10: What the Russian Invasion of Ukraine might mean for our electric vehicle revolution
This week’s blog, continuing on the ‘impacts of the Russian invasion of Ukraine’ theme, will consider the potential effects of the invasion on our electric vehicle revolution.
Last week’s blog detailed some of the initial steps been taken and plans being discussed by the USA and European countries to reduce reliance on Russian coal, oil and gas following the invasion of Ukraine. It is now clear that Europe and the USA in particular will, in response, further speed up the expansion of renewable energy generation and storage infrastructure, such as wind farms, solar farms and battery storage, and also electric vehicles (EVs). But there will be other obstacles to overcome in reaching that green utopia; countries which import(ed) large amounts of Russian fuel will need to replace pipelines with transmission networks and batteries to move and store electricity, but that machinery is made using numerous scarce metals and materials, many of which are mined in large quantities in… Russia and Ukraine. The war has already caused major disruption to the supply of critical metals and other materials which could have a significant impact on clean energy deployment and EV production.
Elon Musk, CEO of Tesla, tweeted on Monday that Tesla and his rocket company, Space X, are experiencing ‘significant recent inflation pressure in raw materials and logistics’ following the invasion of Ukraine, and noted that commodity prices are at their highest levels since 2008, which is affecting all car makers. Tesla shares have dipped a bit since mid-February, but Elon is still worth ~$200 billion, so his young daughters, Exa Dark Sideræl and X AE A-XII, are unlikely to be going without food any time soon. Tesla recently raised the prices of its Model Y SUVs and Model 3 EV in the US by $1,000 each, and VW CEO, Herbert Diess, stated last week that the war has put VW’s ‘existing outlook into question’ and that it would consider expansion outside Europe if the war continues. Car prices (both conventional and EVs) have been increasing over the last couple of years because of a combination of: Covid impacting on demand, car makers then reducing production, Chinese factory shutdowns during the pandemic, higher energy prices and the global chip (semiconductor) shortage. The war is expected to result in further car price rises, mainly because of the reduction in supply of materials from Russia and Ukraine that are required for multiple vital car parts. So, here’s a brief look at some of the ‘car / EV manufacture’ materials that may be impacted by the ongoing conflict:
Aluminium – this lightweight metal is used throughout a car’s bodywork, and Russia is a key global producer, unfortunately. The Russian company Rusal (controlled by the now sanctioned Oleg Deripaska) is the world’s largest aluminum producer outside China, being responsible for ~6% of global aluminium production. Concerns about Russian aluminium supplies caused prices to reach record highs at the start of March, which is not good news for future car / EV prices. In addition to aluminium, Ukraine is also a key producer of uranium, titanium, iron ore, steel, copper, and vanadium, many of which are used for various manufacturing (including renewable energy generation kit) purposes.
Nickel, Lithium and Cobalt – All three metals are used in EV batteries, and batteries are one of the most expensive parts of EVs. Car makers were hoping that batteries would become cheaper to make EVs more affordable. However, since the invasion the price of nickel has surged to record highs, doubling in price to reach $100,000 per ton, partly because Russia mines produce ~10% of the world’s nickel. Further, the Donbas ‘breakaway region’ in the east of Ukraine possesses considerable lithium reserves; it is not currently a big producer but, prior to the invasion, was on the cusp massively ramping up production. That production has now stalled. There is a possibility that lithium iron phosphate batteries could reduce dependence on nickel, cobalt and aluminium (for NCA batteries!), but Russia is the 4th biggest producer of phosphate rock which is used to extract phosphate. In the future, the recycling of EV batteries should be a valuable alternative source of key battery materials, but large quantities won’t start being recycled for another 10+ years (lithium-ion batteries last ~8-10 years).
Palladium and platinum – these precious metals are not just used to make engagement rings; they are key components of catalytic converters, which reduce air pollutant concentrations of in the emissions of vehicles with internal combustion engines. Russian company Nornickel (controlled by the not-yet-sanctioned (at the time of writing!) Vladimir Potanin) is the largest global producer of palladium, responsible for ~40% of global palladium mine production. Further, 12% of the global platinum supplies come from Russia. Last week palladium hit a record high of nearly $3,000 per ounce this week. Looking to the future, both palladium and platinum are used to produce hydrogen fuel cells in cars and buses. Further, when we start injecting hydrogen into our gas networks to displace a proportion of the natural gas currently used to heat homes, we will need bucketloads of electrolysers to split water molecules to produce the hydrogen; and electrolysers are also made with…platinum and palladium!
Neodymium, Praseodymium, Dysprosium etc – These ‘rare earth metals’ (REMs) – there are 17 in total – can be used to make the very strong magnets of wind turbine generators, and are also used in solar panels and EV motors (as well as smartphones, digital cameras, computer hard disks, fluorescent and LED lights, computer monitors, flat-screen TVs) and so the global demand for them in the near future will soar. Although China mines the most REMs by far, Russia is in (a distant) second place with 2% of the global total, but their joint control of the majority of the world’s REMs is a not a great scenario for the rest of the world and the EV revolution. The immediate effect of the invasion on REM prices is likely to be minimal because of the relatively small Russian production levels, but Russia has large undeveloped reserves, and is investing billions to grow its REM mining capability.
Neon – I didn’t know this until I wrote this blog, but neon gas is used in the manufacture of semiconductors (ie the microchips that contain a load of tiny circuits to make electrical devices work and which are needed in big numbers in cars / EVs). Ukraine produces a massive 70% of the world’s neon supply, and its two leading neon suppliers, which produce ~50% of the world’s supply, have halted their operations since the Russian invasion. There’s a high chance that an extended shut down will result in big increases in the neon price (when Russia invaded Crimea in 2014 the price of neon increased 600%!), which will further exacerbate the current global semiconductor shortage, which will then impact on car / EV production levels and prices!
So, you can see that we don’t just rely on Russia for its old fashioned, dirty hydrocarbons, but we also rely on Russia (and Ukraine) for a wide spectrum of materials that the world needs to decarbonise our transport and energy sectors. With the invasion impacting on the supply and price of these materials it is now even more important that every inch of the globe is considered for extraction potential to ensure that the required explosion in EV and clean energy generation kit production is not held back. Otherwise, Elon Musk will need to spend his $200 billion on a range of Rare Moon Metals mining projects, with Space X rockets being used to transport large Rare Moon Metal-rich rocks rather than millionaires and billionaires!