US EV Credit Expiry and Class 1 Nickel Demand Reduction: September 2025 Incentive Expiration Lowers Near-Term Battery Metal Consumption

• The expiration of the US $7,500 EV tax credit on September 30, 2025 will immediately reduce affordability for middle-class EV buyers, slowing adoption rates.
• This policy shift is expected to weaken near-term Class 1 nickel demand, the critical input for high-energy-density NMC and NCA battery chemistries.
  Nickel markets are already under stress from a 198,000t surplus forecast in 2025, with inventories exceeding 230,000t and prices stuck near US$15,000/t.
• High-cost operators, particularly HPAL projects requiring >US$18,000/t, face mounting margin pressures, while low-cost Class 1 producers in stable jurisdictions retain a strategic premium.
• Canada Nickel’s Crawford Project exemplifies how large-scale, low-cost, ESG-aligned Class 1 supply in Canada could benefit once policy-driven volatility subsides and long-term EV demand growth resumes.

September 2025 Policy Shift & Immediate Market Implications

The expiration of the federal EV tax credit represents a material policy inflection point for battery metal markets. The "One Big Beautiful" spending bill, signed into law on July 4, 2025, formally ended the US$7,500 per vehicle rebate that served as a cornerstone of the Inflation Reduction Act's consumer incentive framework. This policy reversal disproportionately affects middle-class consumers who relied on these incentives to bridge affordability gaps in EV purchases.

The immediate consequence is straightforward: reduced EV sales volumes translate directly into lower Class 1 nickel consumption. High-energy-density batteries powering premium EVs require nickel-intensive chemistries like NMC and NCA, where Class 1 nickel comprises the primary input for cathode materials. Without the tax credit, EV price premiums over internal combustion engine vehicles widen significantly, creating demand elasticity pressure precisely when the market can least absorb it.

Beyond direct sales impact, the policy shift undermines confidence in charging infrastructure investment and broader EV supply chain development. Private capital allocation decisions for battery manufacturing, charging networks, and related infrastructure projects now face heightened uncertainty regarding the pace of US EV adoption. This policy-driven demand destruction compounds existing structural oversupply pressures that have already pushed nickel prices to multi-year lows.

Dollar Strength, Inflation & Commodity Pressure

The Federal Reserve maintains tight monetary policy amid persistent inflation, with headline Consumer Price Index readings at 2.7% and core CPI at 2.9%. Robust employment data has effectively eliminated market expectations for rate cuts in both July and September 2025, reinforcing the likelihood of prolonged higher rates. This "higher-for-longer" stance supports continued dollar strength, which depresses demand for dollar-denominated commodities like nickel by making them more expensive for international buyers.

Higher financing costs simultaneously squeeze producer working capital and increase inventory carrying costs. For nickel producers already operating near breakeven levels, elevated borrowing costs compound margin pressures and accelerate potential shutdowns among marginal operations.

Persistent Oversupply & Inventory Build

Indonesia continues expanding nickel output despite periodic quota discussions, leveraging its dominant position in the global supply chain. Combined London Metal Exchange and Shanghai Futures Exchange inventories surpassed 230,000 metric tons by mid-2025, representing a substantial increase from previous years. The International Nickel Study Group projects a surplus of approximately 198,000 tons in 2025, while S&P Global analysis corroborates this oversupply outlook.

Current pricing near US$15,000 per tonne reflects multi-year lows, with brief periods in early 2025 touching levels not observed since 2020. This pricing environment has already forced approximately 32% of global production capacity offline, yet oversupply persists due to continued expansion in low-cost Indonesian operations.

Compounding Effects

The convergence of policy-driven demand reduction, structural oversupply, and persistent dollar strength creates sustained downward pricing pressure that extends beyond typical cyclical patterns. Investor sentiment has turned increasingly defensive, with institutional capital focusing on cost curve durability and jurisdictional resilience rather than growth-oriented metrics. This fundamental shift in risk assessment prioritizes operational sustainability over expansion potential in current market conditions.

Class 1 Nickel Demand in the EV Supply Chain

Class 1 nickel, with purity exceeding 99.8%, serves as the critical input for nickel-intensive battery chemistries that define premium EV performance. NMC and NCA batteries dominate high-range electric vehicles, offering superior energy density that enables longer driving ranges while reducing weight and footprint constraints. These nickel-intensive formulations are projected to constitute nearly 1,320 megawatt-hours of battery capacity by 2030, representing approximately 80% of forecasted EV lithium-ion battery applications.

