Germany's automotive sector already had a lot to cope with before Russia's invasion of Ukraine.
First, there was the COVID-19 pandemic and a global semiconductor shortage. Later came rising oil, gas and coal prices, which have continued to skyrocket since the war began on February 24. Now a fresh threat looms of supply bottlenecks and price hikes for other key raw materials from Russia and Ukraine.
Volkswagen, Europe's largest carmaker, told DW the issues have been "virulent" and "volatile" for some time and may take some time to play out.
"One should not underestimate the threat of supply shortfalls for important raw materials for car manufacturers and their suppliers," auto industry expert Stefan Bratzel from the Center of Automotive Management (CAM) told DW. "This ultimately leads to rising prices, even longer waiting times for new cars for customers and slows down the ramp-up of electromobility."
Neon gas from Ukraine for semiconductor production
Ukraine is one of the most important suppliers of neon, a noble gas needed for semiconductor production, the German Association of the Automotive Industry (VDA) told DW.
To make matters worse, chips have been in short supply worldwide for almost all industries for some time now.
"These raw materials will become even more important in the future," says a VDA spokeswoman.
Palladium and nickel from Russia for emission control and batteries
Palladium, which is required for catalytic converters in gasoline engines, has been imported from Russia, along with nickel.
"With a global market share of 38%, Russia is the second-most-important supplier after South Africa with 39%," Michael Schmidt from the German Raw Materials Agency (DERA) told DW.
He noted that the price of palladium has risen sharply since 2015. In June 2021 it reached a temporary high of $2,900 (€2,622) per troy ounce (31.1 grams), then fell to around $1,800, but rose again after the outbreak of the Ukraine war. Earlier this week, it was around $2,270.
It was difficult to imagine how possible supply issues of palladium from Russia could be bridged by other producing countries, warned Schmidt. He said the palladium market "has been in deficit for years," a situation that is unlikely to change.
Palladium's use for emission control systems in cars with petrol engines is unlikely to abate, unlike platinum, which is required for diesel vehicles — whose popularity is waning.
Although shortages caused by sanctions against Russia can be compensated for by existing stocks, Schmidt said, "this cannot be done in the long term as production in South Africa cannot be increased at will."
Nickel became dramatically more expensive
There are even more extreme price developments for the heavy metal nickel, which is required for alloys and the production of lithium-ion batteries.
From $20,000 to $25,000 per ton, it shot up to more than $100,000 after Russia's invasion of Ukraine. Although the price of nickel has since fallen again, commodities analysts expect it to be around $34,000 by mid-year.
"On a global scale, the Russian Federation is the third-largest producer of nickel ore," Michael Szurlies from the Federal Institute for Geosciences and Natural Resources (BGR) told DW. "Possible delivery failures from Russia only affect the refined nickel product. Short-term delivery failures are generally difficult to compensate."
Higher car prices, more CO2
Nickel shortages from Russia would push up electric vehicle (EV) prices, slowing Western economies' progress in reducing carbon emissions, warns the London-based consultancy GlobalData.
The reasoning makes sense: The slower electromobility takes to get going, the longer we will be dependent on Russian oil and gas.
"Now is a critical time for EV adoption as industrialized nations seek to accelerate the process of decarbonization," said GlobalData analyst Daniel Clarke.
China benefits from crisis
Electric car and battery manufacturers in China, on the other hand, could benefit from the sanctions against Russia by offering to buy raw materials from Russia at lower prices.
"China already has a strong position in the battery metals supply chain and would further strengthen its global competitive position if it could buy Russian nickel cheaply because of the sanctions," Clarke said.
GlobalData analyst Lil Read added that the only option left for Western manufacturers is to expand business relationships with other nickel-producing countries such as Indonesia or the Philippines.
However, this would give rise to further problems. Because of the greater geographical distance between the two production countries, emissions during transport would increase, and if the raw materials were extracted more intensively there, environmental issues would increase.
In addition, Europe's dependency on China would increase as Chinese companies played a key role in the main nickel mines in both countries.
New technologies, partnerships urgently needed
Against this background, Read believes that new battery technologies could prevail in the long term.
"The pace of battery innovation has been breathtaking over the past few decades, but innovation does not happen overnight. We expect that lithium-ion phosphate (LFP) batteries, which contain neither nickel nor cobalt, will gain popularity and acceptance in the medium term if the conflict continues."
According to the car industry association VDA, the Ukraine crisis clearly highlights how Germany and the EU must reduce their dependency. VDA, therefore, demands that they build up and expand domestic raw material extraction, ensure fair access to raw materials from abroad and promote the development and expansion of the circular economy, which involves more recycling of products and raw materials.
"In addition, energy and raw material partnerships are needed as the markets are currently being distributed worldwide to a large extent without Germany," VDA said.
This article was originally published in German.