FOCUS: The war between EV battery cathodes

Lithium iron phosphate batteries have recently regained their position as the preferred option among original equipment manufacturers in China, casting doubt on the forecast dominance of the alternative nickel-cobalt-manganese lithium-ion batteries in the country’s electric vehicle battery supply chain.

The situation has also raised questions about whether the change in sentiment would be mirrored outside China.

The output of lithium iron phosphate (LFP) batteries in China surpassed that of nickel-cobalt-manganese (NCM) units in May 2021. Some market sources noted that it was the first time in three years that the former has exceeded the latter in terms of output.

LFP batteries are among the earliest well-developed electric vehicle (EV) battery technologies in China, and are well known for their stable and safe performance, despite their overall low energy density compared with NCM batteries.

The higher the energy density an EV battery has, the greater the driving range of the vehicle on a single charge.

In the second half of the past decade, most original equipment manufacturers (OEMs) in China shifted to NCM lithium-ion batteries in an attempt to achieve higher battery energy density. This change in battery chemistries was encouraged by the appealing incentives and government guidance available at the time.

But a more recent cut in EV subsidies in the country, and OEMs’ attempts to minimize their exposure to volatile cobalt and nickel prices, has restored the favor being shown toward LFP batteries since 2020.

LFP strength
In addition to its safe performance because it is less vulnerable to thermal runaway, the lower cost of an LFP battery is its best selling point.

In the context of similar performance in energy density and driving range, the cost of the whole battery patch using LFP units is about 15-18% lower than for an NCM 523 (Ni:Co:Mn 5:2:3) or NCM 622 installation, according to a source with an automotive manufacturer.

But the cost gap between LFP and NCM batteries might vary depending on the absolute prices of nickel, cobalt and lithium, a source with a battery cathode materials producer said.

Furthermore, since an LFP battery does not require any cobalt or nickel, OEMs and battery manufacturers are not subject to the price volatilities affecting those metals, which are essential for different configurations of NCM batteries.

The price for cobalt sulfate in China fell by nearly 76% between April 2018 and July 2019, and then was rangebound at 40,000-60,000 yuan ($6,190-9,284) per tonne between August 2019 and December 2020, according to Fastmarkets’ data. Moving into 2021, the price jumped by 67% in the first two month of the year before falling by nearly 28% in mid-May.

Fastmarkets’ latest price assessment for cobalt sulfate, 20.5% Co basis, exw China, was 74,000-76,000 yuan ($11,451-11,760) per tonne on Friday June 25.

The corresponding price for nickel sulfate has ranged between 22,750 yuan and 36,500 yuan per tonne in the past two years. Fastmarkets’ price assessment for nickel sulfate, min 21%, max 22.5%; cobalt 10ppm max, exw China, was 33,500-34,500 yuan per tonne on June 25.

The scarcity of battery metals, especially cobalt, is another crucial factor for the battery supply chain when considering a cobalt-free battery technology.

About 70% of the world’s cobalt is mined in the Democratic Republic of Congo (DRC), while the cobalt supply chain is looking for responsible sourcing in light of the unregulated artisanal mining activities in various locations.

“The dependence on one country for cobalt supply poses risks and uncertainties to the value chain,” a producer of precursor materials source said.

Earlier this month, the Federal Consortium for Advanced Batteries in the United States published a document calling for the elimination of cobalt and nickel from battery cathodes by the end of this decade “to reduce US battery manufacturing dependence on scarce materials, or those controlled by unreliable partners.”

In contrast, there are adequate supplies of lithium and iron, two key elements in LFP batteries.

“There is a long way to go before we see any scarcity in lithium. Cobalt and nickel are more sensitive,” Stephanie Clement de Givry, global head for metals and mining finance at Société Générale, said during a Fastmarkets webinar in March 2021.

International OEMs are also putting LFP batteries into their cathode technology landscape. United States-based carmaker Tesla is using LFP batteries in its standard range Model 3, produced in a Shanghai factory. German carmaker Volkswagen announced during its Power Day in March this year that it would adopt all battery technologies including LFP and high-manganese nickel batteries, in addition to NCM batteries, which had been previously projected by western OEMs to be the dominant technology.

But the LFP battery’s longevity may be challenged, given the uncertainty of some variables including the popularity of sustainability in the value chain, and innovations in NCM chemistry technologies.

Circularity of battery supply chain
With the global economy and various manufacturing value chains prioritizing sustainability, the EV supply chain has started to take notice of the need for battery material circularity, which is likely to challenge the LFP battery’s penetration in the long term, according to market sources.

New EU regulations on the battery supply chain focus on sustainability and responsible sourcing of raw materials, with some proposals for initiatives for battery circularity, setting a minimum quota for the amount of recycled cobalt, lithium and nickel in each battery.

For instance, the minimum requrement will be 12% of recycled cobalt in 2030, moving up to 20% by 2035.

In addition to the requirement to use recycled metals, producers in the battery value chain have also taken note of initiatives to shift toward a dependence on recycling units, as opposed to consuming primary resources. For instance, Chinese battery materials producer GEM Co will reduce its purchases of primary resources to 40% of the total feedstock it uses by 2025. It also intends to be independent of primary resources by 2030, Kaihua Xu, the company’s president, said during an interview with Fastmarkets in May.

The value of the recycling process will dictate OEMs’ preference for NCM or LFP batteries, a cathode materials producer source said.

“The absolute value of recycling LFP batteries will be subject to the value of lithium, since iron is cheap and abundant,” the same source said. “If the price for lithium carbonate is below 60,000 yuan per tonne, the battery supply chain is likely to lose money when it feeds on recycled materials.”

