international sanctions imposed on Russia to pressure President Vladimir Putin to rethink his unprompted attack on neighboring Ukraine is oil. So far, sanctions have not been applied to nickel.

Russia is the third-biggest producer of nickel, behind Indonesia and the Philippines, and it will be the biggest in 2021, according to U.S. government data. Along with batteries, the metal is also used to make other products, and supply disruption fears mean more headaches and higher costs for manufacturers. The price of an average EV could increase by $1,000 due to the rising cost of nickel.

Simon Moores is the CEO of Benchmark Mineral Intelligence.

“Volatility is the norm right now”

Efforts in the US, Europe and Asia to wean motorists off gasoline and diesel fuel and switch to electric vehicles that don't emit tailpipe exhaust and carbon emissions are being hampered by Putin's war. Over the next decade, the range of models will expand, particularly of more affordable battery-powered cars and trucks. When taxes and other fees are added, the cheapest version of the Model 3 costs about $50,000. Most new electric cars in the U.S. sell for at least $40,000, while luxury vehicles such as the top-end Lucid Air go for more than $169,000. It will be difficult for millions of drivers to give up gasoline because of higher purchase costs.

Along with nickel, the auto industry relies on other metals such as palladium, which is needed for catalytic converters, and also lithium and cobalt, which are used for batteries. It will be difficult to drive down the price of EV batteries even as technology improves.

Moores said that European manufacturers will see the biggest impact. Europe's dependence on Russia for energy is illustrated by the Nord Stream 2 gas line, but the nickel supply chain from Russia to Finland to Germany is equally problematic, he says.

Europe wants to wean itself off of Russia's oil and diesel, but will still need to rely on Russia's nickel supply.

The range of challenges facing the automotive industry is unprecedented in recent times, according to Morgan Stanley analyst Adam Jonas. The lack of visibility and dispersion of outcomes confronting auto investors is unparalleled.