How Tesla’s quest for cheaper batteries boosts China
THE biggest obstacle to mass adoption of electric vehicles (EVs) is high sticker prices. And the most expensive part of an EV is its battery, which accounts for around a third of the overall cost. That is why carmakers in China, the leader in EV production, have been switching to lithium iron phosphate, or LFP, batteries, which are cheaper than other widely used power packs.
Now, US manufacturers including Ford and Tesla are trying to catch up. How quickly LFPs are adopted will help decide how soon the world shifts from gas-powered cars to EVs – and who dominates the global auto industry in this new era.
What are LFP batteries?
The key component in the lithium-ion batteries that power EVs is the cathode, which determines how much energy they can hold and how fast they can be charged.
Most lithium-ion battery cathodes are made of nickel and cobalt. US-based researchers identified LFP as a viable cathode technology in the late 1990s. Chinese companies began to commercialise it in the mid-2000s to power the country’s emerging industry, and Western EV makers have begun to embrace it too.
Tesla is using LFPs at its plant in Shanghai. Ford will use them in its Mustang Mach-E sport utility vehicle this year and in its F-150 Lightning pickup from 2024. Mercedes-Benz, Volkswagen and Rivian Automotive have also pledged to use LFPs.
What are the strengths and weaknesses of LFPs?
Because iron ore is more abundant and less expensive to extract and refine than nickel and cobalt, LFPs cost less to manufacture. They are also less prone to catching fire.
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On the other hand, they cannot pack as much energy into the same space as nickel cathodes, so bigger, heavier batteries are needed to achieve equivalent range and performance. As a way to cut urban pollution, China began using LFPs in buses, where the weight-to-power ratio is less important than in cars. As battery designs became more efficient, Chinese carmakers began using them too.
What’s the state of global competition in EV batteries?
More than half of the EVs made last year were sold in China. Chinese firms account for more than 50 per cent of the EV battery market and satisfy as much as 90 per cent of demand for some battery materials, according to BloombergNEF.
The resulting economies of scale have made it impossible for US and European automakers to match the efficiency of their Chinese rivals. Average EV battery pack prices in North America and Europe were 24 per cent and 33 per cent higher than in China, respectively, in 2022.
Why does that matter?
Manufacturing costs for high-end EVs have fallen to parity with those of comparable combustion-engine vehicles. But mid-market EVs are still more expensive to make than their traditional equivalents. What’s more, battery prices have begun to rise after several years of declines, pushing out the expected moment of overall price parity by two years, until 2026, according to BloombergNEF. That is a particular problem for US and European car manufacturers that are lagging well behind their Chinese rivals in turning EVs into a mass-market product.
Western nations are spending hundreds of billions of dollars to develop home-grown EV battery industries almost from scratch. That effort will not pay off unless automakers can slash battery costs. Only then will they be in a position to cut sticker prices far enough to persuade most drivers in those countries to switch to an EV.
Are LFPs the solution?
On a pure cost calculation, there’s no debate: Chinese LFPs were the cheapest lithium-ion battery packs in a 2022 BloombergNEF survey. That cost advantage, however, comes with risks attached. China accounted for as much as 99 per cent of global production in LFP battery cathode technology, according to Benchmark Mineral Intelligence. Although other nations are racing to catch up, the consulting firm sees China’s share falling only slightly to 96 per cent by the end of the decade.
Western auto executives are already wary of Chinese dominance in EVs and want to insulate their supply chains from potential trade wars and other disruptions. Yet pivoting to LFPs requires working with China. Tesla’s LFPs are supplied by China’s Contemporary Amperex Technology. Ford will make LFPs at a new factory in Michigan, using technology licensed from the Chinese company.
What technologies might compete with LFP?
There are some use cases in which LFP cannot replace nickel-cobalt-manganese and nickel-cobalt-aluminium batteries, which remain attractive for more expensive, longer-range EVs because of their higher energy density.
Backers of another technology, sodium-ion batteries, aim to match the energy density offered by LFP. For now, sodium-ion batteries are more expensive, as they are produced in lower volume and the materials needed to build them are not as widely available. BloombergNEF expects material savings and energy-density improvements could eventually slash the cost of these cells to half that of LFPs today.
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