The choice of battery technology for electric vehicles (EVs) is becoming increasingly crucial and complex as the market rapidly evolves.
The demand for EV batteries is projected to quadruple by 2030, Bain estimates, driven by the surge in electric vehicle sales, which saw over 250,000 units sold globally every week in 2023.
As the market grows, original equipment manufacturers (OEMs) face critical decisions regarding battery technology and production strategies.
Batteries are the single biggest cost driver for OEMs and greatly influence product performance, a Bain report noted.
With the lithium-ion battery expected to dominate through 2030, OEMs must decide whether to develop batteries in-house or partner with external entities.
The choice of battery technology varies based on the market segment a company targets. For example, BMW prides itself on a premium driving experience, so it is heavily involved in battery design and development. In contrast, General Motors – with more mass-market brands under its umbrella – partners with LG Energy Solutions, where LGES handles battery design and manufacturing and GM focuses on integrating them into its vehicles.
LFP's growing dominance
Two dominant battery chemistries have emerged: lithium iron phosphate (LFP) and nickel manganese cobalt (NMC), which together account for over 90% of lithium-ion battery sales.
“LFP has taken significant share from NMC since 2018 due to improvements in energy density at sustained lower cost,” Bain wrote.
LFP batteries will become more dominant in China due to strong demand for mass-market EVs and well-established supply chains, along with the development of improved LFP variants like M3P and lithium manganese iron phosphate (LMFP).
In contrast, US and EU, adoption is expected to lag behind China due to limited domestic LFP production, less mature supply chains for key materials, and higher costs associated with importing LFP from China.
That could be changing, if North American companies are able to gain traction.
North American LFP supply
American Battery Factory, a LFP battery cell manufacturer, is developing the first-ever network of safe LFP cell giga-factories in the United States. In September 2023, American Battery Factory announced a partnership with First Phosphate Corp. (CSE:PHOS) to produce over 40,000 tons of fully North American-manufactured lithium iron phosphate (LFP) cathode active material (CAM) annually.
The collaboration aims to establish an LFP battery ecosystem in North America, beginning with ABF's first manufacturing facility in Tucson, Arizona, and potentially expanding to other sites, with integrated raw material sourcing and production processes. The partnership also explores the possibility of locating facilities at the Port of Saguenay, Quebec, where First Phosphate is active.
John Kem, president of ABF, told investors in a statement that raw material bottlenecks, not technology, will be the biggest hindrance to the roll out of fully localized LFP batteries in North America.
First Phosphate has access to clean igneous anorthosite phosphate rock in Quebec, Canada, which it plans to refine into a substantial supply of battery-grade purified phosphoric acid.
"Stationary energy storage and telecom applications are already an established market application for LFP batteries in North America alongside the rapidly expanding electric vehicle sector," said John Passalacqua, CEO of First Phosphate. "Launching our LFP raw materials strategy with a focused partner like ABF with existing LFP product demand in North America allows us to enter the market in prudent and pragmatic fashion."
Innovative LFP production process
While NMC will continue to be crucial for long-range electric vehicles, LFP is more suitable for heavy-duty, cost-sensitive applications in industry, renewable energy storage, and mass-market low- to mid-range urban vehicles.
Canada’s Nano One Materials Corp (TSX:NANO, OTC:NNOMF) has created an innovative process applicable to both NMC, LFP, and other cathode materials, which simplifies production, lowers costs, and reduces environmental impact. The process leverages a more competitive supply chain, particularly advantageous for markets outside of China, and is currently being scaled up for commercialization in North America, Europe, and other emerging regions.
In 2022, Nano One acquired an LFP production facility in Quebec in order to pilot its One-Pot process on a commercial scale. Plans are underway to expand the facility's capacity to 2,000 tpa as LFP demand rises.
Additionally, Nano One is working on a 25,000 tons per annum (tpa) LFP development project. The company has a robust pipeline of over 20 potential LFP customers, including automotive and energy storage manufacturers, and is in talks for LFP CAM package licensing.
Balancing battery technology choices with market demands
Still, alternative NMC variants and geopolitical challenges like tariffs may hinder LFP's growth in western markets, according to Bain.
“Historically, the choice of battery technology has been straightforward: LFP for lower-end mass-market models and NMC for high-end performance models,” the Bain report noted.
However, that decision is becoming increasingly complex as evolving technologies necessitate greater flexibility and adaptation to market changes.
“Winning OEMs will stay flexible, watch the market, and adapt their strategy,” Bain noted.
“Ultimately, OEMs will need to make big-picture trade-offs between what is required and what the customer wants and assess how this influences the choice of battery and the overarching corporate roadmap.”