Battery-grade nickel demand from the EV sector is expected to exceed 50% of total Class 1 consumption by 2027, fundamentally altering traditional demand patterns historically dominated by stainless steel applications. This structural shift toward battery applications carries compound annual growth rate projections of 12-15% through 2030, assuming continued EV adoption momentum.

Substitution & Technology Risk

The increasing market penetration of lithium iron phosphate batteries introduces nickel intensity uncertainty across EV segments. LFP batteries, which contain no nickel, are gaining share in lower-cost EV segments due to improved energy density and cost advantages. This substitution trend reduces overall nickel content per vehicle in certain market segments, creating long-term demand elasticity concerns that compound near-term policy-driven headwinds.

Technology evolution in battery chemistry continues to influence nickel intensity calculations, with manufacturers balancing energy density requirements against cost optimization and supply chain security considerations. These technological transitions introduce additional uncertainty layers beyond policy-driven demand fluctuations.

Global Policy Contrast

China accounts for 63.5% of global nickel demand in 2025, with government strategic stockpiling programs leveraging current low prices to bolster reserves. Chinese "anti-rat race" competition policies provide temporary price support, while strategic stockpiling creates demand floors during oversupply periods. Europe's Critical Raw Materials Act explicitly prioritizes supply from allied nations, creating jurisdictional bifurcation in pricing and investment flows.

The contrast between sustained support in China and Europe versus US policy volatility underscores the fragmented nature of global EV policy coordination. While Chinese and European demand may partially offset US reduction, the scale of the American market makes policy-driven demand destruction material for global nickel consumption calculations.

Economics & Cost Curve Stress

Current pricing near US$15,000 per tonne has rendered approximately 32% of global nickel production capacity uneconomical, forcing widespread operational suspensions and mine closures. High-Pressure Acid Leaching projects, which typically require nickel prices above US$18,000 per tonne to generate positive cash flows, face particularly acute margin pressures. Recent shutdowns in Kosovo and the Dominican Republic illustrate the immediate impact of sustained low pricing on marginal operations.

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The cost curve compression affects both mining and processing operations, with integrated producers maintaining slight advantages over standalone operations. Working capital constraints intensify as producers face inventory write-downs and reduced cash generation from core operations.

Industry Consolidation Outlook

Prolonged low-price environments historically accelerate industry consolidation through distressed asset acquisitions and strategic combinations. Current market conditions favor well-capitalized, low-cost operators positioned to acquire complementary assets at attractive valuations. This consolidation process typically eliminates marginal capacity while concentrating production among financially resilient operators.

Merger and acquisition activity is expected to intensify as private equity and strategic acquirers target distressed assets with strong fundamental characteristics but challenged near-term economics. Jurisdictional considerations increasingly influence transaction structures and valuations.

Jurisdictional Bifurcation

Western-aligned jurisdictions, particularly Canada and Australia, command increasing premiums among institutional investors focused on supply chain security and ESG compliance. The Inflation Reduction Act and EU Critical Raw Materials Act explicitly incentivize sourcing from allied nations, creating sustained demand premiums for compliant producers.

Conversely, Indonesia's consolidation of global supply positions it as the "OPEC of nickel," with increasing ability to influence global pricing through production management. This geopolitical concentration introduces supply security concerns for Western end-users, reinforcing the strategic value of diversified sourcing from allied jurisdictions.

Mark Selby, Chief Executive Officer of Canada Nickel, observes this dynamic:

"Indonesia is starting to flex its muscle as the OPEC of nickel, which creates opportunities for strategic Class 1 producers in stable jurisdictions like Canada to serve Western supply chains seeking alternatives to concentrated Asian supply"

Market Positioning

Canada Nickel's Crawford Project exemplifies this positioning as the world's second-largest nickel reserve and resource, designed specifically for Class 1 nickel production serving battery applications. The project demonstrates compelling economics with a Net Present Value of US$2.8 billion at an 8% discount rate and an Internal Rate of Return of 17.6%, maintaining viability even under current depressed pricing conditions.

The Crawford operation targets C1 cash costs of US$0.68 per pound with All-In Sustaining Costs of US$1.54 per pound, positioning it among the global cost curve leaders. These metrics provide substantial margin buffers against current pricing volatility while supporting long-term cash generation potential.

Environmental & Development Strategy

Environmental differentiation increasingly matters for Western supply chains, with carbon-negative production capabilities commanding premiums among ESG-focused end-users. Canada Nickel's NetZero Metals initiative aims to deliver carbon-negative nickel production through In-Process Tailings Carbonation technology, potentially sequestering up to 1.5 million tonnes of CO₂ annually. This environmental positioning aligns with increasing ESG requirements among Western battery manufacturers and automotive original equipment manufacturers.

