Electric Auto-Makers Hit by War

Though a growth surge was predicted, Electric Vehicle production now splutters as the Ukraine war disrupts global input supplies

Global Electric Vehicle (EV) sales – battery-electric and plug-in hybrid combined –more than doubled last year to around 6.6 million vehicles. They accounted for 8.6% of the global light-duty vehicle market, compared to about 2.5% in 2019, according to a new International Energy Agency (IEA) commentary. Analysts foresee another growth surge this year, with the research firm BloombergNEF projecting over 10.5 million in sales. However, the Ukraine war seems to be pulling the plug on this growth as supplies of critical raw material inputs from Russia choke due to disrupted supply chains.

German auto giants brace for supply shocks

All three major German original equipment manufacturers (OEMs)–Volkswagen, BMW and Daimler–have revealed their exposure to critical Ukraine-supplied components announcing stoppages, mainly in Germany so far. Wiring harnesses and related electrical systems have been the key focus. While it is expected that alternative supplies will be secured, extensions of stoppages already announced are likely – and there is a near-term risk that other OEMs will be impacted as the disruption flows up to Tier 1 suppliers and permeates across brands and European geographies.

Russian metals key for battery manufacture

Russia is also the second-largest exporter of cobalt, one of the key elements used in making rechargeable batteries. It is also the world’s second-largest supplier of vanadium, used in large-scale energy storage and in steelmaking. The country is the sixth-largest exporter of gold, accounting for 4.4% of the world’s supply, and the 10th biggest supplier of lead.

Russia accounts for 10% of the world’s supply of nickel, which is used to make stainless steel and vehicle batteries. The price of nickel soared by 250% in a day due to fears that sanctions would hit supplies, and the London Metal Exchange even suspended trading of the metal because of the unprecedented price rises.

Russian exports of platinum account for 12.3% of global supply, and the country is the world’s fourth-largest exporter of tungsten. The country also supplies smaller quantities of manganese (generally used in glassmaking, drinks cans and as paint pigment) and zinc (used in making car bodies among others). Russia covers about 3.5% of global demand for copper, and copper prices have hit record highs this month.

Nickel prices shoot up

Last year saw significant price increases for steel, lithium, nickel and other metals, and chip shortages.” For the first-time, supply-side bottlenecks are becoming a real challenge to the electrification of road transport and are adding to traditional demand-side challenges,” IEA said. The war is also having an impact on automotive tyres, as Russia is an important supplier of synthetic rubber and carbon black to the European market. With exports ceasing, this has led to the short-term closure of some European tyre plants.

Metals used in electric vehicles – such as lithium, cobalt, and copper– are at the heart of the revolution currently taking place in the automotive industry. Imbalances between supply and demand are, thus, pushing up their prices even though the market share of electric vehicles remains modest. Russia’s invasion of Ukraine is ramping up the price of metals used in cars, from aluminium in the bodywork to palladium in catalytic converters to the high-grade nickel in electric vehicle batteries, and ultimately drivers are likely to foot the bill.

The price of nickel doubled in one day in the second week of March, prompting the London Metal Exchange to freeze trading and effectively bring the global nickel market to a standstill. An average electric-car battery contains about 80 pounds of nickel. The surge in prices in March would more than double the cost of that nickel to $1,750 a car. After two years of supply-chain chaos caused by the pandemic, the episode provided more evidence of how geopolitical tensions are destroying trading relationships that companies once took for granted, forcing them to rethink the sourcing of parts and metals they use to make cars and many other associated products.

Russia accounts for a relatively small proportion of world nickel production, and most of it is used to make stainless steel, not car batteries. But Russia still plays an outsized role in nickel markets. Norilsk Nickel, also known as Nornickel, is the world’s largest nickel producer, with vast operations in Siberia. Its owner, Vladimir Potanin, is one of Russia’s wealthiest people. Norilsk is among the very few companies authorised to sell a specialised form of nickel on the London Metal Exchange, which handles all nickel trading.

Semiconductor shortages snowball

A shortage of semiconductor supplies and continues dislocation of the supply-chains have been affecting automobile manufacturers since the beginning of the pandemic. It shows no signs of abating yet. For example, BMW –affected by the chip supply crisis(like everybody else in the business) –had to stop installing touchscreens into some of its cars for a while last year. This crisis has now been aggravated as Ukraine is a major supplier of neon that is used for etching chips, while Russia is a source for palladium –a critical input also used for making semiconductors.