Lithium iron phosphate (LFP) battery technology has gained importance for affordability in electric vehicles (EV) and as the dominant chemistry in energy storage systems, given its superior cost and longevity. It is now in its 4th generation and constitutes a technological breakthrough and a fundamentally different material standard.
Its emergence has far-reaching implications that could upheave global battery investments, supply chain structures, market competition and geopolitics. Our main takeaways are:
- 4th generation LFP is enabling super-fast charging in EVs in China and narrowing the performance gap versus other chemistries.
- Only a handful of manufacturers are capable of producing or procuring this material, turning the LFP cathode, battery and EV sector into ‘haves and have-nots’ and driving consolidation.
- China’s export restriction policy on high-end LFP technology is ensuring it will remain in the hands of Chinese companies, while non-Chinese firms generally take longer to achieve and scale up similar cost and technical advancements for LFP.
- The different nature of the cathode production route means that it is shifting raw material feedstock demand from conventional chemicals to alternative ones, especially for lithium and phosphates.
LFP battery technology keeps improving
The performance characteristics of LFP continue to improve in the hands of Chinese innovators. At a cathode material level, it is now in its 4th generation and characterised by super-high compaction density, among other properties – essentially a much more granular and dense powder material. Pilot lines are already being built for 5th generation.
While the conventional wisdom was that LFP would not improve noticeably on the electrochemical level, high compaction density – along with other methods – is enabling improved energy density and fast-charging capabilities in batteries by addressing the trade-off between electrode thickness and performance. The upshot is that these super-fast-charging batteries are in EVs on the road in China today, with headline figures such as five minutes of charging giving 250 miles of range.
Although other technical challenges remain against practical implementation of charging rates beyond 4C, 4th generation LFP nevertheless is narrowing the performance gap – though not closing it entirely – with NMC and LMFP. The former now has a minority market share in China, and the latter has yet to see mass adoption.
Though fast-charging EVs are the current target application, there is the possibility of 4th generation LFP making its way into battery energy storage systems, which are approaching physical space and weight limits of their standardised containers and transportation infrastructure. Therefore, energy density is becoming increasingly important, which 4th generation LFP can also enable.
Consolidating the overcrowded LFP cathode industry
The trend of upgrading LFP products will accelerate the phase-out of outdated capacity and drive consolidation in China’s LFP cathode material industry, which has been marked by severe overcapacity and competition. Within 4th generation methods, production time, OPEX and CAPEX are all increased as it requires upgraded equipment and significantly different processes to ensure precise particle control, fewer impurities and uniform carbon coating.
Currently, only a handful of producers have 4th and 5th generation capability, setting the stage for a market of haves and have-nots. As such, battery manufacturers have been willing to pay a premium for high-end materials and help struggling LFP producers to profitability during the ramp up phase.
CATL – the largest battery maker in the world and in normal circumstances has strong bargaining power – has committed to taking almost all capacity from Fulin Precision, a cathode producer that is in a league of its own in terms of high compaction density. It has also provided a pre-payment to support construction of new capacity.
A new opportunity for lithium producers
The production of 4th generation material involves fundamentally different process flows, and therefore different lithium, iron and phosphate inputs compared to the norm in China, along with more stringent purity requirements.
The solid phase iron oxalate route currently yields the highest-grade material. The precursor, lithium dihydrogen phosphate, can be made through lithium carbonate but it is cheaper and less complex to use lithium sulphate.
Supply chains are already forming around this procurement route. Ganfeng currently supplies lithium carbonate to supplies Fulin – who then supplies CATL – but it is constructing a joint venture plant that instead uses lithium sulphate. As 4th and 5th generation materials take over the LFP market, this implies a shift in the preferred feedstock from lithium carbonate to lithium sulphate, which is a byproduct of brine extraction and an intermediate in the spodumene conversion process.
It will not be an immediate transition, as the dual sintering route – which still uses lithium carbonate – will remain for some time, as will 3rd generation material to serve the energy storage sector which has less stringent requirements. It nevertheless signals an opportunity for the supply side. In other words, lithium producers may find demand shifting from what is their main product towards an intermediate chemical or even a waste byproduct.
Primary sources of lithium sulphate are rare – only SQM has capacity to refine ~45 kt/y LCE as a byproduct of its potassium sulphate operation in Chile. However, its production quota, expiring in 2030, will not allow any further expansion unless other output is sacrificed.
Sinomine and Zhejiang Huayou have indicated they will invest in sulphate plants in Zimbabwe, in line with a government measure to ban concentrate exports from 2027. Our cost analysis suggests these are unlikely to be commissioned due to poor access to sulphuric acid, unreliable power supply and high fuel costs. Proven resources are also limited and it would not warrant intensive capital investment without extended life of mine. US sedimentary projects have proposed that sulphate could be a saleable product, but carbonate is the common ambition.
All concentrate convertors in China are already producing aqueous lithium sulphate as an intermediate in the refining process. Adapting this would not only simplify chemical production from concentrate, but also drastically lower the need for caustic soda and soda ash, the largest contributors to refining costs. This would lower conversion costs by around 20% when compared to carbonate, though it is heavily dependent on the price of reagents.
As advanced LFP proliferates, we expect mineral convertors to adapt their process to make sulphate refining more commonplace. This also presents an opportunity for miners – or cathode material producers – to integrate further by adding mineral conversion-to-sulphate plants.
China is forced to protect against technology leakage
While the transition to advanced LFP is a given in China, policy and geopolitics – from both the western and Chinese sides – are getting in the way of adoption in the rest of the world. Tariffs and tax credit rules in the US have hindered domestic automakers from importing LFP batteries and even partnering with Chinese suppliers for domestic production, leaving a narrow range of options for procurement.
More importantly, 4th generation material is particularly targeted by China’s new export restriction policy on high-end LFP technology. Specifically, the policy restricts companies from sharing the know-how and equipment for 4th generation LFP cathode material with foreign companies.
Initially, our assumption was that this would not hinder overseas investments as most pipeline projects are fully owned by Chinese companies. However, contacts tell us that they are finding it difficult to obtain the export license.
Similar moves have been made by China in other high-tech industries, partially as a geopolitical response, and partially as a strategic move to maintain Chinese dominance in key stages of supply chains.
Physical exports of the cathode material are not restricted, but there are only a handful of producers with 4th generation capability and most of their supply is already spoken for. Thus, western customers would find it difficult to source material directly from China for now, and instead can only import batteries from the likes of CATL.
Sharing know-how on 3rd generation material is also not officially restricted. Ex. China companies, such as Korean firms that are commercializing their LFP products, are therefore stuck with ‘last year’s’ technology. Indeed, Ford – who is building a LFP battery gigafactory in the US under license from CATL – will be making “CATL’s best LFP batteries outside China”.
The policy will therefore:
- Ensure that high-end LFP production and technology will remain in the hands of Chinese companies, while non-Chinese firms generally take longer to achieve and scale up similar cost and technical advancements for LFP
- Help Chinese EV manufacturers to out-compete their western peers in vehicle range and charging time
- Pose a potential constraint – albeit likely a temporary one – on global LFP adoption and therefore broader affordable EV adoption
For more information on battery technology, costs, supply chains and markets, please get in touch regarding CRU’s Battery Value Chain Services.
