At the time of this writing, oil has sprinted above $90 a barrel, silver has jumped 80-plus percent in the last year and China just announced an 11 percent decrease in exports of rare earth metals for 2011.
Will these constraints on critical resources, and their inevitable steep rise in costs and prices, kill the electric car?
Like it or not, commodity prices of critical resources directly impact the cost of finished goods. While many within the environmental community cheer rising oil prices, this commodity is a fundamental cost component to most everything in the U.S. economy, especially those things transported long distances: food, pharmaceuticals, textiles, automotive parts, etc.
Oil is also the source stock for many of the plastics and elastic polymers used in automotive panels, guards, enclosures, seals, gaskets and tires. Even if an electric car doesn’t burn a drop of fossil fuel to power its wheels, it still requires oil for countless parts and components.
Precious metals like gold, silver, platinum and palladium are a serious concern. We’ve long known the price of gold was steadily rising and has hit recent highs, but, over a year ago, commodity traders turned to silver for faster growth.
2011 Coda Sedan electric car, lithium-ion battery pack, 2010 Los Angeles Auto Show
Gold and silver are often used for automotive electronic components and circuits that require long life in harsh environments. Automakers also consume platinum and palladium for catalytic converters, but in the future, they may require them for fuel-cell energy storage systems for electric propulsion vehicles.
For electric cars, the most important commodities are the rare-earth metals used in the magnets for their electric motors. These materials may not be as expensive as the precious metals (yet), but they are more scarce.
With China starting to withhold these materials from international markets, automakers may be limited in the number of electric propulsion systems they can produce for their hybrid and electric cars.
At a time when automakers need to increase the volumes of these vehicles to lower their costs, constrained volumes / increased costs due to rare-earth metal shortages may hurt automakers’ efforts to mainstream hybrid and electric cars.
In a recent article by economist Edward Lotterman, he suggests that even batteries may be subject to these constraints, as demand for lithium begins to ramp up for transportation applications, predominantly lithium-ion batteries for hybrid and electric vehicles.
He cites past examples in which nickel, steel and platinum / palladium spiked when their respective nascent industries grew too rapidly.
Increased costs for critical commodities, as well as constraints on their supply, will inevitably increase the prices of electric cars and limit their production quantities. If additional resources and / or alternative solutions are not found, do you think these factors will kill the electric car?
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