The impact of the natural resource crisis on your APAC fleet
If you think the chip shortage is a problem, you’re right. If you think it’s the biggest problem, you might be in for a surprise; raw materials and logistics are the next challenges.
EVs need batteries, and batteries need raw materials that are not widely available. When the supply chain breaks, it becomes more difficult and more expensive to produce them. Basic facts, but now also reality.
The world’s largest auto battery producer is China-based called CATL, short for Contemporary Amperex Technology. CATL has raised its prices twice since mid-2021, which could lead to a + $3000 price increase per BEV. Unsurprisingly, the OEMs are reflecting this additional cost into their MSRPs; BYD, XPeng, SAIC-GM-Wuling have already done so.
Ground Materials and supply chain dependence
About 20% of the high-purity nickel used for auto batteries is produced in Russia. This has led to an all-time high record of $55.000 per ton on the London Metal Exchange in the beginning of March 2022. Prices have stabilized slightly, but still sit around $30.000 per ton, which is double the average price noted in 2021. Lithium quotes at roughly $80.000 per ton, about 6 times the prices a year ago.
China supplies most of the rare-earth materials, in addition to almost all graphite for battery anode materials. This implies that the OEMs are in a tough place: limited availability of materials, challenging logistics and an increased dependence on China are all happening at the same time, with very few options to mitigate.
The transition to EVs (globally, 6.4 million EVs or 8% of cars produced) has started; one of the promises of electrification, besides its positive impact on environment, was to reduce dependence on oil/gas producing countries. This is now being replaced by an almost total dependence on China for battery (component) availability.
A first impact will be the pricing of battery powered vehicles. The demand has become extremely high, thus already widening the gap between demand and supply. In other words, even in a “normal” situation, prices would go up.
In addition, due to the invasion of Ukraine, logistics and availability of raw materials are at risk, with a direct impact on availability of electrified vehicles.
Finally, on a global level, the issues at hand will slow down the transition to a low carbon society. The delays will accumulate, rather than be solved in a big catch-up move, and put the targets of the Paris/Kyoto agreements at risk.
For the Fleet Manager
Unfortunately, it’s time to think of a Plan B and bring this information to leadership. Fleet Managers are already under massive pressure to realise electrification within tight deadlines, to overcome obstacles of limited charging infrastructure and to compensate for increasingly high TCOs…
A Plan B can be either slowing down EV implementation or accelerate mobility alternatives… one being the wrong message and the other being difficult to sell to employees, designing the right fleet management strategy will not become any easier in 2022.