Nickel surges 250%: Here’s how it will hurt the EV market

The price of nickel zoomed 250% over the past two sessions to surpass the $100,000-per-tonne mark on Tuesday, hitting a record all-time high amid concerns about Russian production as the U.S. and other western countries imposed sanctions on Moscow. Due to the rally in the metal price, the London Metal Exchange suspended nickel trading on Tuesday morning after three-month contract prices jumped 111% to $101,365 a tonne briefly during the session.

“The LME, in close discussion with the Special Committee, has been monitoring the LME market and the effect of the evolving situation in Russia and Ukraine. It is evident that this has affected the nickel market in particular, and given price moves in Asian hours this morning, the LME has taken this decision on orderly market grounds,” the world's largest metal exchange said in a release on Tuesday.

The unprecedented rise in the price of nickel, used in stainless steel and electric-vehicle batteries, was driven by a flurry of harsh sanctions on Russia, the world’s third-biggest producer of the metal, following its invasion of Ukraine. There is fear in the market that sanctions on Russia, which accounts about 6% of global supply, would impact the production of Nickel and restrict shipment of the metal, which is already battling supply constraints.

Nickel is one of the key ingredients in the lithium-ion batteries used in electric vehicles (EVs), while it is widely used in the stainless steel sector. Around 70% of the world's nickel production goes to the stainless steel industry, while batteries account for just 5%. Although EVs currently consume a relatively small proportion of global nickel production, its usage is expected to grow significantly in the near future with rising demand for nickel-containing Li-ion batteries for the next generation of e-cars.

The record surge in nickel price raises serious concerns about the ambitious EV plan put forth by global players such as Tesla, General Motors and Ford Motors. The spike in prices will have a massive impact on electric car makers as nickel is an important ingredient for battery-powered cars. The nickel-containing car batteries provide higher energy density and storage at lower cost.

According to Morgan Stanley, the spike in nickel price could alone lead to an average $1,000 increase in the input cost of electric cars, such as Tesla.

Electric car sales in 2021 have more than doubled year-on-year to 6.6 million, representing close to 9% of the global car market. However, in large developing economies such as Brazil, India and Indonesia, the share is still below 1% without any significant increase over the past year, according to International Energy Agency (IEA).

The Indian electric vehicle market has been projected to grow at a compounded annual growth rate (CAGR) of 90% in this decade to touch $150 billion by 2030, according to a report by consulting firm RBSA Advisors. The government of India has undertaken various initiatives to promote the manufacturing and adoption of electric vehicles in India as part of green energy program.