Are Batteries Entering an Iron Age?

The need for cost savings is driving electric car designers into the arms of manufacturers with expertise in lithium iron phosphate batteries.  Called ‘LFP’ batteries for short, this variant of the lithium energy storage technology relies on iron metal for the battery cathode.  Iron materials have some limitations, namely iron is not as conductive as the fancy cobalt and nickel alloys that have been mixed into lithium-ion batteries.  However, iron is relatively inexpensive and abundant around the world, freeing electric vehicle makers from the headaches of a constrained supply chain and every increasing prices for exotic materials.

There is already a sizeable and fast growing market for LFPs.  MarketandMarkets, an industry research firm, reported sales for LFP batteries was near $8.3 billion in 2019, and estimated demand and pricing could reach a value near $10.6 billion by 2024.  This includes industrial and power applications, but the real growth driver according to M&M analysts is the electric vehicle.  Metals industry research firm, Roskill, reported that LFP technology accounted for about 20% of the global cathode materials production.  Capture of market share is expected to be rapid as Roskill estimates installations of LFP batteries in China’s EVs could grow by 21% to 24% annually.   

As discussed in the last post “Electric Vehicle Batteries:  Keeping Value Generation in Sight” on October 22^nd, electric vehicle leader Tesla is investigating the LFP offering of China’s Contemporary Amperex Technology (CATL).  Could any other LFP manufacturers get a phone call from the electric vehicle market? This post looks at some of the most significant developers of lithium iron battery technology.

In 2012, A123 Systems was rescued from bankruptcy by China’s Wanxiang Group Holdings.  Once a high-flying IPO, A123 has settled into a more mature and steady operation focused on lithium iron phosphate batteries.  However, in early 2018, A123 sold its factory in Changzhou to LithiumWerks, which has continued nanophosphate battery production under its own name.  A123 Systems has moved forward with its UltraPhosphate technology for 12-volt starter batteries to replace conventional lead acid batteries and 48-volt batteries for regenerative braking applications.  A123 Systems is effectively a privately held company with no publicly available financial data.  However, the company is widely considered to be a significant player in the global battery market alongside Amperex and BYD Co.  Unfortunately, it holds open no door for investors.

Berkshire Hathaway owns about one-quarter of BYD Company Ltd. (1211:  HK), a battery developer and electric vehicle manufacturer based in China.  BYD has added a new twist to the lithium iron phosphate battery design.   Called a ‘blade battery’ it is composed of singular cells arranged in an array resembling a honey comb.  The array is then placed in an efficient pack structure that increases available power by as much as 50%.  BYD also touts the safety of its unique design under adverse conditions such as high heat or vehicle accidents.  Indeed, safety is BYD’s approach to the EV market rather than energy density to deliver longer driving range.  BYD’s blade battery facilitates a driving range around 250 miles.

In August 2021, Tesla was rumored to having entered into an agreement with BYD for these new blade batteries to install in its ‘compact and affordable’ EV.  At the time BYD representatives denied the reports, but it might be worthwhile to figure out how to take a position in the Hong Kong listed public stock.

BYD’s most significant competitors is Contemporary Amperex Technology Co., Ltd. (300750:  SHE), which is mercifully called CATL for short.  CATL began a strategic evolution of sorts beginning in 2020, when China’s electric vehicle subsidies were finally phased out.  At the point CATL’s EV battery volume represented 25% of the world market. As BYD has prioritized battery production for its own proprietary EVs, CATL has been able to capture orders from foreign EV manufacturers such as Tesla, Toyota, Volkswagen, Honda, and Hyundai, among others.   In early 2021, CATL was reportedly signed an agreement to build an LFP cathode materials plant with a production capacity near 80 metric tons per year by 2024.  The materials will ultimately make the way into CATL’s efficient cell-to-pack battery design that directly integrates cells into a battery pack without the use of modules.

Tesla along with China automobile manufacturer Nio are thought to be buyers of CATL’s LFP battery for their China’s-based production.  Additionally, there is new whispering about Apple looking at CATL’s LFP battery for its debut electric vehicle. 

In recent months China’s stock market has taken some self-inflicted hits to its reputation.  Nonetheless, for those who dare brave the Shanghai stock market a position in CATL is possible.

LG Chem Ltd. (051910:  KS) is not to be left out of the LFP market.  The Korean technology giant reportedly began work on an LFP battery in 2020, at its Daejeon development arm.  Apparently, the company intends to differentiate its LFP by using a pouch design, which none of the China companies have used yet.  Unfortunately, already analysts have noted the key to LG Chem’s success may be a partnership with a China materials supplier.

Privately held RELiON Battery lays claim to the ‘best LFP’ battery on the market.  Whether its LFP battery is indeed at the top may still be a subject of discussion.  However, it does appear that Relion’s product line offers the broadest array of battery solutions that serve the widest range of applications from electric vehicles, recreational vehicles, boats, solar power, remote locations, materials handling vehicles, and unmanned aerial devices, among others.    

There are more LFP aspirants, of which several are listed below.  Likely these competitors will find a way to grab a foothold in an already significant and rapidly growing market.  As electric power penetrates the world economy there will be an ever-increasing need for lower cost battery solutions as well as solutions that afford higher safety levels.  This is likely to be the segment of the power market that will be dominated by LFP batteries. 

Electric Vehicle Power System Technology

K2 Energy

Newcastle Systems, Inc.

OptimumNano Energy

Power Sonic Corporation

 

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.