Russia-Ukraine crisis: How will it impact the EV revolution?

We look at the aftermath on Electric Vehicle supply chains

The dust kicks off from the asphalt as the engine roars to life and the wheels screech off the pavement. While much of this is still true today, we have gone from internal combustion engines to electric vehicles that are quieter and cleaner. However, the silent hum of the Electric Vehicles (EV) revolution may find itself on a steep incline. Much of this has to do with the Russia-Ukraine crisis and its eventual aftermath: Since the current geopolitical turmoil in Ukraine — a country with a large deposit of the critical battery material lithium – lithium battery costs may skyrocket. It’s not just EV components but ancillary industries that depend on key materials from Russia and Ukraine shall find themselves looking out for alternatives in a mad scramble.

Does that mean that one should hold off on their EV purchases for the time being? How are supply chains likely to be impacted and are there contingencies in place?

An immediate impact of the Russia-Ukraine crisis is that the price of Nickel, a key constituent in lithium-ion batteries  has been at its highest in 11 years. Based on insights from spglobal, let’s take a closer look at how the production and supply of lithium-ion batteries is likely to be impacted.

Immediate aftermath

Since Russia’s invasion of Ukraine, Nickel prices have jumped up as Russia is a top nickel producer globally. The crisis is expected to drive up electric vehicle battery costs that have already been facing the brunt of soaring raw material expenses. In February 2022, the London Metal Exchange three-month nickel price increased to an 11 year high of $25,575, as depicted in the chart above.  Russia is a major manufacturer of primary nickel products, such as the refined nickel used in electric vehicle batteries. Stocks of the metal on the London Metal Exchange (LME) have already reduced due to expectations of increased trade restrictions by Western nations.

While states have slapped a slew of restrictions on Russian financial organizations and people in the aftermath of the country’s foray into Ukraine, commodities exports from Russia have been mostly unaffected. The prospect of penalties is heating up metal markets, particularly in nickel, where Russia is a major producer. If sanctions are applied, China, which has remained silent on the invasion, might become one of the few purchasers of Russian metals, providing its electric vehicle manufacturers a significant advantage.

On the other hand, according to a New York Times report, experts believe Ukraine’s eastern area possesses close to 500,000 tonnes of lithium oxide, a key ingredient in the creation of electric car batteries. If the early evaluation is correct, Ukraine’s lithium deposits would be among the world’s greatest, according to the report.

If the lithium shortage develops, EV manufacturers would find it impossible to carry out their plans for EV manufacturing. Furthermore, the industry will have to contend with growing battery costs, and if they pass these costs on to customers, EV adoption will expand at a slower rate than originally anticipated.

A bleak outlook

While Western corporations are keeping an eye out for sanctions, none have been imposed on Russian metals thus far, and companies claim to be delivering. PJSC MMC Norilsk Nickel, the world’s largest primary nickel production that is based in Russia, is operating “as normal.” According to Panjiva statistics, Norilsk Nickel produced 62,736 tonnes of primary nickel in the fourth quarter of 2021, more than any other firm.

BASF SE, a German battery manufacturer, negotiated a long-term supply arrangement for nickel and cobalt with Norilsk Nickel in 2018. In the same year, BASF announced intentions to build a battery facility near Norilsk Nickel’s Harjavalta refinery in Finland. At the time of writing, there has been no impact on the supply of metals from Russia.

The outbreak of coronavirus and the economic crisis have already slowed the steady growth in demand, making the future of EV sales questionable. Furthermore, the Russia-Ukraine issue is putting further strain on the car industry’s supply networks.

Ukraine was trying to position itself as a significant actor in the clean energy transition, moving away from coal, iron, titanium, and other legacy sectors and towards new generation renewable energy resources, when Russia invaded.

According to the International Lithium Association and The International Energy Agency (IEA), lithium demand might increase by more than 40 times by 2030 as a result of the boom in electric vehicles (EVs). According to Reuters, lithium consumption was over 320,000 tonnes last year and is predicted to reach 1 million tonnes by 2025 and 3 million tonnes by 2030.

-By Lionel Alva

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of ET Edge Insights, its management, or its members

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