Russia’s War in Ukraine Reveals a Risk for the EV Future: Price Shocks in Precious Metals

A silver sedan rolled off of the General Motors assembly line in Spring Hill, Tennessee, last Monday that represented the $35 billion bet the company is making on the future inside the chassis of its most storied brand.

It was GM’s first all-electric Cadillac Lyriq, launched nine months earlier than scheduled and signaling that the automaker is charging full-speed-ahead on its transition to electric vehicles, despite tumultuous times.

Russia’s war on Ukraine has roiled global commodities markets—including those for nickel and other metals used in EV batteries—and laid bare how vulnerable the world is to price shocks in the metals essential to the EV future. That volatility comes on top of the pandemic-triggered supply chain woes that have dogged the auto industry for months. President Joe Biden’s pledge to catalyze the electric vehicle transition has been only partly fulfilled, with consumer EV tax credits, much of the money for charging stations and other assistance stalled with the rest of his Build Back Better package in Congress. 

Sen. Joe Manchin (D-W.Va.), the linchpin for any effort to revive the legislation, this month said he is particularly reluctant to invest in an EV future because of U.S. dependence on imported metals for electric transportation. “I don’t want to have to be standing in line waiting for a battery for my vehicle, because we’re now dependent on a foreign supply chain,” Manchin said at the annual CERAWeek energy conference in Houston.

But last week, automakers, the Biden administration and U.S. trading partners and allies were doubling down on their commitment to vehicle electrification—not only to address climate change but because of concerns about energy insecurity in a world reliant on oil for transportation. Skyrocketing prices at gasoline pumps have made clear that U.S. drivers are not insulated from spikes in the global oil market, even though the United States is producing more oil domestically than ever.

Automakers are embarking on an array of strategies to secure supply of the critical minerals they will need for electric vehicles, including alternative battery chemistries, investment in new processing plants and deals with suppliers. Meanwhile, the United States and the 30 other member nations of the International Energy Agency last week launched a critical minerals security program. That could eventually include steps such as the stockpiling of metals needed for EVs and other renewable energy applications, just as IEA nations have committed since the 1970s to hold strategic stockpiles of oil. The IEA meeting participants also discussed a greater focus on systematic recycling of metals.

“We don’t want supply-chain bottlenecks to prevent us from being able to electrify the transportation sector,” said U.S. Energy Secretary Jennifer Granholm, after the IEA’s annual ministerial meeting in Paris on Thursday. “Making sure that we’ve got sources for those critical minerals that are sustainably extracted and processed is a big part of what the going-forward work will be of the countries here.”

Nickel Price Spike Rattles EV World

The Russia-Ukraine conflict has brought to light the risk for the EV future in the upheaval in global metal markets. On March 8, the price of nickel, which averaged about $18,000 per metric ton in 2021, shot up an unprecedented 250 percent in a little more than 24 hours to more than $100,000. Chaos broke out on the London Metal Exchange, the main commodities market for globally traded industrial metals, and the exchange halted trading for a week and took the highly unusual step of canceling billions of dollars worth of trades.

Since then, trading in nickel has resumed, with the price easing somewhat, but still volatile and about 50 percent above 2021 levels. The financial newspaper Barron’s reported that the price it tracks of a basket of EV battery metals is up 64 percent so far in 2022, theoretically raising the sticker price of an EV by as much as $2,000. The world’s biggest EV maker, Tesla, applied price increases to all versions of its vehicles in the United States, and CEO Elon Musk noted on Twitter that the company was seeing significant inflation in raw materials costs.

Nickel is a key metal for EV batteries, even though the power packs are typically described as “lithium” batteries. Lithium ions in liquid electrolyte move back and forth between the battery’s positive and negative sides as EV batteries charge and discharge. But the go-to battery formulations for EVs contain more nickel than lithium, because nickel provides the energy density that allows EVs to travel far on a single charge. And long range is a quality that automakers believe that U.S. consumers especially demand. The batteries that Tesla has been using for its Model 3 vehicles in North America are nickel-cobalt-aluminum oxide, which, according to analysis by BloombergNEF, are 70 to 80 percent nickel by weight, and 10 to 11 percent lithium.

