The Evolving Landscape of Battery Chemistries: Navigating Tight Supply and New Alternatives in the EV Market
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Battery chemistries are evolving amid tightening supply
Battery technology is evolving rapidly. Most electric vehicle batteries are Li-ion based and are light, small and store a lot of energy. While batteries can vary in composition, they generally rely on the same set of materials.
Li-ion batteries for EVs are either nickel-based – lithium nickel manganese cobalt oxide (NMC) and nickel cobalt aluminium oxide (NCA) or lithium iron phosphate (LFP). Nickel-based batteries have a higher energy density, which gives them more driving range, and they account for the majority of EV batteries outside of China. In general, the higher the nickel percentage in the battery, the higher the energy density that the battery can provide. Nickel-based batteries are also more expensive, mostly due to their use of cobalt and lithium.
In 2022, NMC remained the dominant battery chemistry with a market share of 60%, followed by LFP with a share of just under 30%, and NCA with a share of about 8%, according to the IEA. While nickel-based batteries remain the dominant battery chemistry, there has been a resurgence of LFP battery chemistries over the last few years, mostly driven by the increasing uptake of LFP in electric vehicles in China. Battery manufacturers have been transitioning away from nickel and cobalt because of their high costs, scarcity, and mining ethics. Nickel batteries require an environmentally damaging mining process, while cobalt artisanal mining lacks regulations.
LFP batteries differ from other chemistries in their use of iron (which is abundant and cheap) and phosphorus, rather than the nickel, manganese and cobalt found in NCA and NMC batteries. They have a lower energy density, but they are also cheaper to manufacture as they don’t contain nickel, cobalt and magnesium. They do, however, remain exposed to expensive lithium prices. LFP batteries rely on lithium carbonate instead of hydroxide used for nickel-rich chemistries.
Until now, production has been mostly limited to China but is set to increase on a global scale. Chinese manufacturers, including BYD Co. and Contemporary Amperex Technology Co., accounted for as much as 99% of global production of LFP cathodes in 2022, according to Benchmark Mineral Intelligence. Tesla, Volkswagen and other major automakers are now already switching to LFP batteries in some of their EV models.
In recent years, alternatives to Li-ion batteries have also been emerging, notably sodium-ion (Na-ion). Na-ion relies on lower-cost materials than Li-ion, resulting in cheaper batteries. Na-ion batteries also completely avoid the need for critical minerals. Sodium is one of the most abundant and geographically spread resources on Earth, and the Na-ion battery developed by China’s CATL is estimated to cost 30% less than an LFP battery. It's important to note, however, that these batteries do not have the same energy density as their Li-ion counterparts (75 to 160 Wh/kg compared to 120 to 260 Wh/kg).
With the dramatic rise in lithium and other battery materials prices over the last two years accelerating interest, several other cell manufacturers have now joined CATL in establishing a Na-ion supply chain. There are nearly 30 Na-ion battery manufacturing plants currently operating, planned or under construction for a combined capacity of over 100 GWh, and almost all of them are in China. For comparison, the current manufacturing capacity of Li-ion batteries is around 1,500 GWh, according to the IEA.
Na-ion cells are likely to be less sensitive to rising lithium, cobalt and nickel costs, with the lower pack cost providing a key reason to substitute Na-ion batteries for Li-ion applications. While lithium-ion continues to improve, BNEF expects that sodium-ion’s energy density in 2025 will be comparable to that of LFP in the early 2020s when it took a significant share of global battery demand. BNEF anticipates sodium-ion deployment in cars will begin to take off in 2025, with over 15GWh set to be deployed that year.
Chemistry choice and the impact of material pricing
Battery materials play a key part not only in the performance of batteries but also in costs. In LFP cells, for example, materials account for 30% of battery pack prices. The price of lithium plays a relatively large role in determining the final cost of battery chemistries. In 2022, the most drastic increase seen in battery material prices was for LFP batteries at over 25%, while NMC batteries saw an increase of less than 15% according to IEA data. This can be explained by the price of lithium rising at a higher rate than that of nickel and cobalt. Even so, LFP batteries remain less expensive than NCA and NMC per unit of energy capacity.
The price of batteries also varies across different regions. China has the lowest prices on average and manufactures around 65% of battery cells and almost 80% of cathodes, according to the IEA.
Battery swapping can further shake up the EV supply chain
An alternative way of EV charging is emerging in the form of battery swaps, where a depleted battery is replaced by a fully charged one at a dedicated location. Battery swapping could be particularly attractive for trucks, as it can greatly reduce the time needed to charge a heavy-duty vehicle; it could also be useful for light-duty vehicles such as taxi fleets and personal cars because of the flexibility and, in some cases, the lower total cost of ownership (e.g., for two and three-wheelers).
China is leading in battery swapping for both trucks and passenger cars, with the number of swapping stations in China growing by 50% year-on-year to almost 2,000 at the end of 2022. EV manufacturer NIO covers two-thirds of that market, with its battery swapping-ready models and dedicated swapping stations. In the US, startup company Ample now operates 12 battery swapping stations in San Francisco, mainly serving Uber rideshare vehicles.
If it becomes mainstream, battery swapping could revolutionise the electric vehicle charging scene. At least one battery will be needed per vehicle, so the scale-up of such a business model could add even more pressure to the already tightening global EV metal supply chain. Companies providing such services would need more partnerships to secure an increased level of supply, or they will need to decrease each swappable battery’s capacity as a compromise.
Smaller cars will reduce battery metals demand per unit
So far, the electric vehicle market has leaned on upper-middle-class models, such as Tesla’s Model 3, as well as SUVs like the KIA EV6, Volvo C40 Recharge and BMW IX.
A regulatory incentive for smaller models could lower demand for battery metals significantly, according to research from Transport and Environment for Europe. Analysis from the KiM Netherlands Institute for Transport Policy also indicates that a larger influx of smaller and more affordable middle-class electric vehicles – like the Volkswagen ID2 or the BYD Dolphin and Seagull models – is a requirement for a real breakthrough in the mass market. Ranges will also continue to develop, but given the extra weight, it's doubtful that efficiency will reach far beyond 500km.
Based on this, we believe that battery demand per unit is set to be lower than the current average as we head towards 2030.
