Tesla forced to raise prices

When commodities rally, companies that use these raw materials in their products have tough decisions to make. Do they increase prices and pass the cost onto the consumer? Or absorb the cost and take a hit on their profit margins?

Tesla and other EV makers could be facing this problem at extreme levels. At the end of January 2021 the team at mining.com and Adams Intelligence ran the numbers on Tesla’s production and the metals required to build 20 million cars per year.

These numbers don’t represent a ‘today’ problem for Tesla. In 2021, Musk’s team produced 930,422 electric cars, a new record for the EV maker. While it’s true that they are looking to increase overall production, they’re a long way from 20 million.

Tucked away in the metals data, they found that the average Electric Vehicle requires:

• 10 kilograms of Lithium
• 14 kilograms of Cobalt
• 20 kilograms of Manganese
• 45 kilograms of Nickel

The huge squeeze in Nickel prices was so extreme it ended with the London Metal Exchange closing the Nickel market and cancelling trades. For reference, on February 28th Nickel was trading at $24,015 per ton. At one point this week, the metal was priced at $100,000 per ton!

When London trade reopens, Shanghai futures suggest that price is likely to come down. SHFE Nickel futures were trading around 220,000 yuan ($34,807) per ton.

That’s still a hefty price jump. Russia produces 17% of the top grade nickel. Concerns that protracted conflict and restrictions will shut-in production could see prices remain high. Which means potentially higher production costs for electric vehicle makers and batteries.

Tesla increased prices in the United States on Thursday.

• Tesla Model Y Long Range jumped by $1,000 to $59,990
• Model Y Performance also increased by $1,000 to $64,990

Can Tesla take it all in their stride?

The share price continues to recover from the lows, and now sits at a critical moving average juncture between the 20 & 200 day. No signs of panic. Perhaps metal prices will settle down, and supply will remain relatively unaffected.

Analysts will be eyeing the metal price impact. Morgan Stanley ran the numbers, separating out the costs for different grades of Nickel and assessed the impact.

They found that every $10,000/ton increase in the prices of both Lithium and Nickel equated to a price impact of between $1,092 and $1,139 on the final Electric Vehicle unit cost.

There’s the relative angle to consider too. As an EV leader, perhaps Tesla will be a preferred buyer at suppliers and keep their pricing power versus some of the new kids on the block.

Could high petrol/gasoline prices push people towards EV’s? Or could high electric prices and increasing production costs make EV ownership less affordable (or eat into profit margins)?

With the conflict potentially pushing energy costs higher across the world too, it’s a fascinating time for Tesla.

Not investment advice. Past performance does not guarantee or predict future performance.