How global raw materials' costs are affecting EV prices

The surging costs of raw materials for battery cells prompted a half-joking plea from Tesla CEO Elon Musk for investors to get into lithium mining and refining. “Do you like minting money? Well, the lithium business is for you,” he said on the company’s Q1 earnings call in April. “Lithium margins right now are practically software margins,” he went on, claiming purchase prices were 10 times those of extraction prices.

The rising cost of raw materials needed for batteries such as lithium and nickel has prompted cell suppliers to push up prices to car makers, which are then passing on costs to buyers.

The price of nickel hit the headlines in early March when prices quoted on the London Metal Exchange (LME) surged to over $100,000 a ton on fears over Russian supply and the consequences of the war in Ukraine, but have since dropped back to around $33,000.

Since January 2020, lithium prices have increased by over 700%, nickel by 250%, cobalt and manganese by 100%, and graphite by over 25%, according to industry research company Benchmark Mineral Intelligence.

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Lithium is the biggest concern among those in the industry. “Lithium supply is growing at less than half the pace of EV demand. It is THE bottleneck right now,” Simon Moores, CEO of Benchmark Mineral Intelligence, wrote on Twitter following Musk’s comment.

Demand for the raw materials is outstripping supply as governments in Europe, China and, to a lesser extent the U.S, both mandate and incentivise EV production.

The cost of raw materials that go into a lithium ion battery, particularly the cathode side, now account for around 80% of the price of a cell, up from 40% in 2015. The billions that have flowed into gigafactories to make the cells haven't been matched upstream.

“Critical mineral mines and mid-stream processing plants have not seen anywhere like this type of investment,” Moores said. This is causing car makers such as Tesla to look into investing in mining, or pinning down agreements with miners and refineries. “The situation is similar to that in 2018 when they were forced to get involved in battery cell making,” Moores said. Car makers have worked to push down the cost of battery cells and packs but that’s reversing as costs soar.