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Ukraine invasion sets back Musk’s dream for cheaper EVs, for now

Ukraine invasion sets back Musk’s dream for cheaper EVs, for now

SAN FRANCISCO – Surging raw materials costs, made worse by Russia’s invasion of Ukraine, could set back the dream of Tesla Chief Executive Elon Musk and other auto executives to roll out more affordable electric vehicles.

Rising prices of nickel, lithium and other materials threaten to slow and even temporarily reverse the long-term trend of falling costs of batteries, the most expensive part of EVs, hampering the broader adoption of the technology, said Gregory Miller, an analyst at industry forecaster Benchmark Mineral Intelligence. And that is on top of a supply chain already snarled by the pandemic and the global chip shortage. Also Read – Fuel price hike likely this week.

“Rising raw material prices certainly have the potential to delay the timeline on cost parity between EV and ICE vehicles, which could hamper the wider adoption of EVs,” Miller said, referring to internal-combustion engine vehicles that dominate the market.

This year could mark the first year-over-year increase in the average price of lithium-ion battery cells, he said.

The conflict in Ukraine has only raised the stakes, pushing nickel prices to an 11-year-high on fears that exports from leading producer Russia could be disrupted. Lithium prices also have increased, more than doubling since year end, as supply fell short of rising demand.

Russia produces about 7 per cent of the world’s mined nickel. It is also a large provider of aluminum and palladium. Rising EV prices – marked by hikes over the past year by Tesla and startup Rivian Automotive – matter because mainstream consumers are not going to pay a massive premium for a technology that many do not yet fully embrace, Reuters reported.

The average EV sold for almost $63,000 in January in the United States, about 35 per cent higher than the overall industry average for all vehicles of just over $46,000, according to research firm Cox Automotive. While consumers worry less now about being stranded without power on the roadside, price remains a major concern, according to a Cox survey.

“Anything that adds to the cost will impede EV adoption,” Cox analyst Michelle Krebs said. EVs made up about 9 per cent of total global vehicle sales last year according to the International Energy Agency, and consulting firm AlixPartners expects that share to hit about 24 per cent by 2030.

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More than half of consumers are not prepared to pay $500 extra upfront to buy an EV, despite lower operating costs, according to a 2021 study by OC&C Global Speedometer on consumers in the United States, China and other countries. That could put vehicle makers in a bind if they want to attract mainstream buyers, rather than luxury customers to whom they currently cater.

Tesla raised the price for its least expensive Model 3 sedan by 18 per cent to $44,990 since December 2020, as supply chain woes weigh.

IN FILE PHOTO: Tesla Motors CEO Elon Musk speaks next to the company’s newest Model S during the Model S Beta Event held at the Tesla factory in Fremont, California October 1, 2011. REUTERS/Stephen Lam