Should Tesla investors keep an eye on EV battery prices?

As the cost of important minerals for electric vehicle battery production increases, some Tesla investors are wondering if they should be worried. Some think that an upcoming supply crunch could make EV batteries skyrocket, and maybe even cause buyers to switch back to internal combustion engine vehicles instead. 

Commodity prices for raw materials such as nickel and cobalt are on the rise, but ballooning EV battery prices shouldn’t make Tesla investors worried, according to an op-ed from Keithen Drury at The Motley Fool. Despite the increase in prices, demand for EVs remains strong, and the cost of production of batteries for EVs has dropped over the past decade.

Currently, cobalt and nickel supplies are fettered by a lack of supply, amidst ever-increasing demand for EVs. While around 70 percent of cobalt came from the concerning Democratic Republic of Congo in 2019, human rights abuses in the region have made working with the country on cobalt supply less than ideal. Nickel production has stagnated, with the world’s nickel production having peaked in 2013 at 2.6 million tonnes.

Pricing for both cobalt and nickel are likely to continue rising, unless new companies enter the mining space. Tesla has talked about mining its own lithium, and CEO Elon Musk said recently that the automaker could do so if prices don’t begin to improve.

Above: Analyst Philippe Houchois says Tesla investors should pay attention to EV battery supply chain trends (YouTube: CNBC International TV)

In the long-term, battery margins will likely stay in the same place unless the rise in commodity prices increases more quickly than production efficiency continues to increase. Although Tesla and other EV automakers have already begun raising prices to offset the commodity pricing of batteries.

The Tesla Model 3 has risen to a starting price of $48,190 from $37,190 in just one year, and until automakers can supply the market with enough EVs, the price increases aren’t likely to stop coming. As competition increases, the problem could continue to worsen.

Gas prices amidst the Russian invasion of Ukraine have increased demand even further, with many buyers looking to go electric to stave off high prices at the pump. This could play to Tesla’s benefit, but may further increase demand.

Still, commodity pricing for raw materials is likely to affect consumers the most, and investors can feel safe knowing that new battery technologies are on the way, and that Tesla’s high demand isn’t going anywhere — one good mark for Tesla investors in the years to come, at the very least.

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Source: The Motley Fool