“Tesla and SpaceX are seeing significant recent inflation pressure in raw materials & logistics,” Tesla CEO Elon Musk tweeted on March 13.
The US EV maker raised prices on all models by 4-10% in the US in mid-March, and also lifted prices in other markets, including Japan.
In China, Contemporary Amperex Technology, or CATL, which is the world’s top auto battery producer, apparently raised prices twice since mid-2021. Chinese media reported that those hikes could translate to a price increase of roughly ¥20,000 per EV.
Major Chinese automakers had been lowering EV prices in Thailand, seeking to gain ground in a market dominated by Japanese companies. But rising battery costs have derailed this strategy.
BYD, a leading Chinese player, and startup peer XPeng both have raised prices.
SAIC-GM-Wuling Automobile, backed by General Motors, is known for selling bare-bones electric vehicles at cut-rate prices but has also resorted to price hikes of ¥4,000 to ¥8,000.
Its Hongguang Mini, previously ¥28,000, is now offered at ¥32,800, a 10% increase.
The battery accounts for a roughly one-third of the EV manufacturing cost. A rise in material costs directly affects prices.
Russia accounts for roughly 10% of nickel production, and supplies 20% of the high-purity variety used for auto batteries.
With the war raising concerns about supply, three-month futures for the metal touched a record ¥$55,000 per ton on the London Metal Exchange on March 7. The continuous price surge forced the exchange to halt trading the following day.
The prices remain high, at over US$30,000 per ton on Thursday, more than double the levels seen last year. “At those prices, only luxury cars can have batteries,” said a source at trading company Hanwa.
The impact is not limited to nickel. International prices for lithium, which is mainly produced in Australia and South America, have also risen sharply over the past year.
The benchmark price of lithium carbonate, used for battery materials, was ¥500,000 per ton as of Wednesday, according to Argus Media, a UK resource research company.
This is about six times higher than a year ago when the prices were hovering in the ¥80,000 range.
Rare earths, used to make motor magnets for EVs, are also 60% higher than the previous year, with neodymium, a raw material for high-performance magnets, costing about US$212 per kilogram as of Wednesday.
According to the US Geological Survey, China accounts for 60% of the world’s production of rare-earth metals, and China also supplies almost all graphite for battery anode materials, which constitutes a supply risk of its own.
Seeking to end dependence on China, the US and Australia are trying to increase domestic supply via financial support for domestic producers.
The widening supply-demand gap is unlikely to be resolved soon. According to SNE Research, global sales of EVs totalled about 6.4 million units, including plug-in hybrids, in 2021, a twofold jump from the previous year.
EVs also accounted for 8% of all automobiles, up from about 4% the previous year.
The increase in EV sales directly pushes up demand for resources. According to the International Energy Agency, the amount of resources required for EVs, including copper for the electrical wiring, is six times that of conventional gasoline-powered vehicles.
Since the Russian invasion, fossil fuels such as natural gas and crude oil have also risen sharply. The strategic importance of decarbonisation to reduce dependence on Russia has become evident.
“The global trend toward EVs will accelerate,” said Sanshiro Fukao, a senior fellow at the Itochu Research Institute. But the faster-than-expected pace of demand growth has led to a supply problem.
Japan’s high resource prices, combined with a weak yen and low income growth are squeezing consumers’ purchasing power. If prices remain high and the spread of EVs is delayed, it will risk hindering Japan’s transition to a low-carbon society.