Electric car sellers face an increasingly challenging supply chain environment.
The Mercedes EQA at RM278k is already seeing a waiting time of more than 6 months as bookings in Malaysia climb fast, the Hyundai IONIQ 5 with a price that starts at 199k already has more than 220 orders with waiting time stretching into 2023 and the Volvo XC40 electric which we estimate to be priced at RM258k might end up being Volvo’s best selling model for 2022 but with deliveries moving into 2023.
So, why are electric car manufacturers unable to produce more and deliver faster? To start, the bulk material prices are increasing for the entire auto industry.
In 2021, the price of steel rose by as much as 100 percent, aluminium around 70 percent, and copper more than 33 percent, affecting both conventional and electric cars. For electric cars, additional challenges were posed by increased prices for materials needed to manufacture batteries: the price of lithium carbonate increased by 150 percent year on year, graphite by 15 percent, and nickel by 25 percent, to name just a few.
For the time being, and perhaps surprisingly, volume weighted average battery prices have not increased since 2020. Three factors explain the steady prices. Firstly, battery prices are on a long-term decline trajectory, and continued technological progress helped offset the higher raw material costs.
Secondly, there is a time lag between material price spikes and battery price increases, as costs take time to work their way through the value chain.
Thirdly, the use of lithium ferrophosphate (LFP) chemistries in batteries has increased, reducing the impact of some of the price rises. However, if battery metal prices continue to rise, battery prices will be affected.
So, this could push the sticker price for any electric car higher year after year.
Meanwhile, we all know how several automakers also faced microchip shortages that held back output and delivery. The background to the microchip shortage is complex, but in general a faster-than-anticipated rebound of automobile sales and other microchip-reliant products was met by a tight supply of microchips.
The shortage is problematic for any electric car, which require around twice as many chips as equivalent conventional vehicles, mostly due to additional power electronics components. It is possible that without these disruptions, electric car sales could have been even higher in 2021. Several electric car factory lines were shut for weeks, causing delays in the delivery of many electric car models in Europe and North America.
While some of the supply constraints of 2021 will ease as the market rebalances, others may linger. The electric car value chain proved to be robust in 2021 as it managed to deliver on higher-than-anticipated demand.
But for the electric car to continue in its current growth trajectory, battery supply chains and electric car production capacity will have to expand at a rapid rate. Both short-term demand and longer-term ambition have skyrocketed over the last two years, but supply chains have struggled to keep pace.
Right now and in the near future, we will be seeing some bookings for new electric car models being cancelled in Malaysia (it is already happening in the past month with Mini EV and IONIQ 5 bookings) as buyers are not patient and this could affect stock inventory planning.
Let’s not forget the middle class Malaysian who still cannot afford to purchase an electric car. When will low cost version arrive for them.
