Iron Man Elon Musk places his bets on a Tesla battery

(Reuters) – While Tesla’s earnings and prices made headlines last week, a potential pivotal development in the global auto industry largely remained undisclosed.

The leading US electric company revealed that nearly half of the vehicles it produced in the first quarter were powered by lithium iron phosphate (LFP) batteries — a cheaper competitor to the nickel-cobalt-based cells that dominate in the West.

The revelation, which was overshadowed by the automaker’s $19 billion revenue and Elon Musk’s Twitter fees, was the first time Tesla had revealed such details about the composition of its batteries.

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There was a strong signal that iron-based cells were finally beginning to gain global appeal at a time when nickel was collapsing due to supply concerns due to the war of the main Russian producer in Ukraine and cobalt with reports of dangerous conditions in artisanal mines in the Democratic Republic of the Congo. Congo.

Tesla isn’t alone in betting that LFP batteries, already popular in China, can penetrate Western markets.

More than a dozen companies are considering setting up factories for LFP batteries and components in the United States and Europe over the next three years, according to a Reuters review of the electric vehicle landscape and interviews with several players.

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“I think lithium iron phosphate has new life,” said Mujib Ijaz, founder of US battery startup Our Next Energy, which says it is exploring a US production site. “It has a clear, long-term advantage for the electric car industry.”

Miracles have worked in the field long enough to see the technology that failed to spread in America a decade ago gain new momentum. He was the chief technology officer of Michigan-based A123, an early producer of LFP batteries that went bankrupt in 2012 and was acquired by a Chinese company.

He and other LFP advocates cited the relative abundance and cheaper prices of iron as a major factor that began to outweigh the drawbacks that impeded global adoption of LFP cells—they are larger, heavier, and generally contain less energy than NCM cells, giving them a shorter range.

However, there is a mountain to climb.

LFP chemistry made up just 3% of electric vehicle batteries in the United States and Canada in 2022 and 6% in the European Union, with nickel-cobalt-manganese (NCM) cells accounting for the remainder, according to data from Benchmark Mineral Intelligence (BMI).

The race is much narrower in China, where LFP controls 44% of the electric vehicle market versus NCM’s 56%.

It could be a long and difficult road for Western LFP cell manufacturers seeking to thrive against competitors from China, which accounts for about 90% of global production.

The short-term concern for such companies, according to BMI’s chief data officer, Caspar Rawles, is the continued dependence on Chinese suppliers of refined materials.

LFP cells also contain more lithium than NCM competitors, and industry experts are raising concerns that iron-based batteries’ historical advantage of being cheaper to produce could erode and even disappear due to higher metal costs.

Tesla has been using the LFP in some entry-level versions, the US-made Model 3 since last year, to expand its use of the technology outside of China, where about two years ago it began using LFP batteries made by Chinese company CATL (300750. SZ), the largest electric battery maker in the world. world, for some models 3.

However, given the historical dominance of nickel-cobalt-based batteries in the United States, the scale of Tesla’s use of LFP cells in the first quarter of 2022 — which equipped about 150,000 cars produced — surprised some analysts and battery specialists.

Tesla did not respond to a request for comment.

Co-founded by former Tesla battery supply chain manager Vivas Kumar, Mitra Chem is working on building materials for LFP batteries, initially in California. He said he expected nickel prices to remain volatile due to supply chain disruptions.

“The best insurance policy that automakers have… is to incorporate more iron cathodes into their portfolio,” he added.

US Electric Vehicle Startup Fisker (FSR.N), which plans to use LFP batteries in its low-range SUVs, plans to source cells initially from CATL. But CEO Henrik Fisker said he is in talks with battery suppliers to get batteries made in the United States, Canada or Mexico from 2024 or 2025.

Local sourcing is important because shipping heavy packages from Asia is expensive, especially for low-cost, high-volume vehicles, according to Fisker. The CEO added that it’s not environmentally friendly, and is confident that there will be a major place for LFP batteries in the global EV mix.

He said of city-dwelling electric car owners who drive shorter distances: “(If) I never leave LA, I never leave San Francisco, I never leave London…I think that’s where LFP really comes in well.”

Other luxury car manufacturers are also looking at chemistry after the Ukraine war, including Volkswagen (VOWG_p.DE) and Audi, which had never used LFP batteries before.

“We may see LFPs in a larger portion of the fleet in the medium term,” Audi CEO Markus Dussmann said in March. “After the war, a new situation will emerge, and we will adapt to it and choose battery technologies and specifications accordingly.”

BMW (BMWG.DE) Chief Procurement Officer Joachim Post also said recently that the company is studying the advantages of the LFP. “We’re looking at different techniques to reduce resource use, and we’re also looking to improve the chemistry,” he added.

Among its advantages, LFP cells tend to pose a lower fire hazard than NCM cells, and can be fully charged continuously without losing much performance over the life of the battery.

As the global electric vehicle market expands, chemistry is expected to find its way into more entry-level consumer and commercial vehicles where longer range is not critical.

However, obstacles to widespread adoption of LFP cells include finding solutions to improve energy density—and thus reduce size and weight—and addressing the high cost of lithium.

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Meanwhile, it will take time to build and scale up LFP production in the United States and Europe, highlighting the challenge for Western governments to reduce dependence on China.

American startups face an uphill battle to compete with CATL (modern Amperex Technology Ltd), which is backed by Chinese government subsidies and supplies Tesla, among others, with LFP cells.

“Everything has to be disciplined for manufacturing, without any errors,” said Bob Galen, a former chief technology officer of CATL who now runs battery consultancy, Galyen Energy.

He also noted that: “A US-based company does not need to worry about the geopolitical issues that China and the United States are plaguing with at present.”

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Additional reporting by Hyunjoo Jin in San Francisco and Paul Linert in Detroit; Additional reporting by Christina Aman and Victoria Waldersi in Berlin. Edited by Praveen Shar

Our Standards: Thomson Reuters Trust Principles.

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