Batteries and the dynamics of rising commodity prices for future technology choices


The sharp rise in battery raw material prices this year has amplified the cost difference between the two main EV batteries: nickel-based cathode active materials (CAM) and lithium iron phosphate (LFP), increasing the interest in electric vehicles powered by LFP.

While all lithium-ion batteries work through the movement of lithium ions and the induced movement of electrons through a circuit, not all Li-ion cells contain the same chemicals. One area of ​​battery technology that has seen a number of different solutions deployed over the years is the cathode. Two main approaches have become popular for cathodes in EV batteries – the first uses nickel-cobalt based chemistry, while the second sees cathodes built around a mixture of lithium iron phosphate (LFP).

Nickel-cobalt-based cathodes offer greater energy density but are more expensive to produce. Therefore, these batteries are preferred for high-end electric vehicles where range performance is more of a concern.

LFP cells are becoming increasingly popular in commercial applications as they are cheaper to build and offer better safety performance, while absolute range in these use cases is of less concern (e.g. urban use/short journeys). However, with improvements to pack design and chemistry optimizations, we expect more high-end models to switch to LFP chemistries in the future. Already, Tesla has started moving its standard-line Model 3 and Model Y vehicles to LFP cells.

Muthu Krishna, battery manufacturing cost modeller at cross-product pricing agency Fastmarkets, describes the reasons for the recent rise in li-ion battery raw material prices and the resulting effect on nickel-based CAM costs.

Muthu Krishna

JA: What is the cost difference between nickel-based CAMs and LFP on a kWh basis and what is its trend?

MK: As of January 2022, the cost of the NMC811 and LFP was $60.4/kWh and $46/kWh, respectively. By May, that had risen to $98/kWh and $65.8/kWh respectively. This is based on spot prices of raw materials and some estimates of cell processing and design costs.

Since May, we have seen volatility decline with some cooling in commodity prices. However, while lithium prices have stabilized, they remain extremely high, at $75/kg and $78/kg for carbonate and hydroxide respectively as of 08/16/2022 (cif China, Japan, Korea), having almost doubled since the beginning of 2022.

Fastmarkets’ lithium forecast shows that there will be a decline in prices over the next two years as supply increases (although the price will still be relatively high compared to 2021), with another shortfall between 2025 and 2028, causing prices to rise again, but not to the same levels we have seen this year. Beyond 2028, we will see a more stable reduction in prices, as we expect new technologies to help producers better meet demand.

We can expect the CAM cost to follow this trend, and we are currently working on the CAM cost forecast based on our latest research.

Can you explain why sustained high commodity prices will lead to renewed interest in LFP motor electric vehicles?

Previously, there was little difference between LFP and nickel-based CAMs in terms of $/kWh, which, together with its higher energy density providing greater EV range, made NMC the chemistry preferred in the West.

The CAM is the most expensive component in the airframe, and raw material prices are the primary driver of CAM cost. High lithium prices affect both LFPs and nickel-based CAMs – this is fixed as both types need lithium. The focus is then on the price of iron phosphate versus the price of NMC/NCA/NCMA precursors.

If the price difference between the two groups remains high, EV manufacturers will begin to ask, “how much more is the customer willing to pay to alleviate range anxiety?”. In the future, we will have a wider charging infrastructure, which will lead to greater consumer acceptance of vehicles with shorter ranges (and smaller batteries), especially for city dwellers, operators of light fleets and drivers whose main use of the vehicle is short term. duration trips. All of this strongly favors the LFP, and if the significant cost advantage remains, we could see the LFP become more dominant. However, it is unlikely to replace nickel-rich cells for high-end vehicles.

Additionally, LFP is attracting increasing R&D interest, with some Chinese companies claiming LFP cell energy densities above 200 Wh/kg, bringing LFP closer to low-nickel chemistries.

In addition, high material prices put ESG in more of the spotlight. We are all aware of the issues concerning cobalt in the DRC. But the supply of nickel, mainly from Indonesia, is also a concern. Having neither nickel nor cobalt, LFP does not invite the same level of scrutiny as NMC and is unaffected by the price volatility of these two metals.

LFP’s low price, wide availability of raw materials, better resistance to price shocks, fewer ESG concerns, and safety benefits associated with improved cell-to-pack energy density efficiency have spurred increased interest, especially from Tesla and other major OEMs. It is the subject of extensive research and development to mitigate its drawbacks, and studies show that it is capable of replacing the NMC532, making it well suited for entry-level and standard-range models. If commodity prices remain high, this will likely be accelerated.

How serious is the lithium supply shortage and its effect on longer term LFP and commodity prices?

Estimates show that there are sufficient lithium reserves on Earth for our needs (about 15 million tonnes extractable by conventional methods). The big concern right now is being able to mine and transform these reserves into battery-grade lithium salts in record time to meet demand, especially since new mines can take up to 15-20 years to become operational.

China has spent the past decade building its supply chain. We now see North America and Europe rushing to secure their own supplies to avoid serious shortfalls, which would truly undo years of efforts to reduce battery costs, and be on par, if not worse , for the automotive industry that the shortage of semiconductors.

Such deficits would increase lithium costs and make the LFP more favorable.

The ultimate goal is to create local supply chains by region (Europe, North America) that are made circular through battery recycling, thereby reducing over-reliance on China. Because of its scale and the way it is accelerating, this is the only way for the EV industry to see security of battery raw material supply and stable prices.

Muthu Krishna, Fastmarkets

Krishna joined Fastmarkets from Jaguar Land Rover (JLR) where he was a lead cell engineer working on electric vehicle (EV) batteries.

His tenure at JLR included the characterization of advanced Li-ion cells (performance and lifespan) for electric vehicles, including the upcoming 2022 Range Rover PHEV. He also worked within a multidisciplinary team to develop concepts of BEV SUV batteries and has led several research and development projects with the Warwick Manufacturing Group at the University of Warwick.

Krishna holds a PhD from the University of Southampton, where he worked on a prototype redox flow battery concept designed for grid-scale energy storage applications.


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