April 27 (Reuters) – As Tesla’s profits and prices dominated the headlines last week, a potentially crucial development for the global auto industry went largely unnoticed.

The American electric pioneer has revealed that almost half of the vehicles it produced in the first quarter were fitted with lithium iron phosphate (LFP) batteries – a cheaper rival to nickel and cobalt-based cells which dominate in the West.

The revelation, overshadowed by the automaker’s $19 billion in revenue and Elon Musk’s Twitter post, was the first time Tesla had disclosed such details about the composition of its batteries.

This sent a strong signal that iron-based cells are finally starting to gain global appeal at a time when nickel is marred by supply issues due to Russia’s war in Ukraine and cobalt is marred by reports of unsafe conditions in artisanal mines in the Democratic Republic. of Congo.

Tesla isn’t alone in betting that LFP batteries, already popular in China, can make their way to Western markets.

More than a dozen companies plan to establish LFP battery and component factories in the United States and Europe over the next three years, according to a Reuters study of the electric vehicle (EV) and vehicle scene. interviews with several actors.

See the accompanying box on the plans: find out more

“I think lithium iron phosphate has a new life,” said Mujeeb Ijaz, founder of US battery startup Our Next Energy, which said it was looking for a US production site. “It has a clear, long-term benefit for the electric vehicle industry.”

Ijaz has been in the business long enough to see a technology that failed to catch on in America a decade ago gain new momentum. He was chief technology officer at Michigan-based A123, an early producer of LFP batteries that went bankrupt in 2012 and was acquired by a Chinese company.

He and other LFP advocates cited the relative abundance and cheaper prices of iron as a key factor beginning to outweigh the disadvantages that have held back the adoption of LFP cells globally – they are larger and heavier, and generally contain less energy than NCM cells, giving them a shorter range.

There is a mountain to climb, however.

According to data from Benchmark Mineral Intelligence ( BMI).

The race is much tighter in China, where LFP controls 44% of the electric vehicle market compared to NCM’s 56%.

The road could be long and difficult for Western LFP cell makers looking to thrive against their Chinese rivals, which account for around 90% of global production.

A shorter-term concern for these companies, according to BMI chief data officer Caspar Rawles, is a continued reliance on Chinese suppliers for refined materials.

LFP cells also contain more lithium than their NCM rivals, and industry experts fear that the historic advantage of iron-based batteries of being cheaper to produce will be eroded and even erased by rising costs. metal.

Tesla has been using LFP in some US-made entry-level versions of its Model 3 since last year, expanding their use of the technology beyond China, where about two years ago it was started using LFP batteries made by Chinese company CATL (300750.SZ), the world’s largest EV battery manufacturer, for some Model 3.

Yet given the historical dominance of nickel- and cobalt-based batteries in the United States, the extent of Tesla’s use of LFP cells in the first quarter of 2022 – installed in approximately 150,000 cars produced – surprised some. battery analysts and specialists.

Tesla did not respond to a request for comment.

Mitra Chem, co-founded by former Tesla battery supply chain manager Vivas Kumar, is working to build LFP battery materials, initially in California. He said he expected nickel prices to remain volatile due to supply chain disruptions.

“The best insurance policy automakers have…is to incorporate more iron-based cathodes into their portfolio,” he added.

US electric vehicle startup Fisker (FSR.N), which plans to use LFP batteries in its low-end SUVs, plans to initially source cells from CATL. But CEO Henrik Fisker said he was in talks with battery suppliers to source batteries made in the United States, Canada or Mexico from 2024 or 2025.

Local sourcing is important because it’s expensive to ship heavy lift from Asia, especially for low-cost, high-volume vehicles, according to Fisker. It is also not environmentally friendly, added the CEO, who is convinced that LFP batteries will occupy a major place in the global electric vehicle mix.

“(If) I never leave Los Angeles, I never leave San Francisco, I never leave London… I think that’s where the LFP really comes in,” he said of owners of urban electric vehicles who travel shorter distances.

Other high-end automakers are also studying chemistry after the outbreak of war in Ukraine, including Volkswagen’s Audi (VOWG_p.DE), which has never used LFP batteries before.

“We may well see the LFP in a larger part of the fleet in the medium term,” Audi CEO Markus Duesmann said in March. “After the war, a new situation will emerge; we will adapt to this and choose battery technologies and specifications accordingly.”

BMW’s (BMWG.DE) chief purchasing officer, Joachim Post, also said recently that the company is looking into the merits of the LFP. “We are looking at different technologies to minimize resource use and we are also looking at optimizing the chemistry,” he added.

Among their advantages, LFP cells are generally less of a fire hazard than NCM cells and can be continuously fully charged without losing as much performance over the life of the battery.

As the global electric vehicle market expands, the chemistry is expected to find its way into more entry-level consumer and utility vehicles where longer range is not as critical.

Yet obstacles to the widespread adoption of LFP cells include finding solutions to improve energy density – thereby reducing size and weight – and tackling the rising cost of lithium.

Here is a graph: https://tmsnrt.rs/3uUejfn

Meanwhile, developing and scaling up LFP production in the US and Europe will take time, underscoring the challenge for Western governments to reduce their reliance on China.

US startups face an uphill battle to grow to compete with CATL (Contemporary Amperex Technology Ltd), which is backed by Chinese government grants and supplies Tesla with, among other things, LFP cells.

“Everything has to be disciplined manufacturing, with zero errors,” said Bob Galyen, a former chief technology officer at CATL who now runs a battery consultancy, Galyen Energy.

He also noted, “A US-based company doesn’t have to worry about the geopolitical issues that China and the US have right now.”

Reporting by Hyunjoo Jin in San Francisco and Paul Lienert in Detroit; Additional reporting by Christina Amann and Victoria Waldersee in Berlin; Assembly Pravin Char

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