Electric vehicles have an Achilles heel: the nickel content in car batteries.
Analysts warn that the nickel in two-thirds of electric-vehicle batteries threatens to undermine the ‘green’ credentials of the cars due to deforestation.
The issue is that most nickel is extracted from rainforests in Indonesia, which is potentially damaging to the environment.
This could seriously undermine the green credentials of electric vehicles, for example where they are invested in through regulated green bonds. Commodity markets are now starting to price ‘green premia’ into the credentials of traded metals.
Analysts warn that rainforest-sourced nickel is unlikely to trade at such a premium.
“If the global EV industry ever seeks to ‘green badge’ its raw materials supply chain (principally, copper, nickel, lithium, cobalt), the policy could undermine the demand of Indonesian-sourced nickel,” analysts at Liberum said in a research note on Tuesday.
Whereas Indonesia supplied about 15% of the world’s nickel before 2009, following China-controlled ore exports and the delivery of complex refined products, it now accounts for 60% of mined nickel supply.
Indonesia introduced national policies in 2014 to encourage foreign investors to build downstream processing capacity in the country.
The Mining Law policy from 2009 restricted the export of unprocessed mineral resources including nickel, but was not strictly enforced until 2014 and again following Covid-19 in 2020.
According to analysts, these policies led to a collapse in Indonesia’s ore exports and a spike in downstream investment in processing and refining capacity.
China invested heavily in Indonesia’s downstream processing and refining capacity from 2010.
Chinese company Tsignshan, a stainless steel producer, is now one of the single largest investors in Indonesian nickel.
The tropical island of Sulawesi contains most of the country’s nickel mining.
Areas of rainforest in regions such as this must be cleared to access and process Indonesia’s nickel-bearing lateritic ores.
Analysts warn that even regulated mining activities can report large-scale disasters.
They said the electric vehicle market accounts for 53% of global nickel demand for batteries, and that is projected to continue to rise.
Analysts at stockbroker Liberum said their preferred mining stocks include Glencore PLC (LSE:GLEN), which is one of the world's biggest nickel mining companies.
That list includes other global mining companies such as Thungela Resources Limited (LSE:TGA), Trident Royalties PLC (AIM:TRR, OTCQX:TDTRF), and Shanta Gold Ltd (AIM:SHG, OTC:SAAGF), among others.