Lithium carbonate is one of the key raw materials used to produce LFP batteries, while lithium hydroxide is typically used in the production of nickel-rich NCM batteries, especially the NCM 811 variety.

Fastmarkets’ latest price assessment for lithium carbonate, 99.5% Li2CO3 min, battery grade, spot price range, exw domestic China, was unchanged week on week at 87,000-89,000 yuan per tonne on June 24.

Marc Grynberg, chief executive officer of global materials technology company Umicore, has noted that the value of the materials in an LFP battery was very low, according to a report in UK business newspaper Financial Times in June 2021.

“The recycling will come at a different cost, which has not been factored into the equation so far,” Grynberg said. “The lower the metal value, the higher the net cost you have to incur to get the material recycled.”

Meanwhile, in addition to the value of recycled battery metal, market participants believed that the overall sourcing costs for nickel, cobalt and lithium will come down due to the usage of recycled units, which will bolster the preference for NCM batteries.

That said, battery circularity will not immediately affect some OEMs’ current preference for LFP batteries because it will take several years for recently manufactured EVs to reach their end-of-life and enter the reycling chain. Automotive and battery manufacturers must take this into consideration when looking into the adoption of different battery technologies in the future, according to market participants.

“Given the value of nickel and cobalt, having them in the battery is going to be a driver to them becoming part of the circular economy, which makes the EV battery a much more sustainable business in the long run,” Will Adams, the head of Fastmarkets’ battery research team, has said.

Cut of cobalt in traditional NCM configurations
One of the key drivers for the revival in the LFP battery’s market share is its independence from cobalt, a metal which creates concern in light of its vulnerability to price volatility and supply risks.

But innovations intended to cut cobalt use in traditionally cobalt-rich NCM battery configurations, including NCM 523 and NCM 622, while achieving energy density similar to that of an NCM 811 battery, are likely to hinder the momentum of LFP battery adoption, market participants told Fastmarkets.

Traditional NCM 523 and NCM 622 cathode materials, which sometimes are referred as 5 and 6 series configurations, usually contain about 10-12% cobalt. But some cathode materials producers have succeeded in reducing the cobalt content to about 7-8% while improving energy density by raising the voltages, according to cathode materials producer sources in China.

“With voltages raised, battery capacities can also be raised,” one cathode materials producer source said. “As a result, NCM batteries with 5 or 6 series configurations can achieve the same energy densities as NCM 811 batteries.”

Although cathode materials producers hope to further reduce the cobalt content in 5 and 6 series configurations, there will still be a minimum amount of cobalt required to maintain safe operations, according to the same source, adding that the floor value for cobalt is about 5%.

This technology breakthrough has been adopted by multiple leading cathode materials producers in China since last year, market sources told Fastmarkets.

And this has reduced their dependence on cobalt in addition to improving the energy density, which makes NCM batteries more cost-effective and with better performance than LFP batteries, especially for medium-to-high-end EV uses, market participants told Fastmarkets.

But some market participants have pointed out that OEMs outside China were unlikely to take similar steps because they have strict standards they must follow on battery voltages.

“It could be a transitional technology for OEMs and battery manufacturers in China to use in order to cut costs, before capacities for standard NCM 811 batteries ramp-up,” Vicky Zhao, Fastmarkets’ senior analyst for battery raw materials research, said.

“Once capacities for NCM 811 battery expand to a certain level, battery manufacturers can also effectively reduce their costs,” Zhao said.

Demand for battery metals
Regardless of whether LFP batteries broaden or lose their appeal in the long run, lithium is the absolute winner in light of the booming EV market, because it is required in the production of both LFP and NCM batteries.

The only variables are the demand for lithium carbonate, which is used to produce LFP batteries and NCM batteries with 5 and 6 configurations, and the demand for lithium hydroxide, which is used to produce nickel-rich batteries, including NCM 811 and nickel-cobalt-aluminium (NCA) batteries.

“Recent improvements in LFP batteries have broadened their appeal and may mean that the carbonate-versus-hydroxide demand balance ends up more equal in the longer term than previously projected,” Adams said.

But he also said that, at present, the choice for a passenger vehicle buyer is to buy a vehicle with an internal-combustion engine or an electric vehicle. “Most [potential buyers] have no knowledge of the different battery chemistries,” Adams said. “As EV buyers become more knowledgeable, buyers will want the ‘best’ batteries on offer, and that is likely to promote the higher performance NCM chemistry over LFP.”

Growth of demand for nickel will probably follow the same trajectory as lithium hydroxide when the adoption of nickel-rich NCM and NCA batteries boosts demand for both battery metals.

There are greater uncertainties about the growth of cobalt demand, however, in light of the competition between LFP and NCM batteries and between the various types of NCM configuration.

The revival of the LFP battery is an absolute headwind to the demand for cobalt as well as nickel, and if demand for nickel-rich batteries strengthens in the battery supply chain, the demand for cobalt will again be moderated.

If OEMs are content to make significant use of NCM batteries with 5 or 6 series configurations in their battery technology landscapes, then the battery supply chain will continue to show robust demand for cobalt in the foreseeable future.

But in the much longer run, when higher numbers of EVs begin to be recycled, the fate for primary cobalt and nickel might change accordingly.

“Once EVs dominate the market,” Adams said, “then dependence on newly mined cobalt and nickel will fall, because these two battery ingredients will be recycled, in much the same way as the lead in lead-acid batteries is [recycled]. In Europe, around 98% of lead-acid batteries are recycled in a closed-loop.”

(This story was updated on June 28 to clarify that the reduction in cobalt content in the cobalt-rich NCM configurations was currently only practised in China.)