Will skyrocketing oil prices give wings to EV adoption?

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 Will skyrocketing oil prices give wings to EV adoption?
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Highlights

  • Nickel prices recently hit a record high of US$100,000 per tonne on the London Metal Exchange.
  • Rising oil prices, although significant, are not the only factor consumers consider before ditching their fuel-run cars.
  • The massive rally in nickel has become a hinderance for EV battery manufacturers

The vortex of Russia-Ukraine war has embroiled almost all the nations of the world, especially oil importing countries, at least economically. Russia’s invasion of Ukraine has left it isolated from many countries, leading to an unprecedented hit to its trade relations, especially related to energy resources. Countries such as the UK and US have even gone on to ban the import of Russian oil, which has baffled energy markets, leading oil prices to hover near 14-year high of US$140 per barrel.

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At one end, where red-hot oil prices are taking a huge toll on consumers’ pockets, some analysts believe it could be a catalyst for the electric vehicle (EV) space.

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Will skyrocketing oil prices give wings to EV adoption?

So, is EV space ready to take off amid these sky-high oil prices?

Well, the answer is not that simple. Although it can be clearly stated that if driving petrol/diesel-based vehicles becomes more and more expensive, the consumer demand would probably tilt towards EVs.

However, when oil prices are in a bull run, it acts as an incentive for oil companies to produce more oil, in an attempt to capitalise on the ongoing rally. Following the basic law of demand, this increased supply soon starts to exceed the demand, leading to an eventual cooling down of the prices. 

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Another party spoiler is the nickel price rally. A few days back, nickel prices hit a record high of US$100,000 per tonne on the London Metal Exchange (LME). Russia not only fulfills around 11% of the global oil demand but also 10% of the global nickel demand. Hence, boycotting Russia has sent investors into a tizzy, regarding the vacuum that is now created on the supply side.

Coming back to EVs, nickel is a vital component in the manufacture of lithium-ion batteries, which power electric vehicles. The charging of batteries takes place via flow of lithium ions that are present between the graphite-containing anode and the cathode, and these cathodes contain nickel.

The massive rally in nickel has become a hinderance for EV battery manufacturers. The cost of nickel would further be passed on to the end consumer, making EVs more expensive. Not to forget the cost-push inflation, led by oil price rally, would likely make every EV component more expensive, making it less affordable for motorists to switch from the existing fossil fuel-run vehicles to EVs.

Bottom Line

Rising oil prices are one of the major deciding factors for consumers to switch to EVs. However, the adoption of EVs also requires a proper infrastructure such as the availability of charging stations, etc. The upfront cost of owning and running an EV also matters to a buyer; therefore, assuming that consumers would shift towards the EV space solely on the basis of high oil prices seems to be a bit far stretched notion.

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