In October, the total installed capacity of power lithium batteries in my country reached 5.9 GWh, a year-on-year increase of 44.0%, continuing its upward trend. Among them, the installed capacity of ternary lithium-ion batteries was 3.4 GWh, a year-on-year increase of 15.7% and a month-on-month decrease of 19.1%; the installed capacity of lithium iron phosphate batteries was 2.4 GWh, a year-on-year increase of 127.5% and a month-on-month increase of 3.5%, with lithium iron phosphate batteries rapidly narrowing the market gap with ternary batteries.
Some analysts believe that since 2017, the installed capacity of lithium iron phosphate has been declining due to the impact of subsidy policies. However, with the implementation of new subsidy policies and the promotion of new battery technologies, many manufacturers are now turning to the low-cost advantage of lithium iron phosphate to seize the market, and the reversal of the lithium iron phosphate market may continue.
Lithium iron phosphate makes a comeback.
In October, my country's total output of power lithium batteries reached 9.86 GWh, a year-on-year increase of 47.9%. Among them, the output of ternary lithium batteries was 5.5 GWh, a year-on-year increase of 39.6%, accounting for 56% of the total output; the output of lithium iron phosphate batteries was 4.3 GWh, a year-on-year increase of 63%, accounting for 43.8% of the total output. The growth rate of lithium iron phosphate battery output once again exceeded that of ternary lithium batteries, and its market share continued to increase.
From 2015 to 2019, the production and sales volume of new energy vehicles in my country increased from 331,100 units to 1.206 million units, with an annualized growth rate of over 35%. Driven by the sales of new energy vehicles, the demand for upstream power lithium-ion battery products surged, with the installed capacity increasing from less than 16 GWh in 2015 to 62.2 GWh in 2019, an increase of nearly three times.
Despite the overall upward trend in the industry, lithium iron phosphate (LFP) batteries have experienced a "high start, low finish" in terms of market share over the past five years. In 2015, my country's total power lithium-ion battery shipments were approximately 15.7 GWh, of which LFP batteries accounted for 10.86 GWh (69.17%), while ternary lithium-ion batteries accounted for 4.26 GWh (27.13%). By 2019, my country's installed capacity of power lithium-ion batteries reached 62.2 GWh, but LFP batteries accounted for only 20.2 GWh, a year-on-year decrease of 9%, representing 32.5% of the total installed capacity. Ternary lithium-ion batteries, on the other hand, accounted for 40.5 GWh, a year-on-year increase of 22.5%, representing 64.8% of the total installed capacity. The market share of LFP batteries was significantly overtaken by ternary lithium-ion batteries.
The main reason for these changes lies in the adjustment of past subsidy policies. Subsidy policies have always been crucial to the development of the new energy vehicle market. In December 2016, the Ministry of Finance, the Ministry of Industry and Information Technology, the Ministry of Science and Technology, and the National Development and Reform Commission jointly issued the "Notice on Adjusting the Fiscal Subsidy Policy for the Promotion and Application of New Energy Vehicles," which for the first time specifically addressed the energy density requirements for new energy vehicles. Specifically, it required that the mass energy density of the power lithium battery system for pure electric passenger vehicles be no less than 90Wh/kg, and that those exceeding 120Wh/kg receive a subsidy at 1.1 times the standard rate.
Huaan Securities believes that the subsidy policy aims to "support the best and strongest," improving driving range under operating conditions, increasing battery system energy density, and tightening energy consumption standards per 100 kilometers. Driven by the subsidy policy, high-quality products with long driving range are constantly emerging, but lithium iron phosphate batteries have seen their market share continue to decline due to their inferior battery system energy density.
Due to the impact of subsidy policies, starting in 2016, the growth rate of lithium iron phosphate shipments began to fall significantly lower than that of ternary lithium-ion batteries.
In April 2020, the Ministry of Finance, the Ministry of Industry and Information Technology, the Ministry of Science and Technology, and the National Development and Reform Commission jointly issued the "Notice on Improving the Fiscal Subsidy Policy for the Promotion and Application of New Energy Vehicles" (hereinafter referred to as the "Notice"). The Notice proposed that the fiscal subsidy policy for the promotion and application of new energy vehicles be extended to the end of 2022, and the subsidy standards for 2020-2022 would be reduced by 10%, 20%, and 30% respectively compared to the previous year. The above subsidy policy was implemented from April 23, 2020, with a transition period until July 22, 2020.
Compared to previous subsidy policies, the "Notice" stipulates for the first time that after the transition period, the pre-subsidy price of new energy passenger vehicles must be below 300,000 yuan (inclusive). This means that models priced above 300,000 yuan will not be eligible for subsidies. The "Notice" also sets an annual subsidy cap of 2 million vehicles and a minimum range requirement of 300 kilometers for eligible vehicles.
In a research report, Huatai Securities pointed out that in 2016 and 2017, the prices of cobalt and lithium, upstream raw materials for ternary lithium-ion batteries, rose sharply, leading to significant fluctuations in the prices of ternary materials and lithium cobalt oxide. In contrast, although lithium iron phosphate has a lower energy density than ternary materials, it boasts a stable structure, good cycle life, and excellent safety performance, making it a highly cost-effective cathode material. Under the current subsidy method, lithium iron phosphate has regained its economic advantage, and even after considering subsidies, it can still achieve significant cost reductions. Lithium iron phosphate is expected to make a strong comeback in the power battery market due to its cost-effectiveness.
