LFP batteries to improve electric vehicle profitability
By: Jonathan Carrier
Tags: Ev, Electric Vehicles, Battery, Electric Car

Supporting the growth of EVs

Much has been discussed about the second coming of LFP as the battery cell chemistry that will make EVs more accessible and cheaper. The excitement has been elevated by announcements from CATL with its novel cell-to-pack technology, Tesla with their new LFP battery Model 3 that is now available in China, and an expected cobalt-free, higher efficiency, battery that will likely be revealed by Tesla at its Battery Day on September 22nd, according to reports.

Even in these early days of the electric vehicle industry, it seems we are entering into a VHS vs Betamax type battle between nickel-based chemistries (NCA and NMC predominantly) and LFP as the new saviour. Some have even gone as far as claiming LFP is “the hottest technology topic for the electric vehicle revolution”.

While no-one has yet gone so far as to predict that LFP could win overall, CleanTechnica has claimed LFP is the “key to the EV revolution”. While claiming LFP as the next chemistry saviour of the EV battery world may be a little far-fetched, it’s not outside the realms of possibility that LFP could gain greater acceptance and penetration in the global passenger EV market — not just in China, but other parts of Asia, Africa and perhaps even Europe and North America as well. Undoubtedly there is growing interest in LFP and its ability to establish a foothold in EVs produced outside of China.

CATL supplies a prismatic LFP battery for the standard range Model 3 in China, the first time Tesla has introduced an LFP cathode and this cell format into its model line-up. Impressively, the LFP pack assembly is a straight swap for NCA pack, reducing complexity, and allowing Tesla to introduce the LFP variant to market more easily and faster. The likes of SK Innovation, LG Chem and others are closely monitoring Tesla’s ambition to go cobalt-free and its LFP activities. Tesla has been the dominant EV player and shaped many aspects of the market. If LFP gains traction through Tesla, the Koreans and Japanese run the risk of being left behind.

The potential of LFP outside of China

Wood Mackenzie, a global energy, chemicals, metals and mining industries research firm, are bullish about the opportunity for LFP as a battery of choice for EVs. They predict LFP penetration for EVs will reach over 30% market share by 2030, up from 10% in 2020. That’s a bold prediction. In their research note, Wood Mackenzie cites “improvements in gravimetric energy density combined with cell-to-pack technology” coupled with demand for longer duration batteries and lower cost as major factors driving the growth of LFP.

Others are less bullish, including Benchmark Minerals Intelligence. They see LFP as “China-centric” with uptake only anticipated for lower-priced and lower range Chinese EVs. According to Benchmark, “LFP does not feature on major automakers technology plans for passenger EVs outside of China currently, as the industry pushes for greater range. Outside of China LFP will continue to play a role, but more prominently in heavy-duty vehicles and other applications where range or weight is not as critical.”

Recent data supports Benchmark’s view. In 2019, the global market share of LFP batteries in passenger EV batteries fell to 6% from 13% from 2018, according to data from Adamas Intelligence. The short-term trend is bearish with a diminishing interest in LFP, primarily driven by China. So, if market share is dwindling, why all the excitement about LFP and Tesla’s move to introduce an LFP variant of the Model 3? Are Wood Mackenzie right to justify a 30% share for LFP or is Benchmark right about LFP being China-only?

LFP advantages for EVs

For starters, LFP batteries have a lot going for them. LFP also has excellent thermal and chemical stability, handling far wider variations in temperature than other chemistries. An LFP battery stays cool in higher temperatures. It is also incombustible when it is mishandled during rapid charges and discharges or when there are short circuit issues. They provide a significantly reduced chance of thermal runaway, which occur when the temperature of a battery increases continuously, as the phosphate cathode will not burn or explode during overcharging or overheating as the battery remains cool. They also have a slightly higher self-discharge rate and low cell voltage (3.3V). There are other strengths to LFP’s bow: greater cycle life, no cobalt, ease of recycling, second life opportunity and lower cost ($/kWh) are the main areas where it has advantages.

However, LFP has traditionally struggled to offer the type of performance required to achieve the power densities for performance applications and energy densities for long-range. Here, LFP can’t compete with nickel-rich chemistries and, for that reason, forecasts from the likes of Benchmark assume LFP will remain a niche outside of China for passenger cars and as a solution for buses, forklifts, construction equipment and other low power applications. All the supporting evidence, heavy subsidies provided by the Chinese government to encourage the development of LFP based EVs, LFP battery production capacity and expertise already sits within China, indicates this to be the case.

This assumption does not take into account the development opportunity for LFP to improve performance, energy and cost, and how these vectors enable LFP based EVs to realise a new commercial positioning as a variant alongside nickel-based chemistries, not instead of. Many forecasters see LFP as a binary, ‘either-or’ proposition, not an incremental, ‘and’ opportunity, where LFP has the opportunity to enhance the line-up of many EVs, by increasing interest, demand and most importantly car line and OEM profitability.

An LFP cathode cost is estimated to be 50% of an NMC cathode. At a pack level, costs are 20–30% percent lower than NMC or NCA packs, according to BloombergNEF, cited in Automotive News. LFP raw material pricing is also more stable as it is not tied to cobalt and nickel, both of which face increasing volatility as demand increases in coming years. Cobalt and nickel prices have been relatively volatile in 2020 due to short-term supply disruptions and long-term positive fundamentals, according to fastmarkets. The stability of LFP means a roadmap towards $80/kWh at a cell level is possible. Bloomberg New Energy Finance estimates LFP batteries will hit $100 per kWh by 2023 or 2024, and just $61 by 2030.

