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Volkswagen's plan on LFP use shifts hydroxide dominance narrative in EV sector

Highlights

First big announcement of LFP use in European EV market

Nickel-rich chemistries unlikely to be dominant on VW's models

Carbonate set to play significant role in EV sector

Lithium carbonate's relevance for the electrification of the passenger vehicle market gained additional support from a major automaker, Volkswagen -- who committed to build six battery factories by 2030.

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Volkswagen plans to have a unified battery cell starting 2023, employing lithium iron phosphate, or LFP, in entry models; nickel-manganese in volume models; and nickel-rich NCM in high-end models, the German automaker announced during its Power Day on March 15.

This is the first time Volkswagen announced its intention to employ LFP in its own models, and the first announcement of LFP use in the rapidly growing European electric vehicle market.

The plan goes against popular belief that nickel-rich chemistries will dominate the EV market in the future, and subsequently lithium hydroxide will account for the vast majority of demand outside China.

Carbonate demand has already been increasing faster than hydroxide within the Chinese market since the second half of 2020 according to market participants, with the resurgence of LFP resulting in carbonate trading at a Yuan 14,500/mt (around $2,200/mt) premium to hydroxide currently within China.

Platts assessed battery-grade lithium carbonate at Yuan 84,500/mt DDP China on March 12, versus Yuan 70,000/mt DDP China for battery-grade lithium hydroxide.

Nickel rich chemistries -- such as NCM 8-1-1 which has eight parts nickel for one part of cobalt and manganese each and NCA which is used in Tesla's cars -- require lithium hydroxide that is functional at low temperatures due to its inherent higher thermal instability.

Lithium carbonate trading at a premium to hydroxide in China, but seaborne market still didn't follow

Carbonate set to play significant role

Hydroxide, however, has a shorter shelf life compared to carbonate and is more complicated to handle and store, which historically led the industry to employ carbonate in LFP and other chemistries, including non-nickel rich NCMs.

From Volkswagen's announcement, hydroxide-dependent nickel-rich chemistries will not be the presiding norm, with carbonate clearly set to play a more significant role.

The automaker used the designation "specific solutions" when referring to the models expected to employ nickel-rich NCM.

It's still not completely clear what will be required for the nickel-manganese chemistry that will be employed in the brand's volume models, though. Considering it was described by Volkswagen as "manganese-rich," and not "nickel-rich," it should be functional either with carbonate or hydroxide.

The key question is what will be utilized by Volkswagen in their volume models.

In 2020 and the years preceding, Volkswagen's largest selling model -- and also Germany's -- was the VW Golf, which could be classified as a volume model.

Considering that electric vehicles will progressively increase their market share over the next decade -- Platts Analytics anticipates EVs to account for 45% of total light vehicle sales in the EU+UK by 2030 -- it would be reasonable to expect that volume and entry models would still account for the biggest market share not only in Germany but in most of the markets.

Before the Volkswagen announcement, Tesla's CEO Elon Musk had tweeted in late February that the US-based EV maker was also eying to increase LFP employment. Historically reliant on NCA, Tesla started using LFP batteries for the Model 3 Standard Range produced in its Shanghai Gigafactory.