China's Economic Boom Boosted by Tesla's Cheaper Batteries

There are several automakers, including Tesla Inc., Ford Motor Co., and others that have decided to switch to a different type of battery so that EVs can be used by a broader audience. In contrast to the power packs used in most electric vehicles manufactured in Europe and the United States, lithium iron phosphate batteries are much cheaper to produce. Due to their growing popularity, China is increasingly dominating the global battery market, as many of its suppliers are Chinese. 

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1. Exactly what are LFP batteries?

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There are many electric cars available that use lithium-ion batteries as their sources of electricity. The batteries are powered by a lithium particle moving between the negative and positive electrodes (anodes and cathodes) of the battery. In addition to lithium, iron, and phosphate, lithium-based cathodes are the main components of LFP cathodes. The cathode materials of the battery determine how much energy it can hold, how fast it can charge and discharge, and how likely it is to catch fire. As early as the late 1990s, a Nobel prize-winning scientist from the University of Texas at Austin identified LFP as a suitable cathode material, led by Dr. John Goodenough at the university. As the country's electric vehicle market was just beginning to take off, Chinese companies began to market the chemistry in the mid-2000s.

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2. How do LFPs differ from other forms of financing?

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Compared to lithium-ion batteries made from nickel and cobalt, which are commonly used in western electric vehicles, iron ore is relatively abundant and is relatively easy to extract and refine, making them less expensive to manufacture. It is important to note that although lithium-ion batteries are not completely free from fire risks, LFP batteries are generally more stable than nickel-based batteries. As their nickel equivalents cannot pack in as much energy, they are required to use larger, heavier batteries to achieve the same performance and range as their lithium equivalents. In the beginning, LFP batteries were used predominantly for commercial vehicles as well as static battery units, but this is changing due to the advancement of more efficient LFP battery pack designs on the market. In western countries, however, LFP cells are mostly used in commercial vehicles as well as static batteries. However, there are more and more efficient designs emerging for LFP battery packs on the market that are reducing their use. 

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3. Which companies dominate the market?

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Approximately 99% of the global production of LFP cathodes is expected to be made by Chinese manufacturers between 2022 and 2023, according to Benchmark Mineral Intelligence, including BYD Co. and Contemporary Amperex Technology Co. Even though other nations also want to use LFP batteries, the consultancy says that China's share of the market will only drop by a few percentage points to 96% by the end of the decade. Tesla's Shanghai plant manufactures LFP-based batteries for its vehicles. Ford will use LFPs in its Mustang Mach-E sport utility vehicle this year and in its F-150 Lightning pickup trucks from 2024 onwards as part of its plan to use LFPs in some of their vehicles. Mercedes-Benz Group AG, Volkswagen AG and Rivian Automotive Inc. have also expressed interest in using LFPs for some of their vehicles. 

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4. Are Chinese EVs becoming more dominant as LFP rises? 

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The answer is a resounding yes. According to a Trade Algo survey conducted in 2022, Chinese lithium-ion battery packs are the cheapest. In an era when commodity prices are high and EV manufacturers are looking for ways to reduce production costs, Evelina Stoikou, Trade Algo analyst, said this is a huge advantage at a time when commodity prices are high. It is unclear whether China will continue to dominate the electric vehicle market for as long as the United States and European Union spend hundreds of billions of dollars in order to develop their own EV factories. The nickel, cobalt, and manganese batteries, which are often used in higher-power EVs such as SUVs, still have a higher energy density than lithium-ion batteries, which remain a popular option for more expensive, long-range EVs, even though they are more expensive. 

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5. Can LFP be competed with by other technologies?

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In today's market, NMC and NCA batteries are the most popular alternatives. There are also backers of sodium-ion batteries, which aim to offer energy density similar to that of lithium-ion batteries. The raw material is more abundant and is potential for safety benefits. However, due to the low volume production and underdeveloped supply chains, they are more expensive for now. In its report published this week, BNEF reports that massive material savings and energy efficiency improvements could make sodium-ion batteries half as expensive as today's LFPs in the future.