In 2021, total electric vehicle (EV) sales doubled to 6.2 million units, with the global market entering the first stages of exponential growth^[1]. While this might represent a big step towards government net-zero targets, it has several other notable consequences for the commodities markets and cost inflation.

Electric cars need much more metal than their internal-combustion equivalents. One electric Renault Zoe contains 7kg of lithium, 11kg of cobalt, 11kg of manganese and 34kg of nickel. Prices of these metals are soaring as car makers engage in a worldwide race to secure supplies. China, which dominates the lithium market, averaging 60% of global sales in 2021, has seen prices of lithium rising by 400%.^[2]

Batteries account for about 30% of the manufactured cost of an electric vehicle (EV). The shift towards EVs has largely been powered by a long-term decline in the cost of these batteries. In 2010, lithium-ion battery packs cost more than $1,200 per kilowatt hour (kWh), but that had fallen to just $132 per kWh by last year. 

Now we’re seeing that trend reverse. Battery manufacturers have increased prices by 10-20% just this year. To combat this, Tesla has raised recommended retail prices in China and the US twice in one week.^[3]

China’s dominance in the EV market means it’s spent the past decade securing supplies from across the globe including Argentina, Australia, Canada, Chile, and Mexico. Retail pricing may rise by even greater amounts in markets outside China, where battery supply is not yet as efficient.

EV cost inflation is definitely worth watching, but we don’t think higher prices will throttle the global sales momentum just yet.

What is not known is whether the rest of the EV value chain can keep up. We have some doubts as to whether the supply of metals and minerals can keep up with the requirements of an accelerated energy transition. Let’s hope that electric vehicles are not careering towards a pothole!

If you’d like more information on the topics discussed here or have any further questions related to your portfolio, your Investment Manager would be happy to help.
 

[1] Bloomberg
[2] Reuters
[3] Bloomberg New Energy Finance (BNEF)

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