Salvan George/The Washington Post
Last night, Tesla raised the price of every model it sold. The move comes just a week after the company raised the price of its long-range batteries by $1,000. The new increase means the cheapest Tesla, the rear-wheel-drive Model 3, now costs $46,990 before taxes and fees, up $2,000.
CEO Elon Musk tweeted that the company “is seeing significant recent inflationary pressures in terms of raw materials and logistics.” Of course, prices have risen in several sectors of the economy, although economists argue over what drives them higher. For electric vehicles like Tesla, the main culprits today could be nickel and cobalt prices, which have skyrocketed in recent weeks, although Tesla also has a habit of raising prices in recent months.
Both nickel and cobalt are key elements in lithium-ion batteries commonly used in today’s electric vehicles. Nickel helps increase the cell’s energy density, while cobalt stabilizes the microscopic structure. Battery chemistries that use metals are often named according to the proportion of metals used. A common one is NMC, which stands for nickel, manganese, and cobalt, while Teslas often use NCA or nickel-cobalt-aluminum. Tesla does not disclose its NCA ratio, but other companies use NMC chemistry with ratios of 8-1-1, 6-2-2, or 5-3-2.
In normal times, NCA and NMC 811 cells help reduce costs by reducing the use of cobalt, an expensive mineral often associated with human rights violations. Tesla says it is investigating batteries with even higher nickel content that will reduce its reliance on cobalt, and if the nickel market returns to normal it could be a reasonable bet.
But these are not ordinary times. Nickel prices have risen over the past few weeks as sanctions were imposed on Russia following its unprovoked invasion of Ukraine. Russia mines about 9 percent of the world’s nickel and about 16 percent of high-grade nickel, and a potential loss of supply comes at a time of rising demand due to surges in electric vehicle orders.
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Last week, a short squeeze triggered by a bearish bet on a Chinese steel company sent nickel prices soaring, forcing the London Metal Exchange (LME) to pause trading for several days. These moves have disrupted the global market, with nickel now trading in Shanghai for just under $40,000 per metric ton. This is less than on the LME, but still about double what the nickel was worth at the beginning of the year.
Cobalt prices on the LME have also risen by about 20 percent this year to more than $80,000 per metric ton, nearly three times what they were a year and a half ago. While cobalt is not currently short, the market for the metal is highly concentrated. Most of the raw ore comes from the Democratic Republic of the Congo, and about two-thirds of the world’s cobalt production comes from China.
When nickel prices fall – and they are likely to fall, given that the LME’s sudden spike is the result of risky betting rather than a correspondingly large increase in demand – the automaker could also use nickel-rich batteries to increase its profit margins. There is a debate among economists about what drives inflation, and while some believe pandemic-related stimulus or labor issues are to blame, others point to the fact that corporate profits have risen significantly over the past couple of years. (As with many things, the reality may be somewhere in between.)
While Tesla hasn’t revealed its pricing strategy, the company has a habit of jacking up the prices of its sedans and crossovers as backlogs continue to drag on for months.
In addition to hitting the lowest-priced Model 3, the most recent raise raised the Model Y’s base price by $2,000 to $62,990. There was even sharper gains at the top of the range, with the base S up $5,000 to $99,990 and the base X up $10,000 to $114,990.