Musk-backed lithium iron phosphate battery technology dominates China

A less expensive battery technology championed by Tesla Inc. (TSLA) chief Elon Musk dominated last year in China, the world's largest car market, a sign of Tesla's U.S. and European competitors face challenges.

China's official data shows that in 2021, the proportion of battery production using lithium iron phosphate (LFP) technology in China's total power battery production will rise from less than half of the previous year to 57%.

LFP cells have taken the lead in the Chinese market because they use relatively cheap iron in the cathode instead of higher-cost metals such as nickel.

The rise of LFP batteries comes at a time when electric vehicles are becoming a mass commodity in China. In 2021, the sales of new energy vehicles (including mainly electric vehicles) will account for nearly one-sixth of the total sales of passenger vehicles in the Chinese market. China is the world's largest auto market in terms of sales.

LFP battery production has surged against the backdrop of an increase in EVs sold by Chinese auto dealers and a rising share of EVs equipped with LFP batteries. In 2021, Chinese battery makers produced 125.4GWh of LFP batteries, more than triple the previous year, according to the China Automotive Battery Research Institute.

Car companies in the U.S. and Europe have historically been less optimistic about LFP batteries because they tend to have lower energy density than nickel-based batteries, meaning cars powered by LFP batteries have shorter driving ranges on a single charge. And LFP batteries are more likely to suffer from poor performance in cold weather conditions.

Over the past 20 years, Chinese companies have tried to catch up with Japan and the United States in battery technology, focusing on improving LFP technology, not only because of cost concerns, but also because LFP batteries have a lower risk of fire. China's previous subsidy policy for the electric vehicle industry was biased towards supporting vehicles with long cruising range, and today's policy changes also help LFP technology gain an advantage.

Vigorously developing electric vehicles is an important global effort to get rid of dependence on oil and natural gas. As a key raw material for electric vehicle batteries, lithium has a growing market demand and rising prices. But lithium mining projects require a lot of water, and the production of battery-grade lithium compounds is potentially harmful to the environment. Investors worry that supply of lithium will not keep up with demand for years to come.

Musk, one of the strongest advocates of LFP technology, has said that getting enough nickel at a reasonable cost is a major problem in production. He refuted claims that customers buying LFP cars were getting substandard products.

Musk tweeted to a customer in August last year: "We strive to make the product experience of nickel-based and iron-based batteries roughly the same." According to Tesla's plan, if the customer chooses LFP batteries, they will Tesla cars can be picked up in advance.

"Personally, I would lean slightly towards iron-based batteries because they can be charged to full capacity, while nickel batteries are best charged to around 90 percent," Musk tweeted.

Automakers in the U.S., Europe and Japan are ramping up battery production, and many are working on LFP technology, but overall, they fall short of Tesla and Chinese producers in applying the technology to mass-market production.

In October, Tesla said it would expand the use of iron-based batteries to all of its standard-range vehicles.