Will high Nickel prices damage the EV industry?

London nickel prices more than doubled on Tuesday to cross the $100,000          -a-tonne level for the first time ever, as tension in eastern Europe showed no signs of cooling and growing sanctions against Russia fuelled fears of a disruption in supply.

Three-month nickel on the London Metal Exchange soared 66.5% to $80,025 a tonne. Earlier in the session, the prices shot up nearly 111%, to a record $101,365.

The London Metal Exchange on Tuesday suspended the trading of nickel.

The metal added more than $10,000 to trade at a 15-year high above $40,000 a ton, the biggest-ever daily dollar gain in the 35-year history of the contract.

Which countries produce the most 

Nickel is a lustrous, silvery-white metallic element. It is the fifth most common element on earth, however, much of this metal is located within the earth’s core and is therefore inaccessible. 

Nickel is usually mined as a metal with greater than 75 per cent purity through ore extraction using processes related to roasting and reduction. 

Nickel ore is mined in 23 countries and smelted or refined in 25 countries.

Indonesia is home to 22% of the world’s known nickel reserves, with 21 million tonnes.

It was the leading Nickel producing country (by volume) in 2021, with a Nickel production of 883.8 thousand tonnes, up 16.3% YoY.

Philippines ranked second (by volume in 2021) with a Nickel production of 351.1 thousand tonnes (up 5.1% YoY), with the other three countries (New Caledonia, Russia, and Australia) cumulatively producing 586.3 thousand tonnes of Nickel in 2021

Russia supplies the world with about 10% of its nickel needs, mainly for use in stainless steel and electric vehicle batteries.

More than 70% of the global supply of nickel goes into making stainless steel. Yet it’s the metal’s use in batteries for electric vehicles that have really caught the market’s attention in recent years.

Why Nickel prices have shot up 

Russia is one of the world’s biggest suppliers of the metal, and the fear of sanctions or the inability to ship the metal has spooked an already tight market. Liquidity deteriorated dramatically in the nickel market overnight as sellers rushed to the sidelines, leading to sharp price jumps between trades as short-position holders scrambled for buybacks.

Oil and other commodities prices have soared as industrial buyers and traders scrambled amid supply disruptions linked to Russia's invasion of Ukraine.

The United States said it was willing to ban Russian oil imports, stoking investor fears over inflation and slowing economic growth. But Russia has warned oil costs could soar to $300 if the threat of ban is pulled through.

The nickel market was already exceptionally tight before Russia’s invasion of Ukraine, with strong demand from stainless steel producers and battery manufacturers and supply concerns in Indonesia, the top producer.

That had already led carmakers, including Tesla Inc., to begin looking at cheaper alternatives, concerned about the cost and availability of both nickel and cobalt. 

Jeep maker Stellantis NV and Volvo Group had already warned higher prices for raw materials would add to supply-chain woes and fuel more inflation for the auto industry.

Why Nickel is important to EV batteries

Lithium-ion battery cells have three layers:

a cathode that contains lithium mixed with nickel and other minerals such as cobalt, manganese or aluminium.

an anode, made of carbon graphite and sometimes silicon.

a separator made of a porous polymer.

Nickel is a critical ingredient in the lithium-ion battery cells used in most electric vehicles. Its abrupt price surge has analysts and investors raising hard questions about automakers’ ambitious electric-vehicle programs.

There’s also a liquid electrolyte, generally made from lithium salt that is dissolved in a solvent.

When the battery cell is charged, lithium ions are driven from the cathode to the anode. As the cell is discharged, the ions move back to the cathode, releasing energy.

In recent years, automakers have discovered that adding more nickel to the cathode can boost a battery’s energy density, which translates into more range per pound of batteries.

Older lithium-ion batteries used cathodes that were about one-third nickel. 

But in recent years, automakers have increased the percentage of nickel in cathodes to boost the batteries’ energy density and increase vehicle range. Most are now using cathodes that contain at least 60% nickel.

Some use even more, in part to reduce or eliminate cobalt, and in part to increase density for premium applications: The cathodes in cells that Korean battery giant LG Chem supplies to Tesla are 90% nickel, for instance.

Analysts were raising concerns before the war

High-nickel batteries offer significant advantages for electric vehicles. 

But even before the Russian invasion of Ukraine, nickel wasn’t cheap, and experts were raising concerns about a likely shortage as global automakers ramped up the production of EVs.

Analysts at Rystad Energy warned last fall that global demand for the high-grade nickel required for EV batteries is likely to outstrip supply by 2024, a message that has since been echoed by other commodity analysts, including Jonas’s counterparts at Morgan Stanley.

Given the relatively high cost of nickel and the concerns about supply that were being voiced before Russia invaded Ukraine, automakers have signalled that lithium-ion batteries with high-nickel cathodes are likely to be limited to premium applications. 

In those, the energy density is either required (as with heavy trucks) or a key selling point (as with luxury sedans).

How this price hike could play out

Assuming that nickel’s price increase is sustained, the quick and obvious takeaway is that electric-vehicle costs will go up — and more so for higher-end EVs.

Automakers who haven’t locked in a supply of nickel at pre-invasion prices will have a hard choice. They can choose to absorb the cost increase, reducing their profit margins, or they can try to pass it on to consumers. Most will likely do some of both.

Not all EVs will be affected. There is an alternative type of battery that’s already in use for lower-cost EVs, although it comes with tradeoffs. 

Lithium iron phosphate or LFP, batteries use iron phosphate in their cathodes, no nickel or cobalt is required.

LFP cells cost less than lithium-ion cells, but they also have a lower energy density, which means that LFP battery packs are heavier per mile of range than their lithium-ion counterparts. 

That weight has made LFP batteries less than ideal for higher-end vehicles, as added weight limits performance and can hinder a vehicle’s handling. That’s less of a concern with price-constrained mass-market models. 

Chinese automakers, under government pressure to encourage EV adoption, have used LFP batteries in their lower-cost electric vehicles for several years.

LFP technology received a visibility boost in the U.S. when Tesla began using LFP batteries in its entry-level “standard range” models last fall. At the time, the move to LFP was seen as a way for Tesla to lower the cost of producing those models — or put another way, to increase the profitability of those entry-level vehicles without increasing prices.