Analysis: Ukraine invasion sets back Musk’s dream of cheaper electric vehicles, for now

SAN FRANCISCO, March 7 (Reuters) – Soaring commodity prices, compounded by Russia’s invasion of Ukraine, could set back the dream of Tesla (TSLA.O) CEO Elon Musk and other auto executives to roll out more affordable electric vehicles.

Rising prices for nickel, lithium and other materials threaten to slow and even temporarily reverse the long-term trend of falling costs for batteries, the most expensive part of electric vehicles, hampering wider adoption technology, said Gregory Miller, an analyst at forecaster Benchmark Mineral Intelligence.

And that’s on top of a supply chain already hampered by the COVID-19 pandemic and global chip shortages.

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“Rising commodity prices certainly have the potential to delay the timeline for cost parity between EVs and ICEs, which could hamper broader EV adoption, Miller said, referring to vehicles. internal combustion engines that dominate the market.

Soaring costs of critical battery components could sap electric vehicle sales momentum

This year could mark the first year-over-year increase in the average price of lithium-ion battery cells, he said.

The conflict in Ukraine has only raised the stakes, pushing nickel and aluminum prices to record highs on Monday on growing fears that exports from Russia’s top producer could be disrupted. Lithium prices have also risen, having more than doubled since the end of the year as supply falls short of growing demand. Read more

According to Benchmark Mineral Intelligence, Russia’s largest miner Nornickel produces around 20% of the world’s supply of high-purity Class 1 nickel, which is used in batteries for electric vehicles. Russia is also a major supplier of aluminum, used in batteries.

To be sure, oil prices, which rose to their highest levels since 2008 on Monday, could act as a counterbalance, sparking greater interest in electric vehicles after years of growing demand for gas-guzzling sport-utility vehicles and pickup trucks. Read more

Rising EV prices — marked by increases over the past year by Tesla and startup Rivian Automotive (RIVN.O) — matter because mainstream consumers won’t pay a massive premium for a technology that many do not yet fully adopt.

The average electric vehicle sold for nearly $63,000 in January in the United States, about 35% more than the overall industry average for all vehicles just over $46,000, according to the research firm Cox Automotive.

While consumers now worry less about being stranded on the side of the road without power, price remains a major concern, according to a Cox survey.

SLOWER ADOPTION OF EVs

“Anything that increases the cost will prevent the adoption of electric vehicles,” said Cox analyst Michelle Krebs.

According to the International Energy Agency, electric vehicles accounted for around 9% of total global vehicle sales last year, and consulting firm AlixPartners expects that share to reach around 24% by 2030. .

According to a 2021 study by OC&C Global Speedometer of consumers in the United States, China and other countries, more than half of consumers are not willing to pay $500 more to buy an electric vehicle, despite lower operating costs.

This could put automakers in a bind if they want to attract traditional buyers, rather than the luxury customers they currently cater to.

Tesla has hiked the price of its cheapest Model 3 sedan by 18% to $44,990 since December 2020 as supply chain issues weigh in. Musk also said in January that Tesla was not developing a $25,000 car he promised on Battery Day 2020, saying there was too much on his plate.

Some US dealerships have taken advantage of the vehicle shortage to charge more for electric vehicles, prompting warnings from automakers like Hyundai (005380.KS) and Ford (FN).

Rivian last week tried to push through a 20% price increase on its electric pickup trucks and SUVs to offset higher parts costs, but backed down for those who had already placed orders in the face of a backlash that included d possible sales cancellations. Read more

Another EV startup, Lucid Group Inc (LCID.O), has yet to raise prices, but CFO Sherry House said in February the company was “definitely looking at pricing” to offset the higher costs of the supply chain. Read more

In China, lithium price increases have put pressure on manufacturers of entry-level models such as Great Wall’s Ora EV (601633.SS) and Wuling Hong Guang’s Mini EV, as they have less room to push through a higher price, investors said.

For startups, the pressure is particularly intense.

“If you’re a small business, you don’t have the ability to tell your suppliers to give you a lower price,” said Brett Smith, chief technology officer at the Center for Automotive Research.

Battery makers typically have long-term contracts with automakers, under which prices rise to reflect the rising cost of key raw materials such as lithium, nickel and cobalt, officials said. ‘industry.

LG Energy Solution (373220.KS), a supplier to Tesla and General Motors Co (GM.N), said raw materials account for 70% or 80% of the cost of its batteries.

Benchmark Mineral Intelligence said battery producers began raising lithium-ion cell prices late last year in response to rising commodity prices they had seen through 2021.

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Reporting by Hyunjoo Jin in San Francisco, additional reporting by Zoey Zhang in Beijing and Heekyong Yang in Seoul, editing by Ben Klayman and Chris Reese

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