But nickel was a problematic metal even before the market pressure triggered by the Russia-Ukraine crisis. The United States produces less than 1 percent of the world’s nickel, all from one facility, the Eagle Mine on Michigan’s Upper Peninsula. There are no processing facilities in the United States, so Eagle Mine nickel concentrate is exported to Canada and overseas, according to the U.S. Geological Survey, which tracks supplies of strategic metals.

Russia produces about 11 percent of the world’s nickel, and its sulfur-rich ore yields the high  grade Class 1 nickel needed for EV batteries. But the processing of that metal can be highly polluting. Russia is the source of 20 percent of the world’s Class 1 nickel, and its biggest producer, Norilsk Nickel, has been positioning itself to become a major EV supplier, initiating a multibillion program last year to clean up longstanding pollution at its mines and smelters in the Arctic.

After the war broke out, NATO nations refrained from sanctioning Norilsk Nickel or its oligarch chairman, Vladimir Potanin, as the trans-Atlantic allies sought to avoid moves that would shock the global economy. But the private sector and markets were spooked anyway, much as oil markets were, despite initial efforts by the United States and Europe to avoid sanctioning Russian oil. Germany’s BASF, a major EV battery producer, announced it would fulfill existing contracts with Norilsk Nickel but not pursue any further business with the Russian company, which had been one of its major suppliers.

Traders began factoring in the potential loss of Russian nickel on the world market, and the run on nickel turned into a stampede, as a Chinese tycoon who had built a massive short position in the metal was temporarily unable to cover billions of dollars in losses. The short seller was able to extract himself from the squeeze by reaching a deal with his lenders, but the London Metal Exchange faces lingering questions and possible litigation over its actions to stem the mayhem. 

The nickel upheaval comes at a pivotal time for electric vehicles, which in 2021 saw global sales more than double to 6.6 million, accounting for close to 9 percent of total sales and tripling their market share from two years earlier, according to the International Energy Agency. Now a war and commodities volatility, in addition to lingering pandemic-related supply woes, mean a bumpy road ahead for automakers, just as they are seeking to accelerate their move to all-electric.

An All-Electric Cadillac, and a Battery Plan

GM touted the unveiling of its Cadillac Lyriq as a milestone on its journey to an all-electric lineup by 2035, a pledge the carmaker made the week after Biden took office. “Today marks a new era for Cadillac, because we flip the switch on the transition to a fully-electric lineup for the flagship brand of General Motors,” said GM president Mark Reuss as he showcased the car beneath a “Made in Tennessee” banner. “This vehicle is another step on the path to EV leadership for us.” GM plans to invest $35 billion in its EV program between 2020 and 2025. 

But many of the questions Reuss fielded in his round of press interviews on the Lyriq focused on nickel and the uncertainties over other global commodities.

“We’re doing everything we can to get the raw materials and the supply chains in place, which we have for things like nickel and lithium,” Reuss said in an interview with Bloomberg News. “The unfortunate circumstance of the war has shone a light on some of those things.”

But Reuss said that the company has long been focused on ensuring that it has a large and diverse chain of suppliers. “We work hard on that every single day, regardless of what the geopolitical condition is,” he said. “It’s never safe. It’s never complete.”

The Spring Hill plant, which once was the site of GM’s Saturn operations, now is a showcase for how the company is managing the challenges of EV battery materials supplies. The Lyriq will use the new Ultium battery, a joint venture of GM and South Korea’s LG Energy Solution. Ultium batteries will cost 40 percent less than the batteries that have been used in the Chevrolet Bolt, and require 70 percent less cobalt, GM says. Cobalt also has been a problematic metal in the EV supply chain, with 70 percent of global supplies coming from the Democratic Republic of the Congo, where cobalt mining is  rife with human rights abuses, with tens of thousands of children employed in harsh conditions to extract the metal.

GM is beginning construction of a new $2.3 billion Ultium battery plant at Spring Hill to supply the Lyriq and other EV models that will be produced there. Another Ultium plant is scheduled to go online in Lordstown, Ohio, later this year. Currently, Ultium cells are manufactured in South Korea and shipped to a production facility in Michigan to be assembled into battery packs and sent to the Spring Hill vehicle assembly plant. GM’s goal is for the majority of its Ultium battery to be sourced, processed or manufactured in North America by 2025, the company said.

