Everything you need to know: EV prices set to explode

Is buying an electric vehicle a good idea?

With the current political situation and the rising prices of gas (petrol), diesel, and even vegetable oil and flour in some countries, switching to an EV seems like the ultimate way to keep some of your hard-earned money in your wallet. Unfortunately, EV prices are going up and won’t be coming back down anytime soon. Should you be waiting for the big car companies to ramp up production to fulfil the current demand then I suggest you don’t hold your breath. Lithium prices are exploding, and it can’t be extracted fast enough to meet the current demand, let alone the demand that will be put on it in the near future.

Raw Materials

As of this writing the price critical components needed for the production of batteries has skyrocketed. For 1 ton of lithium has spiked to well over $70,000.00 while nickel has shot up to $100.000,00 per Ton. This means that if you believe the economists (that predicted 9 out of the past 5 recessions) who have clearly stated that the current prices are warning signs for things still to come to the market including the supply chain.

The biggest problem is that the entire industry is based on mining. This means that it is impossible to just “ramp up” the production to meet the demand. It involves red tape, paperwork, and a lot of items that have to be controlled and checked. The demand for this year is predicted to increase by 14% which at first doesn’t seem like much, but if you look at the global market that means that at that rate within ten years there will be a sixfold increase in demand.

Right now, this supply chain is barely keeping up with the current demand. This means that anyone out there digging for lithium or nickel would do nothing else other than to dig for more lithium and nickel since it would make all the shareholders happy. But can they do it?

Forecasts say that by 2030 50% of all light vehicles on the road will be electric. This would mean that lithium consumption would be more than anything than is currently planned to be mined. Did you catch that? The amount of lithium that will be consumed by 2030 for the sole purpose of building electric vehicles exceeds all the plans that the companies mining it have planned. In other words: the industry has not even yet BEGUN to plan for mining that amount of lithium. No permits are being worked on. No places to mine have been looked for. No mining equipment has been order. Nothing. We are less than 8 years away from 2030 and within that time frame a massive industry is going to ramp up production and produce thousands of tons of extra lithium and nickel? To put it all into perspective all you have to do is look at the car industry, or Boeing. During the covid pandemic the car industry went into a deep sleep, and Boeing had to get its 737 Max fixed. Both are still fighting with problems as of this writing. The car industry is suffering from a chip shortage which is halting the production of new cars and Boeing is still working on getting all of the 737 Max aircraft fixed. To solve the chip shortage Intel has said it will be building factories to produce more chips, but these won’t be ready for another 10 years.

Adding to the problem is the fact that not only electric vehicles require lithium-ion batteries. Look at all the devices just in your life that use them. All the cell phones. All the laptops. All the gadgets such as drones etc. Lithium production therefore is predicted to fall 50% short of what is needed to continue supplying everyone and supplying all the new projects expected to come by 2030.

Economics 101

With all the experts in the industry expecting lithium demand to skyrocket, yet the supply only slowly increasing you don’t have to be an economics professor to see what will be happening. Seeing as the battery is the most expensive part of an EV, the price for an electric vehicle can only go one way: to the moon!

The 30.000€ electric vehicle for the masses which would make the most economic sense for doing things such as shopping, taking the kids to school, going to work, and short runs to other various places remains a pipedream since the fundamental components remain expensive thanks to supply and demand. As a luxury vehicle however, it seems absolutely doable. A current dinosaur juice burning Porsche costs only a fraction to make of what the new owner pays at the dealership. The same goes for all other exotic and super luxury cars such as Rolls Royce, Bentley, Lamborghini etc.

Despite super high prices for lithium and other commodities, they are still being supported by super strong demand for EVs.

Electric vehicles remains a luxury item purchased by affluent early adopters, with the growth profile of the sector at the moment largely unconstrained by price.

That is providing a logic where lithium raw materials like spodumene can fetch as much as eight times their production cost at tender, as seen in the last Pilbara Minerals (ASX:PLS) Battery Materials Exchange auction.

But that is a concern for battery makers, who say that even as technology and scale brings down the production cost of lithium ion batteries, raw material prices are posing a challenge.

“Metal prices are now too high,” says Ryuta Tawaguchi, CTO of Japanese battery maker FREYR Battery.

He thinks that could place limitations on EV penetration in the mainstream passenger car market, something which could put the brakes on the energy transition.

“If these prices continue, it’s impossible to sell enough number of EVs because the EV is too expensive to penetrate. Maybe high end for luxury brand is okay, but not for mass volume EVs.

“So I can say EV is now US$10,000 more expensive than ICE. What is in our plan is next five years the battery cost is 50% reduced, but actually 50% more in current metal price.

“Someone needs to pay a lot, maybe the end user.”

Citing issues Tesla battery supplier Panasonic had hitting full production yields, Tawaguchi said it could take new battery cell makers longer than expected to become commercial.

He said more investment will be needed in both raw materials and technology to support demand for EVs.

Changing raw material strategies

But demand for lithium and other raw materials like graphite, nickel and cobalt continues to grow as battery makers ramp up in scale.

The strategy head of South Korean battery cell maker SK On Donghoe Gu said the company had previously focused its lithium procurement on long term contracts with major players, but may have to change track and lower its eyes to junior miners as it increases its production capacity.

“We are not a miner, we are not a processing player. So our optimal capital allocation is to still keep focusing on investing in manufacturing plants globally,” he said.

“But we also allocate our capital to source critical minerals. Previously we are focusing on the major players but the market is not easy right now. So we want to talk (to) junior minor players to source and to support our future growth.”

So should you see an inexpensive EV, then now is the time to make a deal.