With the advent of electric vehicles (EVs), a whole new supply chain is being developed to underpin the materials requirements of new battery ‘gigafactories’. However, as automakers scale up EV production, cost challenges become more problematic, especially in certain geographies with lower purchasing power. To solve this, a previously side-lined EV battery cathode material – LFP – has come to the forefront in 2020, thanks to its inherent safety, low cost, and the simplified battery pack design that it allows.
Roskill’s LFP white paper (free access for subscribers) analyses the reasons why global automakers, such as Tesla, BYD and Volkswagen, seem to have chosen LFP cathodes to power their EVs in the Chinese market, and how this trend could go well beyond China. It also analyses the possible implications on key battery materials such as cobalt, nickel, and lithium. In this process, Roskill conducted interviews with some of the companies directly involved and reached the following conclusions:
New MIIT regulations approved in May 2020 will require EVs to inhibit any fire or explosion within five minutes after a thermal runaway incident happens in battery cells. To achieve that level of protection, Chinese EVs using nickel-based chemistries such as NCM will require mitigation systems; these may include the use of fire-proof mica plates between pack and vehicle, “aerogel” segments distributed throughout the pack, or robust but heavy steel beams, among many other solutions. Such protection systems come at a monetary cost but, more importantly, an energy density cost (given their weight and volume), undoing advances in cell performance that were designed to lower pack cost and, therefore, EV prices.
To avoid these costly mitigation systems, OEMs interviewed by Roskill confirm that batteries using inherently safe LFP cathode materials would allow them to build simplified battery packs without modules, and without the otherwise necessary but voluminous safety and auxiliary components. In the last 12 months, companies such as BYD, CATL and Honeycomb (SVOLT) have revealed several pack architectures using this approach. As a result, some of these companies claimed up to 30% higher volumetric energy density, while decreasing the cost by as much as 30%, thanks to a more streamlined pack design.
LFP cathode producers explained to Roskill that the consortium managing LFP’s IP rights reached an agreement with the Chinese battery industry a decade ago in which, as long as LFP was produced and used within China, the consortium would not charge Chinese manufacturers a licensing fee. As a result, the price of Chinese LFP batteries has always been considerably lower than non-Chinese LFP batteries. However, the patents’ restrictions over LFP will start to expire in 2022. Simultaneously, the limitation of LFP exports on Chinese producers will be largely removed, along with the licensing fee for non-Chinese LFP cell producers. The removal of this IP barrier could become the largest opportunity for LFP-based Li-ion batteries to rapidly gain market share in the EV market outside China.
Cobalt price rises in 2018 made the cathode cost on a 50kWh battery pack move up 13-28% y-on-y. Although the cost impact at total vehicle level was much smaller, at 4-7%, this change could wipe out the margin obtained in smaller mass-market cars. In comparison, the cost of LFP moved just 1% y-on-y in the same period, with a marginal effect on total car cost.
Although several initiatives to control and certify cobalt mined without child-labour or artisanal mining exist today, it remains difficult to control other parameters such as the environmental impact of those mines, or corruption practices related to cobalt extraction in the DRC. These environmental, social, and governance (ESG) concerns, coupled with the fact that around 25% of global cobalt reserves could be depleted by 2030 (even when considering ultra-high nickel chemistries and cobalt recycling), pose a significant risk to supply chain disruptions.
Although some stakeholders and researchers believe that the resurgence of LFP batteries will be a short-lived trend, LFP could become an industry standard in urban EVs (A-B car segments) and perhaps in compact EVs (C-D car segments). This could be especially true in countries with lower purchasing power. To show the implications of these possible trends, Roskill has modelled the impact of a higher penetration of LFP batteries in its base-case EV forecast. A displacement of between 9% and 25% in both cobalt and nickel demand could be experienced by the end of the decade, depending on the regional split of LFP penetration, with an evident shift in the demand for lithium compounds (LiOH vs. Li2CO3).
Given that 95% of LFP cathode manufacturing is produced in China, and that LFP module-less technologies allow carmakers to lower their vehicle price tags, it is likely that LFP will be a growing trend – albeit confined to the Chinese auto industry until at least 2022. This is shown clearly in the strategy followed by carmakers such as BYD, Tesla, Volkswagen (with stakes in Guoxuan/Gotion High Tech), and possibly Toyota (in its collaboration with LFP market leader BYD). However, beyond 2022, a window of opportunity opens for LFP materials, with the expiration of the LFP patents and licensing rights.
Technology breakthroughs, until then, are nevertheless to be expected. Development of nickel-based cathodes with 1-5% cobalt loadings or no cobalt at all are present in the technology roadmaps of most European and North American automakers and their cell suppliers. In any case, LFP should be considered as a complementary or refuge material in addition to high-nickel chemistries. While LFP could power urban and some larger vehicles in the C-D car segments, nickel-based cathode will continue to be the go-to option for most automakers offering driving ranges over 400-500Km or performance vehicles.