The price of nickel is surging as investors take stock of the new global reality: Russia, a key supplier of the metal, is now facing extensive sanctions following its invasion of Ukraine.
In an unusual step, the London Metal Exchange suspended nickel trading on Tuesday morning after three-month contract prices more than doubled to over $100,000 per ton.
Nickel is a critical ingredient in the lithium-ion battery cells used in most electric vehicles sold in – and planned for – the U.S. market. Its abrupt price surge has analysts and investors raising hard questions about automakers’ ambitious electric-vehicle programs.
Morgan Stanley auto analyst Adam Jonas has been among the loudest voices raising concerns. In a note published Monday, he said: “As of this writing, nickel is up 67.2% just today, representing around a $1,000 increase in the input cost of an average EV in the U.S.”
Jonas wrote that investors should reduce their expectations for automakers’ earnings, and for electric-vehicle sales penetration over the next few years, as nickel’s abrupt price surge could undermine the ambitious EV plans put forth by global automakers including General Motors and Ford Motor.
Why nickel is important to EV batteries
Lithium-ion battery cells have three layers:
a cathode that contains lithium mixed with nickel and other minerals such as cobalt, manganese or aluminum an anode, made of carbon graphite and sometimes silicona separator made of a porous polymer
There’s also a liquid electrolyte, generally made from lithium salt that is dissolved in a solvent.
When the battery cell is charged, lithium ions are driven from the cathode to the anode. As the cell is discharged, the ions move back to the cathode, releasing energy.
In recent years, automakers have discovered that adding more nickel to the cathode can boost a battery’s energy density, which translates into more range per pound of batteries.
Older lithium-ion batteries used cathodes that were about one-third nickel. But in recent years, automakers have increased the percentage of nickel in cathodes to boost the batteries’ energy density and increase vehicle range. Most are now using cathodes that contain at least 60% nickel.
Some use even more, in part to reduce or eliminate cobalt, and in part to increase density for premium applications: The cathodes in cells that Korean battery giant LG Chem supplies to Tesla are 90% nickel, for instance.
Analysts were raising concerns before the war
High-nickel batteries offer significant advantages for electric vehicles. But even before the Russian invasion of Ukraine, nickel wasn’t cheap, and experts were raising concerns about a likely shortage as global automakers ramp up production of EVs.
Analysts at Rystad Energy warned last fall that global demand for the high-grade nickel required for EV batteries is likely to outstrip supply by 2024, a message that has since been echoed by other commodity analysts, including Jonas’s counterparts at Morgan Stanley.
Given the relatively high cost of nickel, and the concerns about supply that were being voiced before Russia invaded Ukraine, automakers have signaled that lithium-ion batteries with high-nickel cathodes are likely to be limited to premium applications. In those, the energy density is either required (as with heavy trucks) or a key selling point (as with luxury sedans).
How this price hike could play out
Assuming that nickel’s price increase is sustained, the quick and obvious takeaway is that electric-vehicle costs will go up – and more so for higher-end EVs.
Automakers who haven’t locked in a supply of nickel at pre-invasion prices will have a hard choice. They can choose to absorb the cost increase, reducing their profit margins; or they can try to pass it on to consumers. Most will likely do some of both.
Not all EVs will be affected. There is an alternative type of battery that’s already in use for lower-cost EVs, although it comes with tradeoffs. Lithium iron phosphate, or LFP, batteries use iron phosphate in their cathodes, no nickel or cobalt required.
LFP cells cost less than lithium-ion cells, but they also have lower energy density – meaning that LFP battery packs are heavier per mile of range than their lithium-ion counterparts. That weight has made LFP batteries less than ideal for higher-end vehicles, as added weight limits performance and can hinder a vehicle’s handling. That’s less of a concern with price-constrained mass-market models. Chinese automakers, under government pressure to encourage EV adoption, have used LFP batteries in their lower-cost electric vehicles for several years.
LFP technology received a visibility boost in the U.S. when Tesla began using LFP batteries in its entry-level “standard range” models last fall. At the time, the move to LFP was seen as a way for Tesla to lower the cost of producing those models – or put another way, to increase the profitability of those entry-level vehicles without increasing prices.
Now, with nickel prices skyrocketing, we may – once again – see major global automakers following Tesla’s lead.