[Battery+] Tesla's battery shift highlights K-battery's uncertain future

Li-ion-only portfolio missing out on diversifying needs, pressured in all fronts, experts say

LG Energy Solution’s cylindrical lithium-ion batteries. (LG Energy Solution)

To take initiative in the premium electric vehicle market, where longer driving ranges serve as the barometer of competitiveness, the South Korean battery trio -- LG Energy Solution, Samsung SDI and SK On -- in recent years focused on developing more powerful lithium-ion batteries, pushing the limits of nickel ratio to the extreme.

However, their unwavering faith in lithium-ion technology is being tested, after market leader Tesla announced on Wednesday that it will use a cheaper, safer alternative called lithium-iron phosphate, or LFP batteries, in all of its standard-range cars.

Tesla’s shift further adds momentum to recent trends in the EV market, where automakers are looking for more reliable options than lithium-ion batteries to regain the trust of customers shaken by a series of recalls.

The problem is, LG Energy Solution, Samsung SDI and SK On only manufacture lithium-ion batteries and don’t have anything else to offer.

All or nothing 

Kim Byung-joo, the CEO of the Swedish market tracker EV Volumes’ unit covering Korea and Japan, says the Korean battery pioneers should try hedging risks by diversifying its battery portfolio, suggesting CATL’s two-track strategy as an example.

“China’s CATL ditched fire-prone lithium-ion batteries containing 80 percent nickel after they caused multiple cases of fire. Now, its two main products are lithium-ion batteries containing 50 percent nickel and LFP batteries, which are much cheaper and safer,” Kim said.

Manufactured predominantly by Chinese companies, LFP batteries offer two key strengths -- lower prices and stability. Compared to lithium-ion batteries, which contain expensive metals such as nickel, cobalt and manganese, LFP batteries use phosphoric acid and iron as the main materials. While they are relatively safer from fire risks, they are lower in energy density and heavier in weight.

In response to changing market trends, LG Energy Solution previously said that it was working on LFP batteries to diversify. If the firm starts manufacturing them, Kim explained, it will open doors not only to the Chinese EV makers but also to global brands including Tesla, VW and Toyota, which are considering or already using LFP batteries.

However, an industry source familiar with the matter told The Korea Herald that LG Energy Solution recently decided to no longer pursue LFP batteries.

In a conference call in January, Jang Seung-se, a senior vice president at LG Energy Solution, cast a conservative outlook on LFP batteries.

“LFP batteries’ price competitiveness can potentially expand low-end and ultra-low-end battery markets, but their weakness in performance and weight will limit their application in the EV market.”

LFP batteries are low in energy density, so they have a disadvantage in driving range, and are sensitive to humidity during the manufacturing process, Jang pointed out.

Samsung SDI shares a similar view and said that lithium-ion batteries will eventually become mainstream during the Korea Advanced Battery Conference 2021 held this month in Seoul.

However, Wood Mackenzie thinks otherwise and predicts that the global market share of LFP batteries will triple from 10 percent in 2015 to 30 percent in 2030. In the same period, the market share of lithium-ion batteries is expected to shrink from 70 percent to 30 percent.

Among the trios, SK On, a battery unit carved out from SK Innovation this month, is the only one serious about LFP batteries. SK On CEO Jee Dong-seob said this month that he is considering the production of LFP batteries to target the low-end EV market.

Diverse cells for diverse needs 

“Just 2-3 years ago, LFP batteries were projected to disappear,” Kim of EV Volumes said, “but now they have found their place in the market.”

One such market could be robot taxis, which is expected to grow into a $1.11 trillion market in the US by 2040.

According to eBest Investment & Securities report, the self-driving cars for carrying passengers should never catch fire and at the same time offer a cheap fare of about $0.8 per mile. This makes LFP batteries more suitable than lithium-ion batteries.

Apple, for instance, is reportedly in talks with CATL and BYD to install their LFP batteries on its self-driving Apple Car.

Setting its sight on the robot taxi segment, CATL is even developing an upgraded version of LFP batteries: Sodium-ion batteries.

According to CATL, sodium-ion cells boast the same thermal stability at a cheaper price compared to LFP batteries. Also, sodium-ion cells support rapid charging up to 80 percent in 15 minutes, overcoming LFP batteries’ key weakness of slow charging.

Compared to lithium-ion batteries, which don’t function properly in low temperatures, the new batteries can retain a capacity of more than 90 percent at minus 20 degrees Celsius. Above all, sodium-ion batteries, as the name suggests, use salt as their main raw material, and don’t require expensive metals such as lithium, cobalt and nickel.

The Chinese firm in July unveiled its first-generation sodium-ion batteries and aims to establish a supply chain by 2023 to produce them.

LFP replacing lithium-ion cells is being seen across the renewable energy sector, especially in the energy storage systems segment.

Energy storage systems are huge batteries the size of a container that store leftover electricity generated by renewables such as solar and wind. They are designed to solve the intermittency of renewables.

Last year, Samsung SDI and LG Energy Solution controlled 31 percent and 24 percent of the global ESS market, respectively, and stood as the No. 1 and No. 2 players.

However, the trio‘s dominant status faces mounting uncertainties, as ESS trends are gradually shifting toward LFP batteries.

Energy storage systems are typically installed in cheap, large areas such as deserts. As space is of less of a concern there, customers are opting for several units of the cheaper LFP systems instead of one expensive lithium-ion system, for instance.

According to energy consultancy Wood Mackenzie, the size of the global ESS market is expected to enjoy an annual growth rate of 31 percent and reach 741 gigawatt-hours by 2030.

Reality check

Korean battery giants’ seeming reluctance to stray from the lithium-ion field is not just a matter of faith, says Lee Ho-geun, a professor of automotive engineering at Daeduk University.

It is deeply linked with the situation in which Korean battery players are in, he pointed out.

“CATL has no problem in mass-producing lithium-ion, LFP and sodium-ion batteries at the same time because the company can secure enough orders from local carmakers,” Lee said.

But for Korean battery manufacturers, such economies of scale are not guaranteed outside its current product lineup.

“In the Chinese EV market, which is 27 times bigger than that of Korea, a newly-launched EV easily exceeds 100,000 units in sales. The catch is, batteries mass-produced for 100,000 EVs are 60 percent cheaper than those mass-produced for 10,000 EVs. Top Korean battery players have no choice but to stick to lithium-ion batteries to maintain price competitiveness, or they will lose global market share, which is already shrinking anyway.”

According to data from SNE Research, the top three Korean battery firms commanded 37 percent of the global EV battery market in the January-July period, a drop of 0.8 percentage points from the previous year, while CATL’s market presence grew to 27 percent from 18 percent, buoyed by robust domestic demand.

Last year, global sales of electric vehicles hit 3.24 million units, up 43 percent from 2.27 million units a year ago. China accounted for 41 percent of the total sales with 1.34 million units sold, followed by Germany and the US, which recorded 390,000 and 320,000 units. Korea ranked 10th with 52,000 units sold.

Unable to compete against LFP batteries in the short-range EV market, Korean battery trios plan to commercialize solid-state batteries in 2027 at the earliest to consolidate their lead in the long-range premium EV market.

By Kim Byung-wook(kbw@heraldcorp.com)