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EV makers’ battery choices raise questions about future cobalt demand

The recent resurgence in the use of cobalt-free battery formulation, especially in the Chinese battery market, has raised questions about the future of cobalt demand in the electric vehicles (EV) sector.

The use of cobalt in lithium-ion batteries has always generated concerns due to its high cost, as well as the use of child labor in "artisanal mining" at the Democratic Republic of Congo (DRC), where 60% of the world's cobalt is produced.

However, market participants believe cobalt will remain key in the coming EV boom – even though Tesla has announced plans to completely get rid of cobalt in the near future.

Renewed enthusiasm for lithium-iron-phosphate (LFP) cathodes started to be evident in China in the second half of last year, after the local government cut subsidies for EVs by half compared with its previous policy.

The limit of Yuan 25,000/unit for cars with a driving range above 400 km – maintained this year – was not considered enough to cover the costs of producing the existing nickel-rich cathodes, which are higher than costs for LFP cathodes.

Technology improvements that increased LFP's energy density, meaning higher driving ranges, boosted the old technology further this year. In some cases, this new generation of LFP cathodes reached similar energy density levels to those using high-nickel chemistries.

Chinese automaker BYD, for example, said its new LFP-fed Han model will have a driving range of 605 km. BYD's so-called LFP Blade Battery yielded better results through upgrades on both cell and pack design. The new "cell-to-pack" approach allowed 60% of the pack to be made up of batteries, versus 40% in previous technologies.

Tesla is is also evolving its choice of battery. The US-based EV maker always employed nickel-cobalt-aluminium oxide (NCA) cathodes, but adopted cobalt-free LFP cathodes supplied by CATL for the Model 3 Standard Range produced in its recently opened Shanghai factory. The car has a driving range of 468 km.

At its "Battery Day" event in September, Tesla CEO Elon Musk said the company aims to move completely away from cobalt in the near future. The EV maker plans to build its own cathode plant – but from what Musk said, the focus will remain on nickel-rich, but this time cobalt-free, chemistries.

NCM remains Europe's preference

Despite these successful examples in the Chinese market, it will likely still take some time for LFP to start booming in other regions.

In May, Volkswagen acquired a stake in Chinese battery supplier Gotion-High Tech, one of the country's largest suppliers of LFP batteries. However, Volkswagen told Platts by e-mail that it currently does not plan to use LFP in its cars, although the company is "verifying that technology and its opportunities."

Another German automaker, BMW, recently expanded its battery plant in Tiexi, China, but reportedly to produce nickel-cobalt-manganese (NCM) batteries for the iX3 model. The company's primary goal at the moment is to increase driving range, but lowering costs will be a priority in the future, BMW told Platts by e-mail.

"In this conflict of objectives between range and cost, it is more important than ever to completely penetrate all actuators, starting with raw materials, cell chemistry, cell and module construction, and optimizing their entire interactions," BMW said, without dismissing any specific kind of cathode chemistry.

Some western market participants still argue that LFP should be restricted in the future to Chinese low-range city cars, as well as energy storage systems. Most of the investment is still flowing into NCM technology, which will maintain cobalt's relevance, sources said.

Even Tesla, despite committing to completely move away from cobalt and employing LFP in its Chinese-made Model 3 Standard Range, still uses NCM 811 (8 parts nickel, 1 part each cobalt and manganese), supplied by LG Chem, in the Model 3 Long Range version produced in Shanghai.

Moreover, the US-based EV maker recently signed a long-term deal with Glencore for up to 6,000 mt/year of cobalt. BMW also signed a long-term deal with Managem for over $100 million worth of cobalt, building on another long-term commitment with Glencore for cobalt from Murin Murin.

The coronavirus pandemic has caused a tightening of supply for raw cobalt. Market sources said that ample cash flow in the sector will likely help boost cobalt prices in the remainder of this year, although cobalt demand for EVs should remain weak.

In a report issued on Oct. 23, S&P Global Market Intelligence expected a continued recovery in cobalt feedstock flows into China, but a softening in prices.

Chinese LFP boom to continue

Assuming China's EV sales will reach 1 million units in 2020, the loading volume for LFP and NMC batteries might hit 21.37 GWh and 31.18 GW respectively this year, accounting for 40% and 59% of the total, Mo Ke, the founder of China's RealLi research company, estimated in a report.

Demand for LFP batteries in China will see significant growth this year. Many EV makers preferred to adopt LFP batteries due to the advantage of lower production costs, meaning LFP usage will continue to increase in the months ahead.

China's LFP materials output will reach 130,000 mt in 2020 and surge to 190,000 mt in 2021, compared with about 100,000 mt in 2019, according to the estimates of Chinese researcher ICCSINO.

China's power battery output totalled 37.1 GWh over January-August, down 34% from a year earlier, according to separate data released by the China Automobile Power Battery Industry Innovation Alliance. Output of LFP batteries decreased by 17% year on year to make up 14.5 GWh of the total, while that of NMC batteries fell by 38% on the year to make up the remaining 22.4 GWh.

The output of LFP batteries accounted for 39% of the total in January-August, compared with almost 29% in the same period last year.

In the long run, however, the NMC battery will remain dominant in the electric passenger vehicle market. The ratio of LFP consumption in the EV market will show a decline in the years ahead and fall to about 20% in 2025, Mo Ke said.