Elon Musk wants Tesla to use LFP batteries - Why it should not be made by a Korean battery trio.

Key Highlights

• This time, Tesla CEO Elon Musk is upending the electric vehicle business by questioning the decades-old paradigm of lithium-ion batteries.
• "Taking away the veilLFP batteries may be less expensive, but only with significant state subsidies.
• Even if more advanced LFP batteries are created, they will never be able to compete on price with Chinese-made LFP batteries.
• The driving range disparity is projected to expand further as Korean battery manufacturers increase the nickel content of lithium-ion batteries to increase their power.

• However, LFP batteries are making a comeback as automakers seek a safer alternative in the wake of recent lithium-ion battery recalls.

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Elon Musk strikes once again. The market swings like a pendulum with every word he tweets on Twitter. The unconventional leader's impact extends from bitcoin to space.

This time, Tesla CEO Elon Musk is upending the electric vehicle business by questioning the decades-old paradigm of lithium-ion batteries.

Tesla stated last month that it would employ a cheaper, safer alternative known as lithium-iron-phosphate, or LFP batteries, in all of its standard-range vehicles.

South Korean battery trio LG Energy Solution, Samsung SDI, and SK On, which only manufacture lithium-ion batteries, were taken aback by Tesla's pivot and were forced to decide on whether to build LFP batteries as well.

It was just SK On who predicted Tesla's LFP gamble. SK On said during its third-quarter conference call that it would mass-produce LFP batteries to target the low-end EV market.

However, experts are hesitant to follow Tesla's lead since, when compared to lithium-ion batteries, LFP batteries demonstrate key limitations in price competitiveness and driving range.

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ESG hazard

As the name implies, LFP batteries are composed primarily of iron and phosphate. These two materials are inexpensive and plentiful, particularly in China. This is why LFP batteries – which are mostly manufactured by Chinese companies such as CATL – are significantly less expensive than lithium-ion batteries, which contain costly metals such as nickel, cobalt, and manganese.

On the other hand, this means that LFP batteries are significantly less valuable in their second life. When the final recycling procedure is included, LFP batteries are $1 more expensive per kilowatt-hour than lithium-ion batteries.

According to SNE Research, a market researcher in the region, LFP batteries are $18 cheaper per kWh than lithium-ion batteries.

However, $23 worth of precious metals may be recovered from lithium-ion batteries. The only metal recoverable from LFP batteries is lithium. Lithium is recoverable to the tune of about $4.

As a result, LFP batteries are $18 less expensive to purchase but $19 less valuable to recycle. When the second life of LFP batteries is included, they are $1 more expensive than lithium-ion batteries.

"Automakers may contemplate utilizing LFP batteries for short-term profit margins. In the long run, they must assess the risks and costs associated with recycling wasted LFP batteries of low value. Additionally, they must focus on tightening environmental rules and environmental, social, and governance management," an analyst with SNE Research stated.

"The global consensus is that automakers are responsible for reclaiming depleted batteries (from EVs). They may find themselves at a disadvantage if they choose LFP batteries."

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Taking away the veil

LFP batteries may be less expensive, but only with significant state subsidies.

According to SNE Research, Chinese authorities have subsidized local mineral industries to the tune of more than 100 trillion won ($84.5 billion) to enable them to supply raw materials to LFP battery makers at prices lower than the market rate.

Even if more advanced LFP batteries are created, they will never be able to compete on price with Chinese-made LFP batteries.

Chang Jung-hoon, an analyst at Samsung Securities, notes that while LFP batteries are less expensive, they are too heavy to compete with lithium-ion batteries.

Chang estimates that LFP batteries are around 8% less expensive than standard lithium-ion batteries. While the cost of LFP batteries is 353,126 won per kWh, the cost of NCM622 lithium-ion batteries is 384,912 won.

LFP batteries, on the other hand, are approximately 30% less potent than NCM622 batteries. Additional LFP batteries must be fitted to get the same driving range. This would add weight to an EV's overall weight, which would have a direct effect on its efficiency on the road.

"Even if LFP batteries have the same kWh capacity as lithium-ion batteries, they would have a shorter driving range," Chang explained.

NCM622 batteries are composed of 60% nickel, 20% cobalt, and 20% manganese. They are intended for mid-range electric vehicles, such as the 2016 Chevrolet Bolt EV, which has a range of approximately 380 kilometers.

The driving range disparity is projected to expand further as Korean battery manufacturers increase the nickel content of lithium-ion batteries to increase their power. LG Energy Solution created NCMA (nickel cobalt manganese aluminum) batteries with a nickel content of 90%, whereas Samsung SDI developed NCA (nickel cobalt aluminum) batteries with a nickel content of 91%.

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Hush-Hush

Due to the significant disadvantages, the market expected that LFP batteries will vanish sooner or later barely 2-3 years ago.

However, LFP batteries are making a comeback as automakers seek a safer alternative in the wake of recent lithium-ion battery recalls. As the EV market's focus shifts away from performance and toward safety, LFP batteries are given another shot.

Even better, according to a London-based consultant, Roskill, major patents that have prevented China from exporting LFP batteries are expected to expire next year. China is currently preparing to enter the EV battery business, which is controlled by lithium-ion batteries, just like it did with the solar panel sector, which was dominated by the US and Europe.

Experts warn caution regarding the rise of LFP batteries, stating that they are equally as prone to fire dangers. They claim that a paucity of coverage of LFP battery fires in China – where the media is closely controlled – fostered an erroneous market trust in their safety.

"It's difficult to concur with those who assert that LFP batteries are fireproof or risk-free. As with lithium-ion batteries, LFP batteries are drenched inflammable liquid electrolytes. When LFP batteries have a short circuit, they are doomed to catch fire," Chang explained.

"Several instances of BYD's E5 equipped with 47kWh LFP batteries catching fire have been reported. In September of last year, one of them was set on fire during charging. Because LFP batteries were formerly offered only in China, their mishaps were comparatively unknown in comparison to lithium-ion batteries."

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