GM and Ultium also are working with Li-Cycle, a Canadian-based recycling venture, with a goal of developing a process to recycle battery materials, including cobalt, nickel, lithium, graphite, copper, manganese and aluminum, 95 percent of which GM said can be used in the production of new batteries or in other industries.

Losing Nickel, and Possibly EV Range 

Automakers also are looking more seriously at EV battery formulations that don’t require either nickel or cobalt, even though it may mean some sacrifice in driving range. Already, lithium iron phosphate (LFP) batteries are widely used in electric vehicles in China. They are lower cost, faster charging, and have a better safety profile than nickel-cobalt formulations, even though they currently offer less driving range.

Last fall, Tesla reportedly began offering Model 3 reservation holders in the United States a choice of switching to LFP batteries instead of the usual nickel-cobalt-aluminum oxide cells. The carmaker told investors it soon would be switching the battery chemistry in all of its standard-range electric vehicles to LFP.

Rivian, the electric truck start-up backed by Amazon and Ford, announced earlier this month that it also would switch to LFP cells for its standard-level vehicles, while offering high-nickel chemistry for its longer-range vehicles. The initial announcement touched off a minor brouhaha among customers who had already locked in orders with Rivian, and now found themselves faced with the choice of switching to LFP or maintaining the longer-range, high-nickel battery packs at a higher price. “We wrongly assumed pre-order customers would be open to reconfiguring,” said RJ Scaringe, Rivian’s founder and CEO, at the company’s earnings call on Mar. 10. Scaringe said the company would honor the original pricing and battery configurations for the pre-orders.

But going forward, Scaringe said, the company expected volatility in the metals markets to be one of the ordinary business risks that need to be managed.

“We hope the inflation in nickel pricing very recently is short-lived,” he said. “But the reality is there’s going to continue to be movements around commodity pricing… We’re developing a portfolio of battery solutions,” including LFP batteries.

Not only automakers, but governments, too, are grappling with the issue of metals availability as they seek to accelerate the transition to electric vehicles. The Biden administration’s roadmap for deployment of lithium batteries released last year included elimination of nickel and cobalt in lithium batteries. 

And the International Energy Agency, which was originally established by oil-consuming nations in the 1970s to increase energy security in the wake of the Arab oil embargo, announced last week that it will include as part of its mission maintaining secure supplies of metals needed for electric transportation.

“We recognize the growing importance of critical minerals and materials to clean energy transitions,” the energy ministers of the IEA member nations said in the communiqué at the conclusion of their meeting. The ministers directed the agency to report back within the next year on the comparative advantages of different methods to ensure the “availability, security and responsible sourcing” of minerals and materials that are critical to energy, including recycling, stockpiling, and research and development. The goal, the ministers said, is “to support investment in new sources of supply and development of a circular economy that accelerates clean energy transitions and ensures affordable security of supply.”

The version of the Build Back Better legislation passed by the U.S. House in November included $5 billion to be administered by the Department of Commerce to support the EV industry’s efforts to develop a more diverse and secure supply chain of raw materials. It is just a portion of the EV support included in the $1 trillion package that has been stalled because of the united opposition of Republicans, and dissent by a couple of Democrats in the 50-50 Senate, most notably Manchin.

Joel Levin, executive director of the EV advocacy group, Plug In America, said recent supply woes underscore the importance of strong government policy. The fact that China currently is so far ahead in ensuring a secure EV mineral supply (it manufactures more than 90 percent of the world’s LFP batteries) is due to policy decisions made a decade ago, Levin said.

“And, you know, we can do that, too,” he said. “There’s no intrinsic reason it has to flow through China. We need to invest in the production and refining of those minerals here, and battery manufacturing, and we’re starting to do that.”

In fact, he said, automakers have committed to half a trillion dollars in building new factories and developing the battery supply chain for electric vehicles. Levin believes the recent commodities volatility won’t slow the push for EVs, especially since the commodity price hike that has hurt consumers the most since the start of the Russia-Ukraine war is oil. 

Gasoline prices across the United States are up nearly 50 percent since the start of the year, according to the U.S. Energy Information Administration. And it appears that consumers are looking for alternatives. GoogleTrends reported on Twitter that internet search interest in electric cars reached a record high in the United States this month, apparently moving in tandem with the high price of gasoline.