Russia’s invasion of Ukraine is wreaking havoc on global supply chains, impacting everything from lithium production to semiconductor manufacturing. Not only will these effects increase inflationary pressure, but they will also hinder development in many areas.
One of the likely industries to suffer from supply chain disruptions is the automobile industry. But maybe not in the ways you may think. The auto industry is likely to lag in its ongoing transition to electric vehicles (EVs) due to the conflict in Ukraine. Here’s why.
Automotive Industry and the Transition to EV
Transportation was responsible for about 27% of energy-related greenhouse gas emissions in the US in 2020. In response, the auto industry and governments have accelerated the transition to EVs.
Governments are doing their best to make EVs more competitive through various incentives. For example, the Chinese government offered subsidies that averaged $10,000 per vehicle in 2016 to encourage consumers to go electric.
However, price parity is likely the biggest hurdle consumers have in opting for EVs. Companies face long development cycles, technological challenges, and long lead times in producing EVs. These costs make the industry extremely sensitive to price increases in parts, labor, and other production inputs.
Unfortunately, the ongoing conflict in Ukraine threatens to negatively impact these areas.
The Impact of the War in Ukraine on the EV Industry
In the battle to achieve price parity with internal combustion vehicles (ICV), EV manufacturers’ worst nightmare is a major conflict in their supply chains. Making matters worse is that Russia and Ukraine are extremely important in EV production.
Problems in supply chains can result from time delays, congestion in transportation routes, labor shortages, or time-consuming customs procedures. The Ukraine conflict will likely exacerbate supply chain disruptions. Solutions are needed.
Ukraine and Russia supply many components and important metals in EV production. The ramifications of increased cost and uncertain supply of these inputs threaten the EV industry.
Long Term Implications of EV Materials Suppliers
EV supply chains are extensive, relying on the supply of key materials ranging from lithium to nickel to graphite. A single disruption throughout the production process grinds output to a halt.
Consider a single element in EV production, nickel. It is a critical element in many types of lithium-ion batteries. No batteries mean no electric vehicles. Russia supplied 7% of total nickel production and 15% class 1 nickel production in 2021. Other key EV inputs supplied by Russia include:
- 4% of global copper production
- 6% of global aluminum production
- 35% of global palladium production
- 10% of global platinum production
The supply of these critical inputs is under threat. Sanctions and self-restrictions of many buyers are causing disruptions to these metal exports. This has contributed to the prices of nickel, aluminum, zinc, and copper nearing or reaching all-time highs.
This is terrible news, considering raw materials make up to 80% of the cost of EV batteries, the most expensive EV component.
Russia’s invasion of Ukraine is likely to increase inflationary pressure worldwide. The surge in commodity prices, increased freight costs, worker shortages in critical logistics areas, and Covid-19 uncertainty will likely continue this trend moving forward.
One of the likely casualties in this environment is the transition from ICE to EV in use. Given the importance of price sensitivity, it may take more time before EVs become more widespread.