Elon Musk says drill for oil, but he should worry more about skyrocketing nickel prices
Elon Musk recently called on the world to drill for more oil as prices continue to rise amid projected shortages due to the situation between Russia and Ukraine.
This is coming from someone who is trying to get the world out of oil. But on top of that, he and Tesla should worry more about nickel prices, which are skyrocketing right now.
Nickel is an important resource when it comes to transitioning the world to electric transport and clean energy.
Batteries with high energy density, which are required for long-distance electric vehicles, all use a significant amount of nickel at the cathode of the battery cell.
In terms of volume and cost, it is an important part of an electric vehicle’s battery pack, which in turn is the most expensive part of an EV.
Of course, nickel is also used for applications other than batteries for electric vehicles.
Indeed, only about 5% of the world’s nickel supply is currently used for the batteries that go into electric vehicles, but that number is growing rapidly.
Despite conservative projections of electric vehicle adoption, it is expected that EV nickel demand will increase from 5% to 59% of total nickel supply within this decade.
This means that if there is no big jump in production soon, there is going to be a huge shortage in the supply of nickel.
In 2020, Tesla CEO Elon Musk urged nickel miners to increase production because he saw the problem coming, but neither he nor most people saw the conflict in Ukraine coming, and it is driving up the price of many commodities. .
The most obvious one is oil. Russia is a major producer of oil and gas, and several countries and petroleum companies are implementing and/or discussing sanctions on Russian oil, which has sent the price of the barrel to a record high not seen in 14 years. because the supply is expected to be limited.
This prompted Musk last week to call on the world to drill for more oil and gas:
This angered many of his followers, who saw it as a clean energy call despite Musk explaining that his remarks come from concerns that civilization is currently powered mostly by oil and gas.
The counterargument is that the situation is actually focusing on alternatives to oil and gas and could accelerate the transition to clean energy, which is the sole mission of Musk’s company Tesla.
And now Musk can shift his concern to another resource affected by Russia’s invasion of Ukraine, nickel, which he has been concerned about in the past.
Russia is the world’s third-largest producer of nickel, and fears of limiting its imports in an already difficult nickel market sent prices through the roof:
Prior to the Russian invasion of Ukraine, the price of nickel per ton has more than doubled over the past year, but has risen more than 80% in the past month, with a significant jump yesterday.
The massive surge is believed to have been caused by short-sellers trying to cover their short nickel positions, out of fear that Russia’s supplies would be cut off from the rest of the world.
Morgan Stanley believes the new price alone could add an average of $1,000 to electric cars like Tesla.
Tesla has taken steps to encourage new nickel production, such as an off-take agreement with Talon Metal for an upcoming new nickel mine in the US.
These off-take agreements help junior mining companies raise funds to put those new mines into production, which is a capital intensive process.
Many more of those deals and new mines need to happen to support demand from the electric transition, regardless of the situation with Russian nickel.
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