Development execution remains critical during prolonged low-price cycles, with successful operators maintaining project momentum despite challenging market conditions. Near-term development catalysts for Crawford include Front End Engineering Design completion in March 2025, Environmental Impact Statement finalization with federal permits expected by Fall 2025, and production targeting for 2027-2028. The company's ability to advance from fifth drill hole to federal permitting in under six years demonstrates execution capabilities in a challenging regulatory environment.

Strategic Funding & District Scale

Strategic funding arrangements reduce traditional equity dilution concerns that plague many development-stage mining companies during capital-intensive construction phases. Crawford benefits from US$600 million in refundable tax credits from the Canadian government, Samsung SDI's option to acquire 10% with US$100 million funding, and US$500 million Letter of Interest from Export Development Canada as Mandated Lead Arranger. This diversified funding structure positions the project for construction decision without significant shareholder dilution.

District-scale opportunities provide additional strategic value through resource base expansion and operational leverage. Mark Selby, Chief Executive Officer of Canada Nickel, emphasizes this potential:

"Having the kind of district scale which will make Timmins the largest nickel sulfide district in the world, and then being able to take what we build at Crawford and simply cut and paste it four or five times to build what should and could be the world's largest nickel sulfide district production wise, bigger than what Norilsk produces, bigger than what Jinchuan produces today"

The broader Timmins Nickel District encompasses nine separate resources, with the Mann West deposit alone containing over one billion tons with 2 million tons of contained nickel and nearly one million ounces of platinum group metals.

Operational Advantages

Infrastructure advantages matter significantly for operational cost structures, particularly in established mining jurisdictions with existing supplier networks and workforce capabilities. Crawford's strategic positioning in Ontario leverages established mining infrastructure, local supplier networks, and residential workforce capabilities that contribute to operational cost advantages. The proximity to existing communities within an hour's drive enables a residential workforce model that enhances productivity while reducing operational complexity.

The Investment Thesis for Nickel

• Policy-driven demand adjustments, exemplified by the September 2025 US EV credit expiry, create near-term headwinds for nickel consumption while leaving structural growth trajectories intact. EV nickel demand maintaining compound annual growth rates of 12-15% through 2030 anchors long-term investment conviction despite current cyclical pressures.
• Cost curve pressures disproportionately affect HPAL and marginal producers, accelerating industry consolidation that favors low-cost, well-capitalized operators with strategic positioning. This consolidation process typically eliminates excess capacity while concentrating production among financially resilient players.
• Jurisdictional premiums for allied-nation Class 1 supply continue expanding as Western governments prioritize supply chain security through explicit policy incentives. The Inflation Reduction Act and EU Critical Raw Materials Act create sustained demand premiums for compliant producers in stable jurisdictions.
• Strategic investment opportunities emerge from the convergence of cyclical pricing pressure and structural demand growth, particularly for ESG-compliant Class 1 producers positioned to serve Western battery supply chains. Canada Nickel exemplifies how large-scale, low-cost, carbon-negative Class 1 supply in stable jurisdictions benefits from long-term structural demand despite near-term policy volatility.
• Risk-adjusted positioning favors producers with demonstrated cost competitiveness, jurisdictional advantages, and strategic alignment with Western supply chain security objectives, while maintaining caution regarding high-cost operations exposed to prolonged pricing pressure and geopolitical supply concentration risks.

Policy Inflection & Investor Positioning

The September 2025 EV tax credit expiry illustrates how fiscal policy directly influences commodity demand trajectories, creating immediate market implications that extend beyond traditional supply-demand fundamentals. Near-term pressure on US EV adoption will compound existing oversupply conditions, maintaining downward pricing pressure on Class 1 nickel in an already challenged market environment.

Long-term structural trends supporting EV growth remain intact, with global EV sales projected to represent half of all vehicle sales by 2035. The current policy-driven adjustment period, combined with persistent oversupply, creates cyclical entry opportunities for sophisticated investors willing to navigate short-term volatility in pursuit of structural positioning advantages.

Jurisdictional bifurcation increasingly favors secure, ESG-compliant Class 1 supply from allied nations, creating sustained competitive advantages for strategically positioned producers like Canada Nickel's Crawford Project. Investors must balance near-term policy uncertainty against long-term positioning opportunities as markets undergo fundamental restructuring toward supply chain security and carbon intensity reduction objectives.