‘It’s all coming at the worst time:’ How sky-high nickel price could hamper EV efforts

The war in Ukraine has spurred a reckoning about the West’s reliance on Russian fossil fuels, but resources vital to electrification could face disruption as well. Namely, nickel—a metal most electric vehicle manufacturers rely on for their lithium-ion batteries.

About 20% of the world’s class 1 (or high-purity) nickel today comes from the Russian mining company Norilsk Nickel, also known as Nornickel. While commodities in Russia haven’t specifically been targeted by sanctions so far, nickel prices are skyrocketing to unprecedented levels amid uncertainty.

Since Russia’s invasion of Ukraine on Feb. 24, three-month nickel prices on the London Metal Exchange soared from less than $25,000 to more than $100,000 per ton for a brief period on Tuesday—a record high and the largest-ever spike on the LME, according to Bloomberg. While yesterday’s massive jump was driven mostly by a short squeeze, prices were already climbing before then due to anxiety over possibly losing Norilsk’s supply. The LME suspended trading in the nickel market as it opened in London on Tuesday.

“Prices will inevitably correct when LME trading returns, however I think we are now in for a sustained period of higher pricing which will drive up [battery] cell costs,” Greg Miller, an analyst at Benchmark Mineral Intelligence, told Emerging Tech Brew.

This price increase is adding to EV industry concerns about automakers’ lack of control over battery supply chains and the potential for more expensive raw materials to lead to higher battery costs, after steady declines over the last decade.

“A lot of the nickel that’s produced by Norilsk isn’t actually directly used in the battery supply chain,” Miller said.“But it certainly will increase competition for alternative sources at a time when the high-purity class 1 nickel market is already tight. If you haven’t got sufficient nickel units, you’re probably likely to struggle to source them on a spot basis.”

Stainless-steel producers currently buy about 70% of the available class 1 nickel, but with explosive growth in EV demand, some analysts say automakers and battery manufacturers could account for anywhere from one-third to one-half of class 1 nickel consumption by 2030.

Cathode concerns

Nickel-rich chemistries are popular among battery makers because the metal has historically provided higher energy density at a lower cost than alternative cathode materials. Some battery makers have actually been trying to increase the share of nickel in the battery chemistry in order to use less cobalt, which is typically more expensive and often mined under dangerous conditions.

“It’s all coming at the worst time,” Henry Sanderson, executive editor at Benchmark Mineral Intelligence, told us. “Battery makers—a lot of them—were moving to higher nickel battery chemistries, so this is going to hit that trend as well.”

NMC batteries—the dominant type of lithium-ion battery used in EVs today—have cathodes made up of nickel, manganese, and cobalt. NCA batteries, another common type, are made of nickel, cobalt, and aluminum. Nickel can make up as much as 80% of the cathode materials in both of these chemistries.

While companies with long-term nickel contracts in place may not feel immediate cost increases, Miller said, this uncertainty comes at a time when companies and governments in Europe and North America are making big investments in domestic EV production and battery supply chains.

“They’re all making decisions now for this decade and this is going to figure into these decisions,” Sanderson said. “Can you rely on Russia as a nickel supplier?”

German battery maker BASF, which is the leading chemical supplier to the auto industry and has a partnership with Porsche to provide materials for high-performing batteries, is already a Nornickel customer. In 2017, the two companies entered into a long-term agreement for BASF to purchase nickel and cobalt from Nornickel’s refinery in Harjavalta, Finland. BASF is currently building a battery-materials production facility nearby that is set to start operations later this year.

Nornickel has plans to increase production at  its refinery in Finland over the next few years, but the war in Ukraine could reshape its relationship with BASF, Sanderson said.

Daniela Rechenberger, corporate media relations for BASF, told us via email that “effective immediately, BASF will only conduct business in Russia to fulfill its existing commitments in line with applicable laws, regulations and international rules."

BASF is not currently experiencing any impact on supplies of metals from Russia, Rechenberger said.

“Should sanctions be imposed that specifically limit or ban the trade of metals of Russian origin, BASF would rely on alternative sources to cover its own needs,” Rechenberger said.

Nornickel could experience indirect impacts from sanctions on banks and shippers suspending operations in Russia following the invasion of Ukraine, Sanderson said.

Nornickel did not respond to requests for comment.

Looking ahead…

Much of the new nickel-mining capacity set to come online in the next few years is in Indonesia, but Chinese companies have already signed agreements for much of that new supply, Sanderson said.

“If you then put on top of that that any Russian nickel that was going to go into the battery supply chain is not available, then for European and American carmakers, it adds another layer of uncertainty,” he said.

This situation could also lead to more Russian nickel finding its way to the Chinese market, increasing Chinese influence over critical minerals in the battery supply chain, Miller said.

This surge in the cost of nickel also comes at a time when automakers are already facing historic highs in lithium prices as well as spikes in cobalt and aluminum prices. After more than a decade of steep declines in battery cell prices, the soaring cost of materials could mean battery cells become more expensive year over year for the first time.

Still, rising oil costs have drivers feeling the impact of the war at the gas pump as well, arguably bolstering the case for electrification and less dependence on fossil fuels from Russia.

“Is this going to accelerate a move towards electric vehicles and clean energy? Or, if you’ve got such a big inflationary impact, are consumers going to feel poorer, are they going to be less likely to spend on EVs? That’s the big question,” Sanderson said.