An older, cheaper and safer battery technology already dominating China’s electric vehicle industry is now poised to reshape battery manufacturing worldwide and boost EV sales in the United States — if the global lithium supply remains stable.
A slew of patents for lithium-iron-phosphate (LFP) chemistries due to expire in 2022 could shift the face of battery production in the U.S. and Europe.
China has owned the market for nearly a decade due to an agreement with patent holders — a consortium of universities in the U.S. and Canada — that let Chinese manufacturers use them to supply local markets. Meanwhile, manufacturers outside China have focused on developing other lithium-ion chemistries to power their EVs because their higher energy density translates into longer range on the road.
LFP already comprises 17% of the global EV market and represents a potential path for the mass market, according to the AlixPartners 2022 Global Automotive Outlook released Wednesday.
That’s because universal access to patents, coupled with the escalating prices of raw battery materials, is driving many automakers to home in on the advantages of iron-based batteries. To start, they cost less, don’t use scarce raw materials like cobalt and nickel, and are less likely to catch fire.
There have been warnings that a looming lithium supply shortage could cut the global EV sales forecast in 2030 to 25 million EVs, down from a projected 40 million, according to a report Tuesday from the Advanced Propulsion Centre, a partnership between the U.K. government and automakers.
However, that hasn’t appeared to stop the momentum toward LFPs. Even if a lithium bottleneck slows production, the battery chemistry remains easier to produce than the NMC (nickel-manganese-cobalt) the industry currently favors, as those metals are in short supply, too.
The same organization forecast that a quarter of EVs built in Europe will use LFP. Industry analysts have also become bullish on the prospect of LFPs, projecting that the iron-based batteries will power entry-level and cheaper vehicles, while nickel-based cells will be used for higher-end and performance cars.
LFP batteries could play a large role in the 250 battery-electric nameplates coming to the U.S. through 2030, according to Edgar Faler, senior industry analyst at the Center for Automotive Research. The chemistry is also well suited to the growing demand for light and medium commercial vehicles that can deliver goods in urban areas.
“For the foreseeable future, there’ll be a number of different chemistries competing to become the chemistry of choice,” Faler said.
Dual chemistry approach
A number of U.S. and European automakers are already beginning to take a dual approach of using both battery chemistries, especially as they strive to meet demand for affordable, entry-level models and appeal to first-time buyers wary of high-priced EVs.
For instance, newcomer Rivian said its new LFP battery pack will launch in its commercial vehicles for Amazon later this year and serve as the standard architecture for R1T pickups and R1S SUVs starting late 2023.
Tesla, Ford, Stellantis and Volkswagen are also exploring ways to incorporate LFP batteries into their EVs.
Ford CEO Jim Farley said during the automaker’s quarterly earnings report in May that the company would use LFP batteries in some of its EVs and commercial vehicles. “Engineering LFP solutions for our first generation of products is something that we see as a big opportunity to move quickly,” he said.
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Volkswagen, which already partners with Chinese LFP maker Gotion High-Tech, said that some of its entry-level EVs would use LFP batteries. Stellantis is set to begin incorporating LFP into its fleet, counting SVOLT, another LFP manufacturer in China, among its suppliers.
Mercedes-Benz also said it plans to use LFP batteries in entry-level vehicles such as the EQA compact car and EQB compact crossover starting in 2024.
Tesla achieved a head start by producing LFP-powered EVs for the Chinese market through a partnership with supplier CATL, one of China’s two global leaders in LFP technology.
CEO Elon Musk said last summer that Tesla will use LFP cells in its energy storage products and some of its entry-level EVs. The company reported in April that half of its 2022 first-quarter sales were derived from vehicles underpinned by LFP battery packs. Musk said at the time that vehicles with LFP batteries will eventually account for two-thirds of the company’s sales.
Chinese joint ventures and land grabs
The new enthusiasm for LFP batteries among U.S. manufacturers is likely to kindle more joint ventures with battery makers in China. For example, China’s other LFP juggernaut, BYD, said earlier this month that it has an agreement to begin making batteries for Tesla.
Developing LFP capacity in North America and Europe is inevitable, but the question of where in these two vast regions the batteries will be built remains open. The push by automakers to move battery manufacturing closer to their U.S. factories could lead to a land grab among those eager to take control of their own supply, whether through vertical manufacturing or joint ventures with established battery companies.
The iron and phosphorous required to build LFP battery packs are more plentiful in the U.S. than nickel and cobalt, which provides some hints of where automakers may set up operations.
So far, the emerging model seems to be large-scale battery-manufacturing campuses that help automakers vertically integrate their operations and regulate battery cost and supply, Faler said. One such venture is Ford’s $5.8 billion partnership with SK Innovation to build its flagship battery manufacturing campus in Glendale, Kentucky.
Remaining risk
The central element in both LFP and other lithium-ion batteries is lithium. That makes lithium-ion prices, and supply, a key risk factor that could scuttle EV targets.
Prices for lithium are already surging due to the war in Ukraine and other global upheavals. Lithium prices have jumped 700% over the last two years, according to a report from S&P Global Commodity Insights.
The cost pressures seem to be mounting, with current lithium prices lifting the cost of an automotive battery by 20% to 25%, according to Mujeeb Ijaz, founder and CEO of Our Next Energy. The Michigan-based energy storage company develops battery technology for EVs, including LFP.
In the meantime, LFP remains the cheaper of the two chemistries. The pricing surge is expected to moderate as automakers build more capacity and competition into the supply chain, Ijaz said. Ultimately, LFP will become the standard baseline battery for most major automakers by 2027.
“There may be short-term pricing problems,” Ijaz said, “but in the long term, we can return to pre-pandemic learning curves with cost improving year over year for the past decade.”
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