The car industry’s multibillion-dollar bet on electric vehicles was built on a single premise: that batteries would carry on getting cheaper.
In 2019, Volkswagen executives even brandished charts predicting a steady decline in battery costs as they laid out their ambition to consign the combustion engine to history.
For years the industry was proved right: battery costs fell from $1,000 per KWH for the first models more than a decade ago to about $130 in 2021, paving the way to making them affordable for middle-income families.
But Russia’s invasion of Ukraine threatens to halt the slide.
Prices of nickel, lithium, and cobalt—key raw materials for battery manufacturing—were already rising because of global demand. But with Russia accounting for 11 percent of the world’s nickel, and supply chains already stretched, the war has sent the cost of such commodities skyrocketing.
The price of these three metals required in a 60KWh battery, enough for a large family sport utility vehicle, has risen from $1,395 a year ago to more than $7,400 in early March, according to battery group Farasis Energy.
Battery companies, carmakers, and suppliers are now grappling with the prospect that electric cars may be less profitable, or require cheaper materials, if they are to remain financially competitive.
“At the moment the raw material prices are a burden for our target to reduce battery costs,” said Audi chief financial officer Jürgen Rittersberger, whose brand has pledged to launch battery-only electric cars from 2026.
However, neither Rittersberger nor most of his fellow European car executives are yet raising the alarm about the impact of rising prices on the rollout of electric cars.
For a start, battery material prices are not rising in isolation—costs of aluminum, steel, and copper that are also used in engine-powered models have risen since the invasion, too.
“We have to bear in mind that we need specific materials for batteries… but we also need, for example, rhodium, palladium, and platinum for the [catalytic] converters in our [combustion engine] cars, so we have to expect that the cost in both cars will increase,” said Volkswagen’s chief financial officer, Arno Antlitz.
BMW sustainability boss Thomas Becker said the Munich-based carmaker was also not concerned. “We have long-term supply contracts with all battery cell suppliers. So I wouldn’t say that there was any imminent effect on the structure of supply,” he said.
“It would be premature to make any predictions about a longer lasting and structured impact on our supply chains at this point.”
In addition, the prospect of electric vehicle price rises comes as demand has surged for battery-powered cars, helped by the big increase in the cost of petrol.
More than 1.1 million battery-driven cars were sold in the first two months of the year, according to figures by Bernstein, an almost 90 percent rise on the same period last year.