Christina Amann, Nick Carey

LONDON, (Reuters) – Saving up for a better ride. It’s better to save more money.

Russia’s incursion in Ukraine has pushed up metal prices in automobiles, from aluminum in bodywork, palladium for catalytic converters, to high-grade nickel used in electric vehicle batteries. Drivers will likely foot the bill.

Although metals are not yet the subject of Western sanctions, shippers and suppliers of autoparts and other parts have already avoided Russian products, which puts more pressure on carmakers who already face a shortage of chips and high energy prices.

“So, what does this mean?” Last week, Carlos Tavares (chief executive at Stellantis), the fourth-largest automaker in the world, asked reporters: “So what happens from here?”

He said, “First of all, we see an increase in the cost of raw materials and energy which is going to place more pressure on our business model.”

On Monday, aluminium and palladium hit records, while nickel crossed the 100,000-per-tonne mark on Tuesday, making stainless steel for the first-ever time.

Andreas Weller (CEO of Aludyne), which produces aluminium die-cast parts and aluminium for carmakers, stated that his European business has experienced a 60% increase in aluminium prices over the last four months as well as rising energy costs.

Weller, who is the owner of Southfield’s Michigan-based company, stated that he was forced to make customers pay more for their annual sales, with $1.2billion in increases and “hundreds upon millions” of rising costs.

Weller said that while some are more cooperative and understanding than others but it is impossible to survive without those qualities. He has four foundries in Europe and one machining factory.

Tavares was the Stellantis chief executive and said that while a reduction in the supply of chips might help offset the higher prices for metals and other energy, it is unlikely there will be any solution to this year’s semiconductor problems.

‘WE QUIT’

The chip shortage is already costing consumers, as the result has been a drop in car inventories and an increase in prices. This happens even before the higher metals prices reach the forecourt.

LMC Consulting and J.D. The average price of a vehicle was $44,460 in February according to LMC and J.D. Power. This is an increase of 18.5% over the month 2021.

German carmakers, such as BMW (DE:), and Volkswagen (DE;) have been already affected by Russia’s invasion in Ukraine. This has caused wire harness manufacturers in the West to stop production. Wire harnesses are a critical set of parts that bundles 5km (3.1 mi) of cables inside an average vehicle. Ukraine is the key supplier.

Russia’s major metals suppliers are Germany companies. These companies accounted 44% of Germany’s nickel imports for 2020. They also supplied 41% of Germany’s titanium and 33% of Germany’s iron.

According to a report by Reuters, Russia was the fifth largest producer of iron ore in the world, producing 108 millions tonnes of steel last year. Credit Suisse (SIX :), European steelmakers are now faced with higher prices as well as possible difficulty procuring the metal. According to JPMorgan (NYSE):, both Sweden’s SSAB and Austria’s Voestalpine are at risk.

Voestalpine stated that it has enough stock for the next months but would need to source materials from other suppliers. SSAB has not responded to a request for comments about Russian supply.

The choice between buying Russian products and funding Russia’s invasion (which Moscow refers to as a “special military operation”) presented a dilemma for Germany Steel and Aluminium supplier Voss Edelstahlhandel. Voss Edelstahlhandel decided to make the decision.

According to Chief Executive Thorsten Studemund, aluminium does not belong on any sanctions lists. However, Russia uses it for money entering the country. Therefore we have quit,” Studemund stated.

Russia is the largest producer of aluminumm. This metal, which consumes the most energy, accounts for about 6% of all global production.

“BATTERY MINERAL WOES”

Studemund’s firm has had to contend with the high nickel prices.

Caspar R. Rawles is the chief data officer of specialist consulting Benchmark Mineral Intelligence. He stated that Russia produces about 5% of world nickel production but supplies approximately 20% of high-grade global nickel.

Metal is used in the manufacture of batteries for electric cars (EVs). This presents a new challenge to carmakers who have already invested billions to get rid of combustion engines at a time when demand is growing for zero emission models.

Russia’s highest-grade nickel may end up in China. China will not impose any sanctions on Russia. But this is all happening at a moment when automakers are faced with rising prices for other EV lithium minerals, as the demand exceeds supply.

Rawles stated that this is the biggest concern in the battery supply chain because of record-breaking lithium prices and high nickel and cobalt prices. Rawles stated, “This just adds to our battery mineral woes.”

Batteries are the most expensive component of EVs. Therefore, automakers have been hoping that batteries will decrease in price so they can sell more electric cars.

BMW stated that it is concentrating as much as possible in recycling nickel battery, with as high as 50% of the scrap nickel being used to make its BMW iX’s high-voltage batteries.

Palladium is another issue that car manufacturers are facing.

It’s used in the automotive industry as catalytic converters, either for gasoline or diesel models. These two models still represent the majority of automobile sales.

Since 2006, palladium prices are on the rise and Russia makes up about 40% of global markets.

Chris Blasi is chief executive at Neptune Global, a precious metals dealer. He stated that there are no alternatives to platinum and palladium for catalytic convertors.

His December purchase of palladium was $1,940 per an ounce. It hit an all-time high of $3,440 on Monday.

Blasi estimates that palladium in an average car has a value of about $200. But that number could easily rise to $2,000.

He stated that either consumers will be paying more or the automakers won’t have it passed on.