In the vast majority of cases, technological innovation leads to newer, cheaper, and more efficient designs than their predecessors. But every once in a while, technological progress goes into reverse gear when progress turns out to be turbocharged regress.
And that appears to be happening in the world of EV batteries.
Regarded as a leader in the EV space, Tesla Inc. (NASDAQ:TSLA) is reverting to battery chemistry that was supposed to quickly go obsolete: cobalt-free batteries that use a lithium iron phosphate (LFP) chemistry.
During an investor presentation last year, Tesla revealed that it’s switching battery chemistry for all standard-range Models 3 and Y from nickel cobalt aluminum (NCA) chemistry to an alternative, older technology that uses a lithium iron phosphate (LFP) chemistry.
With the energy transition in full swing, experts have predicted that metals are poised to become even more valuable than oil, with prices for copper, nickel, cobalt, and lithium set to reach historical peaks for an unprecedented, sustained period in a net-zero emissions scenario, with the total value of production rising more than four-fold by 2040. That’s the case because clean energy technologies require more metals than their fossil fuel-based counterparts.
Unfortunately, there’s a chink in the armor of that quartet of ‘super metals’ that is powering the energy transition: cobalt.
Lithium-ion batteries contain a variety of elements, including lithium, nickel, aluminum, iron, manganese and cobalt. Of these metals, cobalt is the most expensive, with the average cost of the blue metal surpassing the cost of all the other battery metals put together over the past four years. EV batteries can hold up to 20 kg of cobalt in each 100 kilowatt-hour (kWh) pack, with cobalt making up to 20% of the weight of the cathode in lithium-ion EV batteries.
And that’s bad news because cobalt is considered the highest material supply chain risk for electric vehicles in both the short and medium-term. Further, cobalt is produced as a by-product of copper or nickel mining and is, therefore, affected by the demand and pricing of those metals.
Even more worryingly, beyond its price, is that cobalt mining comes with a huge human cost, too: about 60% comes from the Democratic Republic of the Congo, where mining has been linked to child labor and deaths.
Scarcity, price, and human rights concerns have made the elimination of cobalt from EV batteries critical to the EV transition.
“For mass electrification to happen, there are lots of sentiments that cobalt needs to be eliminated or reduced to the bare minimum,” Chibueze Amanchukwu, professor of molecular engineering at the University of Chicago, has told CNBC.
Thankfully, the industry has recognized the risks of cobalt dependency, and many battery manufacturers and end-users have established ambitious goals to move to low- or no Co-containing cathodes.
LFP technology is commonly used in simple, less demanding devices such as golf carts and home backup power systems. But LFP batteries have hardly made a mark in electric cars because they have traditionally been regarded as a less efficient option. Their biggest disadvantage is their reduced range due to the fact material used in iron-based batteries has a lower energy density and offers less range to a single charge for the same weight compared to the widely used nickel-based lithium-ion batteries. Because of this, almost all automakers outside of China have moved to the latter type, which uses nickel, cobalt and manganese as core materials.
But LFP batteries have a key attraction that is proving too powerful to ignore: price.
LFP cells not only have much longer useful lifetimes but are also cheaper than NCA or nickel manganese cobalt (NMC) cells. LFP batteries are about 30% cheaper than their nickel-rich counterparts and are able to compensate for their lower energy density by dramatically cutting on thermal runaway in the event of a crash, meaning an LFP battery pack requires much less volume on cooling and structural protection to keep the cells separated.
Many electric buses in China already use LFP batteries. Two years ago, Tesla introduced LFP batteries in its standard range Model 3s in China and dropped the starting price from 309,900 yuan ($48,080) to 249,900 yuan ($38,773). CEO Elon Musk revealed that the improving energy density of LFP batteries now makes it possible to use the cheaper, cobalt-free batteries in its lower-end vehicles so as to free up more battery supply of lithium-ion chemistry cells for Tesla’s other models.
Up to now, intellectual property restrictions have kept LFP cells mostly within China. But Tesla will now be able to deploy them in its pivotal U.S. market after it won approval from the Chinese government to start using LFP batteries in Chinese-made BEVs in 2020. Indeed, Tesla is making the switch to LFP mandatory in all its markets after a positive reception in the U.S.
Last December, Bloomberg NEF, a clean energy research that has been, among other things, tracking battery costs, announced that battery costs had dipped below the $100 per kWh threshold for the first time ever. The crucial milestone was achieved for battery packs designed for electric buses in China.
In the EV industry, the $100 per kWh battery cost price point is generally regarded as the Holy Grail critical for the wider adoption of electric vehicles by making them cost-competitive at the sticker price, which remains an important psychological barrier for many potential buyers. The powertrain typically accounts for more than 70% of the cost of an EV. Tesla’s LFP switch not only means fatter margins but can fast track the company in the race to $100 per kWh leading to longer growth runways.
Although nickel-based lithium-ion batteries currently account for 88% of the EV battery market outside of China, the current trajectory suggests that it’s just a matter of time before the older LFP format goes fully mainstream.
By Alex Kimani for Oilprice.com
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Cobalt for batteries is mostly through a block chain source tracking to avoid sourcing from DRC.
More Cobalt is currently used in oil refining. But unlike batteries it can't be recycled or reused as it ends up in the gas and diesel.
Most EV manufacturers require ESG certified metals. Oil refiners don't.