Battle of Battery Chemistries: Rise Of Lithium Iron Phosphates And The Shadow Of Geopolitics

During Tesla’s Q1 earning calls last week, Tesla announced a data point which would seem odd to most people few years ago.

Approximately half of all the vehicles Tesla produced around the world were built with lithium iron phosphate (LFP) batteries.

What are lithium iron phosphate batteries?

Lithium iron phosphate (LFP) batteries are different from more traditional energy dense batteries such as nickel manganese cobalt (NMC) and nickel cobalt aluminium (NCA).

LFP batteries do not contain nickel or cobalt in the cathodes. This is a good thing, considering the rising costs of nickel and cobalt. LFP batteries contain, as the name suggests, iron and phosphorus. Both iron and phosphorus are less expensive.

Average cost of NMC and NCA batteries has been hovering around $130 per kWh. On the other hand, average cost of LFP batteries is, yes, you guessed it right, much lower. Consider it to be approximately somewhere around $90 kWh.

What are the trade-offs?

It costs less, but is that the only reason behind its growth? No. There are some other factors. LFP batteries are better at safety and longevity when compared to batteries which are nickel rich. Reduction in the possibility of getting burned whilst driving one’s own vehicle, sure seems like a good idea.

This longevity and safety comes at a cost. LFP batteries are less energy dense when compared to the other battery chemistries mentioned above. That has many implications, the primary one is that lower energy density = lower range for your EVs. To those having a tangential interest in the quest for replacing vehicles with internal combustion engines (ICE), it is common knowledge that lower range of the initial EVs, was the primary hurdle that EVs faced in the road of replacing ICEs.

How does it even work?

All lithium ion batteries are charged and discharged by the movement of lithium back and forth between the positive side cathode and negative side anode. This transfer, causes reactions. These reactions, over time, degrade the battery materials. What it means is practical terms is this - there is an upper limit to the number of charging cycles. Once this limit is crossed and the battery materials are sufficiently degraded, the battery fails to retain enough energy to power the EV over a sufficient range.

You can relate to this even if you don’t own an EV (which, let’s be honest, how many people do in India?). Consider the battery in your phone. If you are someone who has used a phone for a long time before replacing it, you will have noticed that a full charge doesn’t really last as much as it used to when your phone was all new. This is a relatable practical example of the same principle at work, the principle being, degradation of battery material due to repetition of reactions.

Here’s the crux. LFP batteries have a longer life span. In an LFP battery, the lithium is moved through iron and phosphorus. This movement of lithium through iron and phosphorus is less destructive compared to moving lithium through nickel and cobalt, hence the longer lifespan.

This also means LFP batteries can be charged faster and as mentioned earlier, are significantly safer and perform better in extreme heat.

Back to current day EV production and the growth of LFPs

As mentioned earlier (that's it! No more 'as mentioned earlier', otherwise it will soon develop the prospect of being turned into a drinking game), in the first three months of 2022, nearly half of all vehicles produced by Tesla were built with LFP batteries. Last year, it became the dominant battery chemistry for Chinese EV manufacturers. LFP batteries are also widely used in energy storage systems (ESS).

This is good news for all of you who are excited about EVs because of environmental and conservation reasons instead of preferring wide scale replacement of ICEs with EVs just because it is much more quieter. Trust me, such people do exist. Yours faithfully, the author of this piece, is just satisfied with the prospect of EVs denting the leverage oil rich Islamic countries in West Asia have.

Once a LFP battery in an EV reaches its end of life, it can still probably be used in ESS where it can last for quite a few more years.

The stability this battery chemistry provides makes it an optimal candidate for ESS. Large amounts of energy can be stored and retrieved without worrying too much about the material being damaged in the process. Battery chemistries relying too much on nickel can’t claim the same.

All that changed in 2020, thanks to the Chinese automaker and battery maker firm BYD. March of 2020, BYD came up with a new LFP battery design. BYD claimed that whilst remaining much more safe and less expensive compared to batteries which are rich in nickel, their LFP battery design could achieve range comparable to the nickel-rich batteries. No exactly as good as them, but not that bad either. This is something which made adoption of LFP batteries in EVs a perfectly practical option.

July 2020, BYD started using their LFP batteries in their EVs. Today, almost all EVs that BYD manufactures in China, has LFP battery in it. From just 2020 to now. The transition was quite rapid.

After BYD intervened in the battery market with their own LFP design and changed the fate of LFP batteries, others followed suit. BYD is our globe’s fourth largest battery producer. The first is CATL, which is a Chinese firm too.

A small tangent on India's exaggerated self perception

Taking a small tangent. It is interesting to observe how China dominates battery manufacturing, which is real hard tech, whilst India, keeps perceiving itself as some kind of tech power, just because American soft tech firms find it profitable for their bottom line to hire skilled Indian labour instead of skilled American labour, due to one simple fact, that skilled American labourers will have more negotiating power, demand higher wages, which, in turn, will hurt the bottom line of these soft tech companies. The idea that a nation like America, can’t produce enough people of its own who can run basic code on python is amusing.

It is also worth considering the merit of India’s societal norm, which is that the cobwebs of soft tech blurring our vision is fine, because remittences. Meanwhile China is increasing the power differential between us and them by focusing on hard tech instead of garbage tech. This topic however, is a completely different pandora’s box.

Certainly countries like South Korea are in a better position than us to loosen China's grip in this sector, thanks to their focus on hard tech instead of soft tech.

Back to batteries (and paying a short visit to geopolitics)

After BYD, CATL, the largest battery manufacturer in wold, came up with its own LFP battery design. Remember how we talked about Tesla’s disclosure in Q1 earning calls? Well, Tesla has been using CATL’s LFP batteries for the EVs it builds in China.

Let’s take the growth of LFP batteries out of the equation for a few seconds. Even without LFP batteries, battery manufacturing is concentrated in China. This wasn’t an accident but an outcome engineered by policy makers in Beijing.

Take into account now the growth of LFP batteries, China is is an even more dominant position. It produces more than 90 per cent of our globe’s LFP batteries. 90 per cent.

It is quite possible that LFP batteries will become the most widely used type of lithium ion battery in EV manufacturing, replacing the traditionally dominant batteries with nickel rich cathodes. It is not the most likely outcome but it is a significantly possible outcome, assuming the current trends continue.

Questions worth pondering over

In the event that we do successfully transition from ICEs to EVs, what will be the implication of the battery manufacturing sector being dominated by China? Especially an outsized dominance in the battery chemistry that is emerging to be a battery chemistry of significant importance. Will it grant China a significant leverage? Will China having a leverage over us be an asset for us or a liability?

Sure, the erstwhile Planning Commission has a policy paper on how India can become self sufficient in battery technology to ensure no dependency on other nations, but India also had a similar plan during Rajiv Gandhi's regime for semiconductors, that didn't end well, ironically our semiconductor industry hasn't yet recovered from that debacle in the 80s.

We have changed the Prime Minister, replaced a corrupt one with an incorruptible and competent one, but have we changed the human capital of our country? Can a nation which seriously considered an abysmal idea like 'leapfrogging manufacturing and going into services' be really capable of, pulling off, something like a robust globally competitive, domestic battery manufacturing industry? As Indians, we surely hope so.

Let’s be optimistic and imagine a future where battery manufacturing isn’t concentrated in China but widely distributed throughout the world. Even in that scenario, do we have any leverage over China? Have we ever thought of formulating long term policies that grants us leverage over China? Or is the highest goal we can phantom a scenario where China doesn’t have any leverage over us, that’s it?