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On 11 June 2020, Tesla received formal approval from China's
Ministry of Industry and Information Technology to build Model 3
vehicles with lithium-iron-phosphate (LFP) batteries. The document
did not specify any particular battery supplier, and there are a
number of major cell manufacturers who could meet Tesla's needs. To
date, Tesla has exclusively used nickel-cobalt-aluminum (NCA)
batteries for its vehicles. Produced in close collaboration with
Panasonic, Tesla's NCA batteries achieve a higher specific energy
than all other battery chemistries produced commercially today.
Yet, although Tesla and Panasonic have continuously increased NCA
capacity at Gigafactory 1 in Nevada, Panasonic has announced that
it will not be collaborating with Tesla on Gigafactory 3 in
Shanghai.
Tesla has thus been forced to seek an alternative battery
technology as no Chinese cell manufacturers produce NCA batteries
domestically.
The closest match to Tesla's NCA battery in China is
nickel-manganese-cobalt (NMC) 811, a high-nickel NMC formulation
that achieves similar performance metrics. However, NMC 811 is very
chemically unstable, which increases the risks for battery fires
and diminished battery cycle life. LFP batteries achieve less than
two-thirds of the energy density in NCA batteries, but they have
cheaper raw material costs and are an inherently safer
chemistry.
As China scales back its EV subsides, which have previously been
more attractive for vehicles with longer cruise ranges, with the
intent to fully withdraw them by 2021, automotive OEMs that use
high energy density batteries will soon be treated equally as those
who did not qualify for subsidies this year. This has sparked a
rapid increase in LFP interest from both cell manufacturers and
automakers addressing Chinese BEV market. In addition to Tesla,
Volkswagen has also made a strong play into China's LFP market,
acquiring a 26.5% stake in Guoxuan Hi-Tech Co Ltd for €1.1 billion
($1.25 billion), becoming the company's largest shareholder.
Figure 1: Timeline of announcements concerning LFP and the
"million-mile battery"
Concurrent with the rising LFP interest, automakers and cell
manufacturers have been pursuing 'million-mile batteries.'
Companies are not pursuing any singular chemistry for these
systems, and it is unclear if any of these use LFP cathodes. It is
also unclear why automakers would want a battery capable of
powering a vehicle for a million miles, as most consumers drive
only about 15,000 miles (25,000 km) per year and have no intention
of keeping a vehicle for multiple decades. One thing that is clear,
though, is that NMC 811 and other high-nickel cathodes are not
being used in these million-mile batteries, and their development
has been deprioritized as the automotive industry instead pursues
safer and longer-lasting batteries. LFP's 'cobalt free' nature is
also attractive to many in the supply chain, given the volatility
seen in cobalt pricing in recent years and concerns about the
sustainability of its supply.
Chinese LFP battery manufacturers stand to gain the most in this
shift. To date, almost 100% of global LFP battery production
capacity is located in China, and the process of scaling up LFP
cathode and cell production is much simpler than that for NMC
production. However, in order for LFP batteries to take off in
global markets outside of mainland China, companies will need to
greatly expand local production in other regions. The abundance of
small-cell manufacturers active in the LFP market will be ripe
targets for mergers and acquisitions, as larger players seek to
consolidate their positions and companies like Tesla and Volkswagen
seek to grow their footholds in the BEV industry.
Figure 2: Global Li-ion cell manufacturing capacity - LFP, NCA
and NMC only (GWh)
Interest in LFP technology has been steadily rising recently,
and confirmation that Tesla will use the technology in such a
flagship product launch may signal a very real movement toward LFP
gaining a significant share of the light passenger EV market, in
the likely event that other automotive OEMs choose to follow. IHS
Markit forecasts that LFP batteries will take a growing share of
battery demand. As China scales back its BEV subsidies, demand for
LFP will rise quickly. Ultimately, there will continue to be
healthy markets for both LFP and NMC batteries, but cell
manufacturers will target different customers, as high-end vehicles
will continue to demand NMC for longer ranges and high-penetration
models will favor LFP.
More insight into battery technology market developments is
available in our
Batteries Service.
Chloe Holzinger is a Senior Analyst with the Clean
Energy Technology & Renewables team at IHS
Markit. Youmin Rong, Ph.D., is a Senior Analyst within the Gas,
Power, and Energy Futures team at IHS Markit.
