Competition Intensifies in the East Asian “Battery Triangle”

Tesla and Ford recently announced they will be using LFP batteries in their electric vehicle (EV) models, such as the Model 3 and F-150 Lightning, instead of the NCM/NCA batteries on which Western automakers have long relied.

That raised eyebrows, because the switch to LFP batteries constitutes a win for Chinese companies. China currently utterly dominates global LFP battery output, while Japanese and South Korean companies specialize in NCM/NCA standards (see Figure 1).

Figure 1. China Dominates 93% of Global LFP Battery OutputNote: Figure shows market share of LFP battery manufacturers for EVs from January to July 2021.
Source: EE Times.

Indeed, the East Asian “Battery Triangle”—China, South Korea, and Japan—have respective dominance in different battery standards. The extent to which the EV industry shifts to one standard over another is directly tied to the prospect of those countries’ companies gaining market share.

Much like the oligopolistic commercial jet engines industry, the Battery Triangle revolves around the three prevailing battery chemistries: NCM, NCA, and LFP. They are all lithium-based, with the difference being the first two types predominantly use nickel, cobalt, and manganese or aluminum, while the latter relies mainly on iron.

With LFP already accounting for 1 in 5 EV batteries globally, the latest switch by major automakers is certainly a bullish indicator for LFPs. In the medium term at least, this will likely mean increasing reliance on Chinese battery suppliers.

But the uptake of LFPs will likely have a limit for reasons of battery performance and surging material costs. As a result, LFPs aren’t likely to become overwhelmingly dominant as automakers hedge against leaning too heavily toward any particular standard.

LFP Performance: “Good Enough”

Each battery standard has its own advantages. LFP tends to be safer than NCM/NCA, while the latter has higher energy density. That means an EV using NCM/NCA batteries can reduce weight by using a smaller battery pack to generate the same power as a larger LFP pack. For instance, a Tesla Model 3 using LFP batteries weighs 275 pounds more than the same model using NCA batteries.

Even as LFP batteries have seen performance improvements, they are likely to lag behind NCM/NCA through 2030 (see Figure 2). Nevertheless, Chinese companies such as CATL has developed new LFP batteries that claim to have an energy density (160Wh/kg) approaching NCA batteries (170Wh/kg) used in a 2017 Tesla Model 3. That makes LFPs a “good enough” and enticing choice for certain EV models.

Figure 2. LFP Has Improved Performance but Still LagsSource: PushEVs; SVOLT.

Cheaper LFPs Make Switching Decision Easier

Since a typical battery pack is the most expensive component of an EV (anywhere between 30% to 40% of the total cost), cost is the main consideration in choosing battery standards.

As a result of using cheaper materials and a simpler manufacturing process, LFPs tend to be cheaper. The invalidation of LFP patents in 2011 also drove down the cost for Chinese companies that no longer had to pay licensing fees. By 2021, China became the first market where LFPs made up more than half the battery market share (see Figure 3).

Figure 3. LFP Surpassed NCM/NCA in China MarketSource: Caixin; NH Investment & Securities.

Even amid surging metals prices last year, LFP batteries remained roughly 10% to 20% cheaper than NCM/NCAs on a per-kWh basis because they don’t use cobalt or nickel (see Figure 4). That is certainly a major reason that drove automakers to switch to LFP, but whether that cost advantage will endure is to be seen.

Figure 4. More Expensive Metals, More Expensive BatteriesSource: Korea Mineral Resource Information Service.

Metal prices are fickle and don’t always move in sync. Even as nickel and cobalt have fallen back to late 2021 prices, lithium prices have remained stubbornly high. If these dynamics are sustained, then the cost advantage of LFPs could be eroded. As such, it would be rational for automakers to not put all their eggs in the LFP basket, opting instead to adopt different battery standards.

The LFP Surge Is Coming

Despite the metals price volatility, major automakers like Volkswagen, Hyundai, and Mercedes-Benz have all jumped on the LFP bandwagon for their entry-level models. After all, using LFP batteries allows automakers to bring EVs closer to price parity with gasoline cars.

That means within the Battery Triangle, Chinese suppliers such as CATL and BYD are well positioned to benefit from this shift. This isn’t a surprise given that Chinese companies have been working on LFP batteries for a decade now, and there’s little to no LFP capacity outside of China.

Only one South Korean battery maker, SK On, is developing LFP batteries for EV application, which may have been prompted by Ford’s plan to switch (SK On has a joint venture with Ford for battery manufacturing). But it is unrealistic to expect Japanese or South Korean suppliers to rapidly scale LFP batteries because they have long specialized in NCM/NCA and must decide between investing in new battery technologies or chase LFPs.

The reality, then, is that the EV industry in the near term will rely more on Chinese battery suppliers to drive down the cost of EVs, while NCM/NCA will likely lose some luster. In short, the competitive dynamics in the Battery Triangle is starting to get interesting.

Hae Jeong Cho is a research associate at MacroPolo. You can find her work on energy, transportation, and other topics here.


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