Japanese automakers' earnings this fiscal year will be affected by billions of dollars due to rising prices of lithium, copper and other materials, according to foreign media reports. These raw materials play a vital role in the production of clean energy vehicles.
(Goldman Sachs Japan), a Goldman Sachs Japan firm, estimates that the impact of rising raw material costs on operating profits will be about 1 trillion yen ($9 billion) for Japan's six largest automakers, represented by Toyota. This is equivalent to about 30 per cent of the total profits expected by these companies, and US manufacturers are also feeling the pressure in addition to Japanese carmakers.
Stricter car emission standards in places such as China and Europe have also pushed up demand for raw materials. This trend is expected to continue in the medium term, so the automotive industry will face the lasting impact of decarbonization. Kohei Takeuchi, Honda's chief financial officer, once said: "the rise in raw material prices will not be a temporary phenomenon."
The price of battery materials has risen sharply, reflecting the increasing popularity of electric vehicles. In China, the price of lithium carbonate has reached 88000 yuan ($13600) per ton, more than double what it was a year ago. In Europe, the price of cobalt has risen by about 80%. The price of copper, which is widely used in wire harnesses and motors, has halved. Compared with fuel cars, electric cars need two to three times as much copper as the former.
In addition to the raw materials for electric cars, the price of raw materials for fuel cars is also rising. The price of rhodium, which is used to purify tail gas in catalytic converters, is 30 times higher than it was five years ago. In addition, due to the rising price of iron ore, the price of steel for cars is also rising.
The rise in the price of these raw materials has undermined the earnings of car companies. Toyota, Japan's largest carmaker, expects its operating profit to fall by 440 billion yen, or 18%. Honda is expected to be affected by 250 billion yen, or 38 per cent of its expected operating profit. The impact on Nissan, Subaru, Mazda and Mitsubishi ranges from 37.4 billion yen to 100 billion yen.
Japanese carmakers are not the only ones affected. GM expects its annual costs to increase by billions of dollars as a result of rising raw material prices. The average material cost of US-made gasoline cars reached $3600 in May, double that of the same period last year, according to consultancy AlixPartners.
As car companies plan to increase production of electric vehicles, the market for electric vehicles is expected to reach 23 million units in 2030, 10 times that of 2020. Analysts say this rate of growth could lead to high prices for lithium and other battery materials.
In the face of this pressure, enterprises will be subjected to double tests in terms of R & D and supply chain. Companies such as Nissan and Tesla are developing batteries that do not require cobalt. Toyota and Volkswagen are also taking action to lock in the supply of lithium. Panasonic has joined a project led by US oil company Schlumberger to seek to extract lithium from underground salt water.
Industry insiders say it is difficult for car companies to pass on costs to consumers. One auto executive, who spoke on condition of anonymity, said it was "very difficult for car companies to raise prices while remaining competitive".
