Nickel is one of the hottest corners of the market right now. And it could spell a lot of trouble for automakers.
Nickel surged above $ 100,000 a metric ton on the London Metal Exchange, prompting a trading halt.
There are a number of reasons for the recent spike in prices (the metal is up 250% in the past two days), but a driving factor is Russia’s invasion of Ukraine.
Russia is one of the largest producers of nickel in the world, with miner Norilsk Nickel the number one producer of top-grade nickel globally. If the metal were added to the sanctions list, it could severely limit its flow to Western suppliers and manufacturers.
Electric vehicle forecasts
Nickel is used for a number of purposes, notably for making stainless steel and for its use in many electric vehicle (EV) batteries – which are one of largest costs in producing an EV.
In a note today to clients, analysts at Morgan Stanley (MS) lead by Adam Jonas wrote today’s move in nickel alone would result in the input costs of making an EV to rise by around $ 1,000.
Morgan Stanley notes the firm was predicting a nickel shortfall by 2026 that would keep growing through the end of the decade – and this was before the Russia-Ukraine crisis.
With the next biggest source of nickel being lower-grade Indonesian supply, and new nickel mines years away from build out, the only logical conclusion from Jonas and the Morgan Stanley team is it’s probably time for investors to take auto company earnings forecasts down. ”
One only needs to look at where Ford (F), GM (GM), Stellantis (STLA) and others are going in terms of EV production for even the most casual observer to ask: Is it even possible to make this many EVs?
Ford is planning to sell 2 million EVs annually by 2026 (and will invest around $ 50 billion), GM aims to sell 1 million EVs by mid-decade and launch 30 new EV models, and Stellantis plans to sell 5 million EVs by the end of the decade, with 25 new EV models on the way. Add that to Tesla (TSLA) already at 1 million units and counting, and the question remains how the automakers can boost supply in just a few years, when a materials crunch is basically happening right now.
One of the solutions Morgan Stanley sees for EV manufacturers is to leverage LFP or lithium ion phosphate batteries instead, because those batteries do not use nickel. The only drawback is that these batteries are generally less efficient (meaning lower range) than nickel variants.
Another option is one that Stellantis CEO Carlos Tavares told Yahoo Finance last week. In order to get to the electric future, the company plans to leverage the traditional internal combustion engine, which are now cheaper and more efficient, to bridge the gap.
Until then, it seems escape velocity for EV adoption is going to be stuck unless suppliers and manufacturers can mine more nickel and other necessary raw materials.
Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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