KUALA LUMPUR: The ongoing surge in nickel and energy prices will translate into higher costs for electric vehicle (EV) battery manufacturers and EV automakers due to the use of high-grade nickel in nickel-rich battery chemistries, Fitch Solutions said.

The firm said as nickel price remained elevated for the remainder of the year, manufacturers would likely be forced to pass these costs onto EV consumers.

This will mean that EV prices will increase, or that automakers will need to absorb the cost increase, reducing profits.

"This presents a downside risk to our global EV sales forecast for 2022, which we currently expect to reach 7.7 million units, as we expect that this price increase will reduce EV affordability for some consumers.

"This adds to the price increases that EV manufacturers have had to make due to the residual supply chain disruptions caused by Covid-19 that has restricted the supply of metals and manufactured goods to automakers," Fitch Solutions said in a report last week.

For instance, it said, on March 10, Tesla announced that it would increase the price of its Model Y and Model 3 long range models (both of which use high nickel content batteries) in the US by US$1,000 in response to continued supply chain constraints.

"We expect to see further announcements of price increases, particularly from automakers with highly ambitious EV production targets for 2022-2027 such as GM and Ford," it added.

Fitch Solutions said the breadth of sanctions enacted against Russia due to the invasion of Ukraine had prompted concern that the country's nickel supply would decline as exporters struggle to access dollars and euros to finance their operations, thus limiting their supply of materials to the global market.

Russia is the third-largest supplier of nickel used in lithium-ion batteries (LiBs) globally.

"Supply concerns will also impact battery manufacturers with contracts with Russia-based mining firms. Indeed, German battery manufacturer BASF signed a five-year deal with Russian mining group Norilsk in 2019 to supply nickel for the production of raw cathode materials. Production is supposed to begin in 2022.

"However, the ongoing uncertainty around the export of Russian-sourced mining products means that it is unclear whether production will be impacted. This represents a similar conundrum for other battery manufacturers sourcing metals from Russia," it said.