Automakers do not have enough metal to meet demand for electric vehicles, even as customers facing high fuel prices clamor for more.

The Russian war on Ukraine has disrupted oil, natural gas and coal supply chains, exacerbating tightness across metal markets and heating up prices for nickel, steel, aluminum, copper and a host of other materials critical to EV manufacturing. EV makers, already struggling with a shortage in semiconductors alongside the rest of the auto industry, now face problems securing metals essential to the batteries that power the cars.

The pressure is on, as global sales of plug-in passenger EVs, already forecast by S&P Global Market Intelligence in February to triple in 2022 from 2020 levels, are poised to go even higher as crude oil stays above $100 a barrel and gasoline prices go through the roof.

"If you have rising fuel prices, by which I mean gasoline and diesel, that is a significant push factor towards EV adoption," said Adam Panayi, managing director at Rho Motion, a company providing EV forecasts and analysis. "But the key moving piece that needs to be monitored is [carmakers'] ability to source materials and also manufacture these vehicles quick enough to meet demand."

Metal supplies in shortage

EV makers are having a difficult time meeting consumer demand, with wait times for vehicles stretching between nine and 12 months, according to research published in February by Canalys, a technology research firm. That problem is only likely to get worse as automakers struggle to secure nickel and the other materials needed for batteries.

"What we're seeing this year is the demand for our vehicles is very strong," John Lawler, vice president and CFO of U.S. automaker Ford Motor Co., said during a Feb. 8 earnings call. "There's still an imbalance this year between supply and demand, especially with the new product lineup we have. We're virtually sold out on all of our new products."

In January, passenger plug-in EV penetration rates slipped by 0.94 percentage points in China and by 12.3 percentage points in Europe's top-four markets, causing sales to decline, according to S&P Global Commodity Insights senior analyst Alice Yu.

"The slowdown of [plug-in] EV sales growth is the result of sluggish supply chain improvement," Yu said, also citing the continued shortage of semiconductor chips.

Demand for lithium, cobalt and nickel outstripped supply in 2021, with market tightness likely to persist this decade as battery making ramps up, according to Market Intelligence analysis. Furthermore, lithium-ion battery supply will be unable to keep up with demand in 2022 in part due to rising raw material prices, according to Wood Mackenzie consultant Jiayue Zheng.

"Under our base-case scenario, we project that battery supply will not meet demand until 2023," Zheng said. Demand for the batteries needed to power plug-in EVs is forecast to reach 1,160 GWh by 2026, a 752.9% leap from 2020, according to Market Intelligence research.

Prices for battery metals were already climbing in 2022 before Russia's invasion of Ukraine, pressured by pandemic-induced supply chain constraints, surges in demand and a deficit of new mining projects. In the wake of the war in Ukraine, EV makers are facing another bout of sticker shock for several key metals, in addition to ongoing shortages in semiconductor chips.

"Rising energy costs and volatile raw material pricing have really caused cost inflation [across] the entire value chain from mining to vehicle," said George Miller, an analyst at Benchmark Mineral Intelligence.

Nickel prices soared above $100,000 per tonne in early March with the threat of sanctions against Russia, the world's fourth-largest producer of nickel, and an attempt by a nickel market participant to reduce a short bet.

Although the London Metal Exchange three-month nickel price has since cooled down, to $32,380/t as of March 23, the unprecedented spike sent chills through metals markets. Russian mining company PJSC MMC Norilsk Nickel produces about 17% of the world's class one nickel, which is the type needed for batteries, according to Benchmark Mineral Intelligence.

A wave of sanctions and other punitive measures taken against Russia in response to its invasion of Ukraine have sent gasoline prices sky-high: The average price for a gallon of regular unleaded gas hit $4.24 in the U.S. on March 25, up 48% from a year earlier, according to AAA, an automobile owners association. That pushed some drivers to consider ditching internal combustion vehicles altogether, said Stephanie Valdez Streaty, head of electric vehicle battery solutions at Cox Automotive Inc.

"There's definitely an uptick in consumers looking at zero-emission [vehicles], whether it's an EV or hybrid, as an option," Valdez Streaty said. "The question is the availability and the price point. If you can find an EV and you can afford one you're good to go, but the challenge is going to be finding one in that price point and getting it in a timely manner."

EV makers squeezed

EV producers are caught in a bind between inflation, shortages and customer demand. In most industries, this would cause product prices to rise, but customers have rebelled, leading automakers to eat the extra costs.

"To the extent to which they can, [original equipment manufacturers] will take the hit on the increased pricing, be that for battery materials — lithium, cobalt, nickel, manganese, graphite — or energy prices on the cathode and anode stage," Panayi said. "They will take the lion's share of the impact of that themselves so that they can sell these electric vehicles, which they're already selling at a loss anyway, while they build up scale."

U.S.-based EV maker Rivian Automotive Inc. raised prices for its R1T electric pickup and R1S SUV by about 20% early in 2022, only to cancel the price increases for existing reservations after backlash from customers, according to reports.

Tesla Inc. raised prices for some of its recently after CEO Elon Musk said the company was "seeing significant recent inflation pressure in raw materials and logistics," in a March 13 post on Twitter. Neither Rivian Automotive nor Tesla responded to requests for comment.

"The demand is not the issue," Herbert Diess, chairman of the management board and group CEO of Volkswagen AG, said during a March 15 earnings call. "The supply chain for EVs will be the bottleneck, not only for us but also for all our competitors, because we need the capacities for the raw materials, for lithium, for nickel at the beginning, and still for cobalt. That has to be established."

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