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LFP: advantage for China in the battery market

By Daniel Burow

The abbreviation LFP stands for lithium iron phosphate, which is used as a cathode material in lithium-ion battery cells. It is cheap to produce, comparatively easy to handle and is considered very safe due to its chemical structure. When the Chinese industry embarked on the long march toward e-mobility, the chemical compound licensed by a European-Canadian consortium was therefore considered the material of choice. China negotiated a long-term agreement early on that allows the country’s companies to use it royalty-free on the domestic market to this day.

About ten years ago, however, when the German automotive industry began to take an interest in Chinese battery manufacturers, the focus shifted to nickel-cobalt-manganese cathodes (NCM). Only with this higher-energy material, according to the tenor of the research departments of the car companies, could the requirements for ever greater ranges of electric cars be met. Today, as e-cars are set to conquer not only the premium segment but also the mass market, and an unexpectedly steep market ramp-up is in the offing, the issues of cost efficiency and raw material availability are increasingly coming to the fore. And LFP seems to be on the verge of a late comeback.

New fields of application opened up

However, LFP never really disappeared from the battery market. In the market for electric buses, for example, which has grown immensely in China over the last few years, the material plays out its safety advantage. NCM materials have the disadvantage that they become chemically unstable when overcharged or overheated, decompose in a chain reaction, and can thus release large amounts of energy – the dreaded thermal runaway. While the focus in the passenger car sector was on minimizing the risk, primarily through control electronics designed to high safety standards, the Chinese government wanted to play it safe with buses. The use of NCMs is still prohibited here, leaving only the alternative of LFP. Whether this policy is based solely on safety concerns or also on industrial policy considerations – manufacturers from Japan and South Korea have a technological lead in NCM battery cells – remains to be seen. Together with the also rapidly increasing demand for stationary energy storage and batteries for e-scooters, solid demand for LFP materials was ensured throughout. This is because, in both fields of application, energy densities play a subordinate role, while costs play a decisive one.

Elon Musk and VW rely on LFP

Now, as is often the case, a tweet from Elon Musk in February of this year generated a lot of attention in the industry: “Nickel is our biggest concern for scaling up lithium-ion cell production. That’s why we are shifting standard range cars to an iron cathode.” Tesla announced at its Battery Day last year that it would henceforth rely on LFP cells from Chinese cell manufacturer Contemporary Amperex Technology Co. Limited (CATL) for standard-range Model 3s produced at its Shanghai Gigafactory. Up to now, NCM cells from the Korean manufacturer LG Chem have been used in particular.

Tesla is thus addressing an issue that is also increasingly causing concern among European automakers. At its Power Day in March, Volkswagen also announced its intention to use LFP cells for volume models in the future. In addition to the significant cost advantage, VW also cited a sustainable supply chain as a criterion for selecting the cathode material. “Sustainable” should not only be understood from a socio-ecological point of view (cobalt from crisis regions) but also in terms of long-term supply security. In a report published a few weeks ago on behalf of the Joint Research Center of the European Commission, the raw material analysis company Roskill points to emerging supply problems. Nickel supplies, analysts say, threaten to fail to meet demand in the European Union from 2027. Iron, on the other hand, is the second most abundant element in the earth’s crust and is easily accessible in large quantities. So it seems logical that Roskill, in another market study published in January, expresses a positive outlook for LFP’s market share.

China’s battery industry benefits from LFP trend

In China, LFP battery production for electric vehicles had already risen by around 21 percent by 2020. The Chinese battery industry, therefore, did not wait for a Musk tweet, but anticipated the development beforehand. The turnaround in subsidy policy that the Chinese government is currently implementing is certainly also playing a significant role. In the wake of the COVID-19 crisis, subsidies for the purchase of electric vehicles were extended by another two years. However, they are scheduled to expire in 2022, and the government intends to invest more in charging infrastructure instead. In the past, the Chinese subsidy system primarily favored high-range, purely battery-electric vehicles. It can be assumed that the cost-benefit ratio will play a much greater role in the future. In addition, a denser network of charging options is likely to take pressure off the quest for ever greater ranges. The Chinese market could serve as a blueprint for the situation in Europe.

The Chinese battery industry is benefiting from this development, as it has a strong historical position in LFP and is still not on a par with its Korean competitors in NCM technology. The barriers to market entry are significantly lower for LFP technology than for NCM because the material’s chemical stability means that it does not place such high demands on production conditions. This reduces investment costs immensely, and process defects have less serious consequences than with the more sensitive NCM. Not least because of this and the stable domestic demand for LFP cells, a considerable number of battery cell manufacturers have been able to emerge in China in just a few years, some of them growing into global players. While the European industry has long sought its salvation in the “next technological leap”, China has started with the simplest and most cost-effective technology with the pragmatism so typical of the country.

BYD has a strong market position

One company that could benefit particularly strongly from the comeback of the LFP is BYD. The conglomerate, which is listed on the Hong Kong and Shenzhen stock exchanges, has consistently adhered to LFP technology in the passenger car sector as well. The company made up for the material’s energy density disadvantage elsewhere in its “Blade Battery”. By dispensing with the usual structure of several modules and instead integrating the cells directly into the overall system (cell-to-pack technology), the battery achieves competitive energy densities. In a study published in Nature Energy in January, the energy density by volume of the BYD Han – the first car model to use the technology – is even higher than that of the Tesla Model 3 LR from the 2017 model year. Added to this are advantages of LFP in terms of fast-charging capability and service life. According to the portal BusinessKorea, Hyundai has now expressed interest in the Blade Battery for its models sold in China.

The inspiration for the battery’s name comes from particularly long, narrow cells that fill the entire width of the battery pack, thus also giving it mechanical rigidity. The unusual format poses special challenges for manufacturing. According to an insider from the Chinese battery industry, about two years of development work were necessary – an effort that BYD could turn into a lasting competitive advantage.

Vertical integration and new competition

Another competitive advantage of BYD is that the company controls the entire value chain down to LFP material production. The same applies to the Chinese competitor Gotion High-Tech, in which Volkswagen acquired a 26 percent stake last year. For non-Chinese material producers such as BASF, however, the business could soon become more lucrative. That’s because patents for the material’s manufacturing process will begin to expire in 2022, and with them the royalties are due. At the same time, however, the export restrictions for Chinese companies will no longer apply. The race is, therefore, on in a market that is becoming freer, and it is possible that other players will join in.

Meanwhile, CATL is also investing heavily in vertical integration. In January, the industry leader from southern China’s Fujian Province announced plans to build an LFP factory with its subsidiary Shenzhen Dynanonic at a cost of $280 million. CATL founder Zeng Yuqun commented, “For a certain time, lithium iron phosphate still has room for improvement, it’s still the absolute mainstream for many applications.” Or, in other words, there’s life in the old dog yet.

Dr. Daniel Burow is a chemist and technical project manager. He has worked for German and Chinese companies in the automotive industry and completed his doctorate in the field of battery materials.

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