Nickel Shortage Weighs on EV Industry

Why Nickel Is So Important

Electric vehicle production has exploded in recent years as companies like Tesla (TSLA) have spurred traditional automakers to move away from combustion engines. The lithium ion batteries in EVs require a lot of nickel, however, which is highly coveted because of its energy density.

There is plenty of nickel available on earth, but it’s underground, and there aren’t enough mining facilities to meet the soaring demand. There’s also lower-grade nickel available closer to the surface, but EVs need the high-grade variety.

The Ukraine-Russia Factor

The price of nickel has been climbing for two years now in connection to the increased popularity of EVs. The trend became even more dramatic recently in response to Russia’s invasion of Ukraine. That’s because Russia produces a large amount of the high-grade nickel needed not only for EV batteries, but also for things like toasters and electric ovens.

Prices surged so rapidly amid the armed conflict the London Metal Exchange suspended the trade of nickel for a week. The US doesn’t account for much in terms of nickel production. The Eagle Mine in Michigan is the only major source of domestic production, and it’s on track to close in 2025.

Minnesota Mine? There Are Environmental Concerns

Although the US does not produce much nickel, Talon Metals (TLOFF) and mining giant Rio Tinto (RTNTF) have identified the Tamarack Mine in Minnesota as a possible production hub. It hasn’t passed the permitting process yet, but if it does Tesla has signed on to a supply deal.

There are concerns associated with the project, and the potential for nickel to turn drinking water toxic, for example. Meanwhile, proponents say a large mine is a better alternative to the energy-intensive process that can turn lower-grade nickel into usable material.

It’s a tricky tradeoff: do the risks associated with a new mine outweigh the benefits that come with cleaner air from electric vehicles? Investors are closely following this debate at the local level and also assessing what geopolitical tensions could mean for global nickel supply. The ramifications will have real world impacts on the companies making the push to produce more EVs.

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