Sales of electric vehicles (EVs) are booming. First-quarter results are in, and they rock. Despite supply chain issues and higher upfront costs, the auto industry reports strong performances in EVs, with Ford announcing a growth rate of 139%, Volkswagen of 65%, and Tesla TSLA +1.7% — an increase of 81%.
The recent strong performance of EV sales is believed to be due to consumers’ concerns over high oil prices and tax incentives. Rising inflation after pandemic recovery alongside the Russian invasion of Ukraine has resulted in global oil prices skyrocketing, with the average cost per gallon in the US at $4.25 compared to $2.92 a year ago. While high costs at the pump have led American consumers to consider buying electric cars, tax credits, including the federal tax credit of $7,500, have also encouraged consumers to make the switch.
Although the future is looking bright for EV sales, there are concerning shortages of vital materials which may limit automakers’ ability to meet demands while keeping prices down.
A combination of factors contributes to the shortages, including sanctions against Russian metals, China’s COVID lockdowns, embargos against Xinjiang sourced minerals, and the backlog in approving new mining projects in the US. The most severe shortage is lithium, the key ingredient needed for batteries. The price of lithium battery cells has already increased from $105 to $160 per kilowatt-hour compared to last year, and if supply shortages are not addressed, prices will continue to rise.
The warnings about the need for more lithium batteries are nothing new. Elon Musk warned about it in November 2021. Later in April, he joked on Twitter that Tesla might have to join the mining business to meet demands. But it is not just Tesla, Volkswagen has already sold all of its EV inventory in the US because it does not have enough batteries to produce more cars.
Currently, China controls the lithium battery market, with the nation refining 80% of the world’s raw materials, holding 77% of all cell capacity, and manufacturing 60% of global battery components. Government-imposed lockdowns have been devastating to global production. Since these batteries are used in electric vehicles and a range of defense technologies used by the US, these slowdowns not only threaten American industry, but national security too.