Status: 03/17/2022 3:48 p.m
The German car manufacturers have a raw material problem. Supply bottlenecks are threatening nickel and neon because of the Russian war of aggression in Ukraine. Are electric cars getting more expensive now?
First Corona, then the Ukraine war: The German auto industry has slipped from one worst-case scenario to the next. BMW, Mercedes and VW have recently been able to recover significantly from the setbacks of the pandemic and start the electric car offensive. But with the Ukraine war, the German car companies are already facing the next endurance test.
Up until now, Russia and the Ukraine have supplied important raw materials and primary products. “Palladium, nickel, neon or cable harnesses are examples of new bottlenecks that have arisen. If these last longer because replacements can only be mobilized to a limited extent, there is a risk of persistent production losses in the German economy,” warns the Cologne Institute of the German Economy (IW) in a current issue Study.
Russia is the third largest nickel producer
At the same time, rising prices for nickel, lithium, palladium and other metals, needed for electric car production, the pressure on the cost side of the car manufacturers. Nickel, for example, has become more expensive by more than 100 percent in the course of the year to date.
With the Ukraine war, the supply risks for the industrial metal have suddenly increased. After all, according to the analysis company GlobalData, Russia is the world’s third largest producer of nickel with an annual production of more than 200,000 tons. “It specializes in the highly sought-after, high-quality nickel that is used in batteries,” emphasizes Commerzbank economist Barbara Lambrecht.
“Key raw material” for the traffic turnaround
Nickel is considered a key raw material for the transport and energy transition. The German Raw Materials Agency (DERA) estimates that by 2025 nickel will be the second most frequently used material for energy storage, for example in electric drives, behind its use as a component of alloys and stainless steel.
GlobalData experts warn that sanctions on Russian nickel will slow down the introduction of electric vehicles and further increase the prices for their production. “The rise in nickel prices alone could reduce the gross profit margin of automobile manufacturers by two percent,” emphasizes Konstantin Oldenburger, market analyst at CMC Markets.
Metal inflation makes electric cars more expensive
Overall, metal inflation should increase the average price of an electric car by around 1800 euros in 2022, according to market expert Oldenburger. After all, it’s not just nickel that has become so massively expensive over the course of the year. Other raw materials urgently needed for e-car production also recorded significant price increases.
For example, the price of lithium has risen by around 75 percent. Palladium gained about 30 percent. The precious metal is in the catalytic converters of hybrid cars. According to Commerzbank economist Carsten Fritsch, Russia is the second largest palladium producer behind South Africa and accounts for almost 40 percent of the mine supply.
Incidentally, switching the auto industry from palladium to platinum in order to reduce dependence on Russia would make little sense: Russia is the world’s second-largest platinum producer.
Neon – the export hit from the Ukraine
The German auto industry is highly dependent not only on Russia, but also on Ukraine. Ukraine accounts for 70 percent of global neon exports. The noble gas is essential for the operation of certain lasers used in the production of semiconductors.
The great importance of Ukraine for the global neon market has historical origins: The Soviet Union once invested heavily in technologies for the neon deposition process because it was believed to be needed for the planned production of laser weapons and satellite defense, explains CMC expert Oldenburg.
Most memory chip manufacturers held stocks of neon for about eight weeks. “So a prolonged war could deplete these supplies and bring new concerns to the chip-poor world.”
The chip crisis particularly affected the e-car industry
The chip crisis is already hitting electric car production particularly hard, as more chips are installed in electric cars than in conventional cars. The current EU sales figures give a foretaste of what could still blossom in the electric car industry.
In February, sales momentum for electric cars and plug-in hybrids had slowed down significantly. “The chip crisis has long since reached the electrical segment – sales of electrified new cars could be significantly higher if the industry were able to deliver,” emphasizes EY car expert Peter Fuss.
Crimea annexation sent nickel prices skyrocketing
In view of the tense raw materials situation, it is now exciting to see who will bear the higher costs in the end: the car manufacturers in the form of lower profits – or the buyers in the form of higher prices.
Meanwhile, a look at history shows that there is still plenty of room for improvement with the current price increases on the commodity market: when Russia annexed Crimea in 2014, neon prices shot up by 600 percent.