In recent months, industry news has been dominated by headlines like “carmakers face raw material bottleneck.”
And while, rightfully, against the backdrop of the accelerating green energy transition and EV revolution, much of the coverage focuses primarily on supply chain challenges arising for the battery criticals Lithium, Cobalt, Nickel, Graphite and Manganese, it’s not just the battery materials that are giving automakers headaches these days.
A case in point is luxury carmaker Ferrari’s recent announcement that “soaring commodity prices would begin affecting the prices of its new supercars.”
While the company has reportedly seen “better-than-expected fourth-quarter earnings as shipments jumped during the pandemic” according to ZeroHedge.com, prices for its supercars, currently ranging between $200k and $400k would likely see increases as there is “some pressure on the energy on the aluminum cost (…),” with aluminum being a material on which Ferrari relies heavily in the construction of its frames, engines, transmissions, body, suspension, paneling and rims.
However, aluminum is not just a key component for luxury supercars – its light weight, corrosion resistance and its recyclability make it a material of choice in the lightweighting revolution (ARPN followers may recall the Light Rider) and the overall green energy transition.
But, as the Ferrari announcement indicates, trouble is on the horizon. As ZeroHedge.com outlines, “rocketing power prices across [Europe] shuttered four aluminum smelters which curtailed about half a million tons of annual capacity. European aluminum prices have surged more than 350% since the pandemic low in early 2020 to about 450 euros per ton.”
The “winter of discontent for Europe’s aluminium smelters,” as Reuters columnist Andy Home described the recent struggle of aluminum smelters in the region, will likely widen the already existing regional supply deficit as Europe, even before the closures, was already a net importer of primary aluminum.
As Home notes, “[t]the United States is also a net importer of primary aluminium and is now facing increased competition from Europe for spare metals. And both are in competition with China, which is importing significant volumes after a run of power-related curtailments across its huge smelter network.”
Home invokes what he calls the “aluminium paradox”:
“It’s a metal that is core to the energy transition, but can only be produced in virgin form using very large amounts of energy, which is increasingly at a premium due to decarbonization.”
Not far from this is the “inherent irony” or “paradox of the green revolution” Home invoked elsewhere, referring to the paradox that “public opinion is firmly in favour of decarbonisation but not the mines and smelters needed to get there.”
It’s time for a reckoning, we clearly can’t have our cake and eat it, too. Achieving global (and domestic) decarbonization goals while at the same time strengthening our supply chains and reducing our over-reliance on critical minerals from China will require a comprehensive “all of the above” approach across the entire value chain. But, as ARPN’s Daniel McGroarty has pointed out on several occasions, “we don’t have the luxury of time” anymore. The reckoning needs to happen at Ferrari supercar speeds.