As the cost of the raw materials needed to manufacture batteries continues to skyrocket, electric car prices are being taken along for the ride. In a meeting with shareholders, Tesla CEO Elon Musk claimed that purchase costs for lithium are currently ten times higher than extraction costs, prompting a suggestion that his investors get into the lithium business.
The price of nickel is also going through the roof, up 250% since January. Both nickel and lithium are integral to the production of batteries, and surging costs have forced battery manufacturers to raise the costs of the units they are selling to carmakers. This, in turn, is pushing up the retail price of electric vehicles.
Other materials needed for batteries such as cobalt, manganese and graphite have also seen their prices surging, although not quite as dramatically as lithium and nickel. The war in Ukraine is largely responsible, with fears about its impact on Russian supply lines driving up costs. In March, the price for nickel dramatically shot to $100,000 per tonne on the London Metal Exchange, although it has since dropped back down to $33,000.
However, lithium production remains the most problematic piece of the puzzle. Demand for electric vehicle batteries has been steadily outstripping the rate of lithium mining – even before the recent supply chain constrictions – and there are no solutions on the horizon.
Until lithium supply issues are resolved, prices will continue to rise.
Governments in Europe, the US, and China have all implemented policies incentivising carmakers to produce electric vehicles. This has led to major investments into EV production plants and gigafactories to manufacture battery cells.
The issue is that this investment hasn’t been matched by suppliers of lithium. “Lithium supply is growing at half the pace of EV demand,” according to Simon Moores, CEO of Benchmark Mineral Intelligence. As a result, carmakers like Tesla are flirting with the idea of investing directly into mining plants.
Other manufacturers have simply been forced to raise prices for cars in their electric range. The cost of the Spring, one of the models Dacia sells in France, has risen from €17,390 in January to €18,690 today.
Governments around the world have been pushing both carmakers and consumers to increasingly turn to electric vehicles. However, unless the current issues with the supply of raw materials can be fixed, it is likely to be an uphill battle.