The world's biggest car companies have a lot to fear from Russia's invasion of Ukraine. And it's not just production shutdowns or supply chain snarls.
As the war rattles commodities from nickel to wheat and corn, upending exchange trades and casting doubts around sustained supply, a material key to auto giants making cleaner cars is also among them: palladium. Prices are so high that thefts of the parts that use the metal — the catalytic converter — have risen sharply in the US and elsewhere.
The knock-on effects of palladium's high prices and supply issues run deep and stand to jeopardize automakers big, green ambitions, making it even more expensive to produce cars amid rising pressure to curb emissions. Eager buyers — many who have emerged in the US post-pandemic — are in for even higher vehicle transaction prices.
Around 40% of palladium supply — a key material used to help make cars cleaner — is concentrated in Russia. Each gasoline auto uses anywhere from 2 grams to 15 grams of palladium, and those that run on diesel use even more (think heavy-duty commercial vehicles.) The platinum group of metals, including palladium and rhodium, are used in exhaust systems — they reduce air pollution through their unique chemical and physical properties. Other materials have been tested, but haven't worked as well.
Palladium is an essential material for almost 70% of light duty vehicles. That amount maintains current emission levels. But goals that edge the industry toward decarbonization are far tougher, and a lot more needs to be done to reach regulatory targets. The reality is, the push to lower emissions and be greener largely relies on making better conventional cars now until electric vehicles are truly commercially viable. As the transition happens, gasoline cars and diesel trucks will continue to be around. Ford Motor Co., for instance, sold almost 46,000 super-duty diesel vehicles in the last quarter of 2021, up 11% from the previous three months.
For now, palladium is getting expensive and it's unclear how car firms plan to procure the materials over the medium-term or what they'll do as things get tougher. Although companies like Toyota Motor Corp. have come up with technologies to lower the amount of palladium in recent years, they aren't widely being used.
As the semiconductor shortage shows, automakers are seldom prepared for such setbacks. They just didn't plan for the future. Instead, they made cars without some important chips and raised prices sharply to fatten margins. It's scary to think how dirty cars could get if these tactics were applied to palladium and catalytic converters.
Sure, as many say, the flipside is exports won't be constrained immediately and given palladium's long-standing supply issues, there are substitutes like platinum on hand. That's fair. However, platinum is also getting expensive — and it just doesn't perform as well.
In addition, the substitution depends on a host of factors. Palladium formulations, for example, remain effective for longer compared to platinum at high temperatures. It matters where you place the catalytic converter device within a vehicle. Buying patterns are also evolving — sport utility vehicles and pickup trucks are popular, but that means they use more palladium to be clean. The bottom line is, as long as automakers keep making vehicles that are dependent on this group of metals to reduce their dirty fumes, they will matter.
Ultimately, automakers are just trying to meet targets and regulatory limits — they aren't going green as a goodwill exercise so we can all breathe cleaner air. And if they don't, there are penalties, as many have already discovered. Stringent emissions regulations in China have meant a 40% increase in palladium loadings, along with 50% to 100% more of rhodium. Meanwhile, some are trying to beat the system THIS OK? in other ways. This week, auto giant Toyota's trucking subsidiary, Hino Motors, admitted it had falsified diesel engine performance data. If companies of that scale are still engaged in such activity and aren't able to truly bring down emissions, it'll be even harder with these new obstacles. Russia's invasion of Ukraine will be a longstanding one.
Of course, this is just the green transition based on the status quo. We haven't even talked about what happens to all the high-tech battery-making ambitions that are going to be hit by surging nickel prices and the current dysfunction in that market.
Even in 2022, these old-school corporate giants don't quite have the conviction to step into a brand new era of auto-making. But if car companies don't start getting their act together now, the road ahead will only get tougher and dirtier.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal. @anjani_trivedi
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.