Improving EV contribution margins

This is arguably the most interesting aspect of the LFP based Tesla Model 3 in China. It enables Tesla to increase vehicle margins and provide a lower entry price to its model line-up which will drive greater consideration. The vehicle also still qualifies for base subsidies (>250km per charge), but, more importantly, earns the energy density multiplier so buyers qualify for the full base subsidy amount. Bernstein has estimated Tesla’s costs per car could fall between $600 and $1,200 using LFP cells. As a result, Anxin Securities estimates Tesla could realise a 39% margin assuming Tesla maintains the selling price of the vehicle. It, therefore, gives Tesla a lot more flexibility and opportunity to balance the entry price and margin.

As the EV market has developed, so the greatest barrier to adoption in major markets is no longer range-anxiety, or charging concerns, but the price difference between the EV and its internal combustion-engined equivalent. An LFP variant in the line-up, if priced for volume and not margin maximisation, allows customers to prioritise price over driving range. It gives consumers a choice.

OEMs need to sell a lot more EVs to meet overall fleet emissions targets or face hefty fines. They have to choose their poison (or antidote) carefully. Current EVs have either negative margins or significantly lower margins than OEMs are used to realising — around 5% at best compared to 15–30% for an ICE vehicle depending on the OEM and their pricing power. LFP is an additional opportunity to address both cost and price point to improve margins, not just of that particular model but maximising line-up profitability.

Car manufacturers don’t want to sell lots of the entry-level versions of a model, it’s bad for business. The purpose of this vehicle is to generate maximum consideration and provide ways to maximise margin acting as the starting point to walk customers up to another, higher-margin, derivative in the range, and specifying a variety of options (paint and wheels in particular, but also packs) where the margins are over 50%. With EVs, manufacturers haven’t had the luxury of being able to do this yet — because the market wasn’t ready, and the technology and price points weren’t available. LFP provides an opportunity to address EV line-up profitability, something the OEMs desperately need.

If we look at the VW ID.3 as an example, which will shortly launch with 45, 58 & 77kWh batteries using NMC 712 based 78Ah cells from LG Chem with a gravimetric energy density of 265 Wh/kg. VW uses the same cell across all three battery packs, limiting capacity to realise a lower cost and entry price point. However, PushEVs claims the MEB chassis has been designed to take cells from other manufacturers in the future.

While the 45kWh ID.3 price hasn’t been confirmed (rumoured to be €29,900), the 58kWh (usable capacity, 62kWh total) “Pro-Performance” model starts at €35,575 before incentives. Assuming an aggressive pack cost of €130/kWh (assuming <€100/kWh at a cell level), the total cost is a little over €8,000 and the 45kWh pack would be approximately €6,250.

Assuming a direct LFP volumetric substitution of the ID.3 NMC pack and using a competitive sub-€100/kWh pack cost, an LFP battery would cost approximately €5,000, or 25% less. With a similar range, the LFP battery could be €1,250 less than the entry 45kWh NMC pack. At margin parity, VW could lower the entry variant price to under €28,650, or take the margin, or somewhere in-between.

Assuming a conservative lifecycle volume of 500,000 units for the ID.3, the total maximum gross contribution value of a switch to LFP-based entry model (at 30% mix) could generate an additional €187m for the carline. Even for a high-volume OEM like VW, that’s a significant chunk of change.

LFP can support a maturing EV market

With these kinds of numbers, LFP needs to be viewed through the lens of an evolving EV market. It’s maturing rapidly and, in the mid-term, the market needs both LFP and nickel-based chemistries. Diversified requirements on costs and performance will lead the market to offer different battery chemistries. There is no “one size fits all” battery, by application and even by car line. In the EV market, we won’t just see one EV model in the line-up (as with the Jaguar I-Pace, for example) but the entire line-up being electrified — from entry B-segment hatchbacks, through to E-segment luxury sedans and SUVs.

The positive business case outlook for LFP is matched by continued innovation in three areas: chemistry development for improved gravimetric density, cell engineering innovation (cell-to-pack and cell-to-chassis) for improved volumetric density and production scale to achieve lower costs. All three steps combined allow EV producers to potentially offer even lower cost, higher performance LFP batteries suitable for EVs.

Despite LFP being a well-established technology, there is ongoing research, development and innovation-focused, such as Guoxuan’s 190 Wh/kg cell. There is further opportunity to improve the chemistry of LFP through the addition of manganese to the cathode and a silicon-carbon anode to increase energy density.

However, it’s at a pack engineering level where the greatest gains have been made through cell pack design (cell-to-pack or CTP) from BYD and CATL. CTP reduces the mass of non-active materials in a battery pack increasing energy density. It reduces the amount of battery pack components by 40% and is estimated to reduce production costs by 30%.

At a cell level, CTP design can increase gravimetric energy density by 10 to 15%, already reaching 240 Wh/kg in 2019, and improve volume utilization efficiency by 15 to 20%. CATL has announced it aims to increase energy density to 350 Wh/kg by 2024. At a pack level, the energy density has improved from 180 Wh/kg to more than 200 Wh/kg.

Production at a mega-scale is the last and final opportunity for LFP, to drive costs even lower. CATL and BYD are manufacturing LFP cells on an unprecedented scale in China using large calendaring rolls and significant levels of manufacturing industrialisation. CATL is building a new 45 GWh factory near its HQ in Ningde which aims to be finished by August 2022.

Yet in Europe and North America, there is no LFP supply chain or manufacturing footprint. In the short term, this will be the limiting factor for LFP penetration to the EV market. However, CATL has not ruled out the possibility of supplying Tesla with LFP cells to its Berlin Gigafactory. And in August, Greek battery maker Sunlight announced it would shift production from lead-acid batteries to LFP cells, indicating the market opportunity and readiness for EU produced LFP battery cells. So, there is still time for LFP to establish itself as an entry point in the next generation of EVs that come to market by 2025.