Tesla raised prices last night on every model it sells. The move comes just a week after the company raised prices for its long-range batteries by $1,000. The new increase means the cheapest Tesla, a rear-drive Model 3, now costs $46,990 before taxes and fees, a jump of $2,000.
CEO Elon Musk tweeted that the company “sees significant recent inflationary pressure in raw materials and logistics”. Prices are up in several sectors of the economy, of course, although economists debate what is pushing them up. For EVs like Teslas, the main culprits today could be nickel and cobalt prices, which have skyrocketed in recent weeks, although Tesla has also made a habit of raising prices in recent months.
Nickel and cobalt are key components of lithium-ion batteries commonly used in electric vehicles today. Nickel helps increase the energy density of a cell, while cobalt stabilizes the microscopic structure. Battery chemistries that use metals are often named by the proportion of metals they use. 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 chemicals 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 that is often associated with human rights abuses. Tesla says it’s looking at even more nickel-rich batteries that would reduce its dependence on cobalt, and if the nickel market returns to normal, that could be a smart bet.
But these are anything but normal times. Nickel prices have risen in recent weeks as Russia faces sanctions over its unprovoked invasion of Ukraine. Russia mines around 9% of the world’s nickel – and around 16% of high-grade nickel – and the potential loss of supply comes at a time of rising demand thanks to an increase in orders for electric vehicles.
Over the past week, a short squeeze playing on a bearish bet by a Chinese metallurgical firm sent nickel prices soaring dramatically, prompting the London Metals Exchange (LME) to halt trading for several days. The moves have disrupted the global market, with nickel now trading in Shanghai at just under $40,000 per metric ton. That’s less than on the LME, but still about double what nickel was worth at the start of the year.
Cobalt prices on the LME have also risen about 20% this year to more than $80,000 per metric ton, nearly triple what they were a year and a half ago. Although there is currently no pressure on cobalt, the market for the metal is highly concentrated. The majority of raw ore comes from the Democratic Republic of Congo, and around two-thirds of the world’s cobalt refining takes place in China.
When nickel prices fall – and they likely will, given that the LME’s surge appears to be the result of risky bets rather than a corresponding increase in demand – the automaker could also use the high-grade batteries. in nickel to inflate its margins. There is debate among economists over what is driving inflation, and while some think the stimulus or pandemic-related labor issues could be to blame, others point to the fact that corporate profits have increased significantly over the past two years. (As with many things, the reality may be somewhere in the middle.)
Although Tesla won’t disclose its pricing strategy, the company has made a habit of raising prices for its sedans and crossovers as its backlog continues to expand months into the future.
Along with hitting the cheapest Model 3, the most recent increase bumped the base price of a Model Y from $2,000 to $62,990. The top end of the range saw even bigger increases, with the base Model S from $5,000 to $99,990 and the base Model X from $10,000 to $114,990.