Two Dominant Cathode Chemistries

Lithium iron phosphate (LFP), invented by Nobel Prize winner John Goodenough in the late 1990s and commercialized in the early 2000s. Lithium nickel manganese cobalt mixed oxide (NMC), which evolved from the first manganese oxide and cobalt oxide chemistries and entered the market around 2008.

LFP - The Phosphate Structure

LFP is based on a phosphate structure with only iron as the transition metal. Researchers have also developed a new iron and manganese form, termed LMFP, which was commercialized this year. Although LFP has advantages like a more favorable safety profile and lower cost, automotive OEMs preferred NMC chemistry for the past ten years due to its higher energy density providing a longer driving range.

NMC - The Energy Density Advantage

For years, NMC batteries were the only technology allowing EVs to meet the consumer expectation of a driving range of about 465 kilometers before recharging. Its higher energy density gives it an edge in terms of driving range.

The Global Shift in Battery Preference

The balance could soon shift globally in favor of L(M)FP batteries. Technological improvements over the past few years have increased energy density at the pack level, thereby increasing vehicle driving range. All major OEMs have launched or are about to launch LFP-equipped vehicles to lower costs, which are a major hurdle to adoption. This chemistry could become the preferred option globally.

Innovations in LFP Batteries

In 2021, Chinese OEM BYD began using elongated LFP battery cells (blade cells) in its Han model and integrated them into the battery pack structure. This design innovation increases packaging density without additional module housing, making the battery packs lighter and extending the vehicle driving range to more than 520 km. Some companies hope to extend the range to 1000 km.

Chinese Market Trends

In the 2010s, all batteries were five to ten times more expensive than today. Chinese OEMs used LFP chemistry in about 90 percent of their EVs due to its affordability. But in 2015, the Chinese government's decision to scale EV subsidies based on vehicle range shifted the market in favor of NMC. By 2019, NMC had about 90 percent share. In 2020, Chinese OEMs began to transition back to LFP due to range improvements and the government's decision to phase out scale-based subsidies.

Long-term Prospects for L(M)FP

Now that L(M)FP batteries can enable longer driving ranges, some OEMs are transitioning to this chemistry or adding it to their portfolio. The difference in energy density between NMC and LFP cells is only about 30 percent, and the production cost of an NMC cell is about 20 percent higher than that of an L(M)FP cell. In many cases, OEMs continue to use NMC batteries in premium vehicles due to their longer driving range.

Regional Differences in Adoption

Chinese OEMs are adopting LFP most rapidly. In Europe and North America, NMC remains the most common chemistry, but the adoption rate of L(M)FP vehicles may increase due to market demand for low-cost models. Our projections show that the global battery share for L(M)FP could rise from 11 percent in 2020 to 44 percent in 2025.

Factors Affecting the Shift

Several factors may affect the ongoing shift to L(M)FP batteries, including regulations and sunk investments. For example, the US introduced import tariffs on batteries in 2024, prompting a company to pause sales of LFP-battery vehicles. Western OEMs face challenges in transitioning to L(M)FP batteries due to an unestablished supply chain and most cell production capacity being in China.

Potential Scenarios for 2035

We investigated three potential scenarios for L(M)FP adoption in 2035. In the first scenario, the market splits into NMC and L(M)FP segments, with L(M)FP reaching a 60 percent market share. In the second scenario, L(M)FP reaches an 80 percent market share with certain developments. In the third scenario, the adoption of L(M)FP slows down due to innovation at both ends of the energy density spectrum.

The Potential Impact Along the Value Chain

A shift to greater L(M)FP use would have major repercussions for OEMs. They might change the battery-pack and electrical/electronic design. For miners and refiners, nickel producers might have to focus on other sectors if automotive demand grows slower. For lithium producers, a shift to L(M)FP might generate short-term demand. For CAM producers, lower NMC demand could be challenging. Cell manufacturers also need to modify the supply chain and acquire L(M)FP expertise.

Battery technology is on the cusp of a major shift. Our analyses suggest that L(M)FP batteries could become the technology with the largest global market share before 2030, challenging the recent preeminence of NMC chemistry. OEMs and other stakeholders need to act quickly and make strategic adjustments to win in the changing marketplace.