What Tesla’s commitment to iron-based batteries means for manufacturers?

Earlier this week, Elon Musk made his most optimistic statements yet about iron-based batteries, noting that Tesla is making a “long-term shift” to older, cheaper lithium iron phosphate (LFP) cells in its energy storage products and some import-level EVs. .

Tesla’s CEO mused that the company’s batteries could eventually be about two-thirds iron and one-third nickel across all products. “And this is actually good because there is enough iron in the world,” he added.

Musk’s comments reflect a change already underway within the automotive sector, especially in China. Battery chemistry outside of China is primarily based on nickel, specifically nickel-manganese-cobalt (NMC) and nickel-cobalt-aluminium (NCA). These newer chemicals have become attractive to automakers because of their higher energy density, allowing original equipment manufacturers (OEMs) to improve the range of their batteries.

If Musk’s bullishness heralds a real shift in the EV industry, the question is whether battery makers outside of China can keep up.

Musk isn’t the only automotive executive to signal a return to the LFP formula. Earlier this year, Ford CEO Jim Farley said the company would use LFP batteries in some commercial vehicles. Meanwhile, at the company’s inaugural battery day presentation, Volkswagen CEO Herbert Diess announced that LFP would be used in some of VW’s entry-level EVs.

On the energy storage front, Musk’s comments about using LFP-based chemicals in Powerwall and Megapack are in line with other stationary energy storage companies pushing for iron-based formulas. “The stationary storage industry wants to move to LFP because it’s cheaper,” Sam Jaffe, head of battery research firm Cairn Energy Research Advisors, told TechCrunch.

LFP battery cells are attractive for several reasons. First, they do not depend on ultra-scarce and price-volatile raw materials such as cobalt and nickel. (Cobalt, which comes mainly from the Democratic Republic of Congo, has undergone additional research due to the inhumane mining conditions.) And while they are less energy-dense than nickel-based chemicals, LFP batteries are much cheaper. This is good news for those looking to drive the move to electric vehicles, as lowering the cost per vehicle will likely be the key to greater adoption of EVs.

Musk clearly sees a great future for iron-based chemistry at Tesla, and his comments have helped bring LFP back into the limelight. But there is one place where they have remained the star of the show: China.

China’s monopoly on LFP

“LFP is produced almost exclusively in China,” Caspar Rawles, head of price and data assessments at the research firm Benchmark Mineral Intelligence, explained in a recent interview with TechCrunch.

China’s dominance in LFP battery production is in part due to a series of key LFP patents, which are managed by a consortium of universities and research institutions. Ten years ago, this consortium reached an agreement with Chinese battery manufacturers under which manufacturers would not be charged a license fee, provided that the LFP batteries were only used in Chinese markets.

Therefore, China has cornered the LFP market.

Battery makers in China could benefit most from a potential tectonic shift to LFP — particularly BYD and CATL, the latter of which already produces LFP batteries for Tesla vehicles built and sold in China. (Volkswagen, meanwhile, has a significant stake in Chinese LFP maker Gotion High-Tech.)Attery makers aren’t slowing down: In January, CATL and Shenzhen Dynanonic signed an agreement with a local Chinese province to build an LFP cathode factory at a cost of $280 million over three years.

LFP patents expire in 2022, industry analyst Roskill explains, which could give battery manufacturers outside of China time to shift some of their production to iron-based formulas. However, all planned battery plants in Europe and North America, many of which are joint ventures with South Korean industry giants such as LG Chem or SK Innovation, are still focused on nickel-based chemicals.

“For the US to take advantage of LFP’s strengths, North American production will be necessary,” explains Jaffe. “Everyone building a gigafactory in the US today plans to make chemicals with a high nickel content. There is a huge unmet need for locally produced LFP batteries.”

Rawles said he expects some LFP capacity in North America and Europe in the coming years, especially after the patents expire. He pointed out that both CATL and SVOLT, another battery manufacturer, have taken steps in Germany – but both companies are Chinese, leaving open the question of whether other Asian or Western companies can compete in the LFP market. (Stellantis chose SVOLT as one of its battery suppliers starting in 2025.)

In terms of energy storage, Jaffe said he thinks “it is inevitable that most stationary storage systems will eventually be LFP.”

All is not lost for domestic production in the United States, however. “The good news for building local LFP production is that the supply chain is simple: outside of lithium, it’s iron and phosphoric acid, two inexpensive materials already made. [in the U.S.] in large quantities,” Jaffe added.

In the end, it’s not a matter of one battery chemistry versus the other. What’s more likely is what we’re already starting to see from automakers, including Tesla: Iron-based batteries will mainly be used in entry-level and lower-cost vehicles, while nickel-based cells will be used for more expensive and performance-oriented cars. Many consumers will likely be satisfied with a vehicle with a range of 200 to 250 miles that is thousands of dollars cheaper than a vehicle with a range of 300 to 350 miles.

Automakers have also begun to take steps to take charge of battery supply, either through vertical manufacturing or through joint ventures with established battery companies. That means growing LFP capacity in North America and Europe is not only likely, but inevitable.