Biden invokes the Defense Production Act on EV battery materials as Tesla and Samsung dodge the price hike of nickel ^↺

Samsung, which aims to become the world's largest battery maker by 2030 and open a big factory in the US, is now securing nickel supply for extended range EV batteries at 40% of the metal's current price, reports Korean media. It turns out that Samsung SDI has signed a commodity swap contract with Australia's QPM for 60 million tons of nickel at a low preset price at least through next year. This gives it the right to purchase 3122 tons at US$12,700 by next March, for instance, while the Friday closing price of the metal was US$32,150 and nickel briefly touched US$100,000 price after Russia's invasion of Ukraine, both significant producers.

Tesla has also signed similar hedging contracts, reports Bloomberg, via a "multiyear supply deal with mining giant Vale SA," so it will evade the nickel price spike relatively unscathed, too. This seems to have been a deliberate strategy by Tesla that is now giving it a competitive advantage. Elon Musk is on record urging nickel miners to extract more a few years back. "Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way," he said in an earnings call at the time and the nickel price hedge with Vale is now coming at a very opportune time.

The other move that somewhat offsets the rising price of materials for Tesla is its switch to LFP battery technology for its standard range vehicles. Despite slightly lower energy density compared to the Nickel-Cobalt-Aluminum batteries in its long range vehicles, LFP cells use cheaper and more plentiful iron, plus they can be charged to 100% without the degradation observed in high-nickel batteries. Samsung doesn't have such luxury as it makes Gen 5 batteries for extended range EVs that use at least 80% nickel for the cathode as well as other rarer and more expensive metals like cobalt.

To address the rising cost of EV battery materials, President Biden just called in the powers of the wartime Defense Production Act (DPA) that give the government a wide-ranging authority to retool the supply chain. The argument is that energy and transportation are a matter of national security and they both fall under the DPA's scope after Russia's invasion of Ukraine caused an exorbitant spike in the price of fossil fuels, commodities, and materials.

Biden's directive is to "strengthen our clean energy economy" and "use the Defense Production Act to secure American supply chains for the critical materials that go into batteries for electric vehicles and storage of renewable energy." On a more practical note, the DPA directive will allow the Secretary of Defense, Lloyd Austin, to aid American miners of nickel, lithium, graphite, cobalt, and other battery-critical materials to produce faster and more efficiently.

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