August 05, 2022 12:31
More and more global automakers are plumping for cheaper Chinese-made lithium iron phosphate (LFP) batteries in a desperate bid to cut production costs amid soaring inflation.
Last year, both Mercedes-Benz and Volkswagen settled for Chinese LFP batteries, and Ford followed suit last month. On Wednesday, Chinese media reported that China's CATL will also supply next-generation LFP batteries to Tesla.
One persuasive argument for the trend is that EV makers worry inflation could lead to fall in demand for EVs unless prices come down.
Korean manufacturers make mostly nickel cobalt manganese (NCM) batteries but are now eyeing LFP batteries. But Chinese products are not just cheaper but increasingly better quality.
CATL will start supplying its latest M3P batteries to Tesla from the fourth quarter of this year. It has already supplied LFP batteries for the Tesla Model 3 since 2021, which changed the negative perception among global automakers of the quality of Chinese products.
The M3P is made by adding manganese, zinc and aluminum to LFP batteries to boost the energy density to 230 Wh per kg, which rivals the capacity of Korean-made NCM batteries. But making an M3P battery costs about the same as an ordinary LFP battery.
Industry watchers expected China to start manufacturing M3P batteries early next year, but production has already begun. Park Chul-wan at Seojeong University said, "Supplying products to Tesla is practically a guarantee of quality in the battery industry, so there will be more and more use of LFP batteries."
Some automakers had been skeptical of the shorter driving range of LFP batteries between charges, but runaway inflation has prompted them to take another look since LFPs are also 20 to 30 percent cheaper than NCM batteries.
Some say the appeal of LFP batteries will wane once technological advancements bring down the prices of NCM batteries. But prices of lithium and other raw materials are surging. Automakers expect battery prices to increase 20 percent over the next five years, and because they cannot keep raising EV prices, the preference for LFP batteries will only grow.
Korean manufacturers are rushing to produce more LFP batteries. LG Energy Solution plans to shift a production line in Nanjing, China to LFP batteries next year and open a new LFP production line at its plant in Michigan in 2024.
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