Automakers don’t need a nickelgate | Hotter on metals

Ever since the emissions scandal roiled Volkswagen in 2015, OEMs have been acutely aware of the need to protect their reputations and toe the ESG line

Now the auto industry is facing another predicament – where to sustainably source its nickel from.

The sector has been busy pushing the development of electric vehicles (EVs), which require raw materials such as nickel for their batteries.

That nickel is produced in Indonesia, the world’s largest producer by far, with a million tonnes of mined output last year according to US Geological Survey data. It’s also produced in the Philippines, with 390,000 tonnes mined in 2021, as well as in Russia (250,000 tonnes), New Caledonia (190,000 tonnes), Australia (160,000 tonnes) and Canada (130,000 tonnes).

There’s nickel around, but whether it meets the strict environmental, social and governance (ESG) criteria to enable automakers to say their batteries are sustainably and responsibly produced is another question.

It’s not clear what auto original equipment manufacturers’ (OEMs) policies have been towards nickel produced in Russia by mining giant Norilsk Nickel since the country invaded Ukraine earlier this year.

Unlike crude oil and refined petroleum products, Russian-produced nickel hasn’t been sanctioned, allowing its use in the production of batteries to continue.

This hasn’t yet attracted the ire of investors, but it’s probably only a matter of time before there are calls for automakers to halt its use, just as they have stopped investing in Russian car plants since the aggression against Ukraine began.

While this in theory leaves a sizeable enough portion of nickel in the market for OEMs to turn, the call by over 50 non-governmental organizations this week for Tesla to halt the use of Indonesian nickel and stop any plans for investment in the country may well severely narrow that gap.

The letter cites environmental and community damage caused by nickel mining, which, sadly, is not something new to the sector.

From New Caledonia, where Tesla has a supply agreement from the Goro mine, through the Philippines, where 22 mining operations were shut in 2017 and open pit mining was temporarily banned, there have been complaints for years that operations there failed to meet ESG standards.

Increased scrutiny for OEMs to meet ESG criteria

Given the increased scrutiny under which operations have since fallen as the energy transition gathers pace and corporates seek to meet their own sustainability targets, unless something has dramatically changed at some nickel sites then those complaints probably are only going to intensify, as they should.

Turning a blind eye to nickel from Russia or from Indonesian mines responsible for tailings spills can’t continue indefinitely. At some point, automakers are going to have to look elsewhere for their nickel, which begs the question: where, exactly?

Australia, the United States and Canada are good options with long histories in the mining sector, although even these countries have had ESG-related problems as recently as in the past year or so.

Ford said it has now sourced most of the nickel it needs through 2026 and beyond through deals in Australia, Canada, and Indonesia.

Tesla meanwhile has an agreement to source nickel from Talon Metals’ Tamarack project in central Minnesota, as well as with Vale to source nickel from its Canada operations.

But automakers will need more nickel, as Tesla chief executive officer Elon Musk has made clear several times in the past.

With emissionsgate only just in the rear-view mirror, turning a blind eye to where battery raw materials come from and the effect their production has on local communities would be one reputational risk for the auto industry too far.

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