According to calculations by Huatai Securities, the current cost of lithium iron phosphate (LFP) batteries is approximately RMB 0.08/Wh, while the costs of ternary materials 811, 622, and 523 are RMB 0.29, RMB 0.24, and RMB 0.23/Wh, respectively. Based on these figures, using LFP batteries can save approximately RMB 0.15-0.21/Wh in cathode costs, corresponding to a 65%-72% reduction in cathode costs. Even under extreme scenarios considering cobalt-free batteries and a significant drop in ternary battery prices, LFP batteries still offer significantly lower costs than ternary batteries, with cost reduction advantages of 55% at the cathode level and 22% at the cell level.
Based on a passenger vehicle model with a capacity of 55kWh and a range of 405km, the cost of switching from ternary lithium batteries to lithium iron phosphate batteries would decrease by 6,900 to 13,500 yuan, a reduction of approximately 13% to 27%. After considering the difference in subsidies, the cost of the lithium iron phosphate version could still decrease by 4,600 to 5,600 yuan, equivalent to a reduction of 9% to 11%. Lithium iron phosphate batteries regained their economic advantage and achieved significant cost reduction.
In fact, the impact of subsidy policy changes on the demand for lithium iron phosphate batteries is already directly reflected at the vehicle model level. On September 22, the Ministry of Industry and Information Technology (MIIT) released the 336th batch of the "Announcement of Road Motor Vehicle Manufacturers and Products" (hereinafter referred to as the "Product Announcement"). According to the Product Announcement, among the 253 new energy vehicle products submitted for approval, as many as 206 models are equipped with lithium iron phosphate batteries, accounting for 81.4%. This significant increase in the proportion indicates that lithium iron phosphate batteries are further accelerating their return to the new energy vehicle sector.
During the 2020 National Day holiday, TSLA announced a price adjustment for its Model 3. The standard range upgrade version was priced at 249,900 yuan after subsidies, and the long range rear-wheel drive version was priced at 309,900 yuan after subsidies, with a maximum price reduction of over 40,000 yuan. Industry analysts believe that the price adjustment of the TSLA Model is most likely due to the company's new vehicles being equipped with lithium iron phosphate batteries manufactured by CATL.
In addition to the TSLA Model 3, other pure electric passenger vehicles such as BYD Han EV, Wuling Hongguang MINIEV, BAIC EC/EU series, SAIC-GM-Wuling Baojun E series, Changan Oushang, and Hozon New Energy Nezha series have also launched models equipped with lithium iron phosphate batteries.
New technology "fills the gaps"
In addition to its cost advantage, the improved battery life brought about by the promotion of new battery technology has also added fuel to the fire of the popularity of lithium iron phosphate batteries.
In March 2020, BYD unveiled its new lithium iron phosphate battery product, the "Blade Battery," claiming that it has higher stability than ternary batteries while improving energy density, and was once considered by the market as the "terminator" of ternary batteries.
According to information disclosed by BYD, its "blade battery" achieves a system energy density of 160Wh/kg while ensuring safety. In contrast to BYD's "blade battery," industry leader CATL has chosen the "CTp" (Celltopack) method, based on a "module-free" technology path.
In its research report, Huatai Securities pointed out that a traditional battery pack consists of a battery module composed of components such as battery cells, metal end plates, wiring harnesses, adhesives, conductive adhesives, and module control units. These modules then form the battery pack. In this three-layer structure, the modules serve to protect and support the battery cells, as well as integrate them. They also help with temperature control and facilitate maintenance. However, the presence of modules reduces the overall space utilization of the battery pack, resulting in lower assembly efficiency.
The two methods used by BYD and CATL achieve similar results. Essentially, they both improve energy density and reduce costs by increasing volume utilization and simplifying the battery pack structure. The key difference lies in the fact that the core technology of the "blade battery" is large-size cells, while the focus of "CTp" is on simplifying the module structure.
According to Huatai Securities' calculations, the "blade battery," based on the lithium iron phosphate system, can increase volume utilization by more than 50% and reduce manufacturing costs by 30%. Taking the BYD Han EV pure electric vehicle, which was the first to apply the "blade battery" method, as an example, its high-performance version and long-range version have increased their NEDC range to 550km and 605km, respectively.
Meanwhile, CATLCTp technology reduces the number of parts in the entire battery pack by 40% and increases production efficiency by 50% by 10%-15% by eliminating components such as module wiring harnesses and cover plates.
New Opportunities for Lithium Iron Phosphate
According to Huatai Securities' calculations, under different scenario assumptions, my country's lithium iron phosphate (LFP) battery shipments will reach 217-532 GWh by 2025, corresponding to a 6-year compound annual growth rate of 35%-56%. Under the neutral assumption, LFP battery shipments are projected to reach 343 GWh by 2025. Specifically, by 2025, global new energy vehicle sales will reach 15 million units, with LFP penetration approaching 20%, corresponding to approximately 188 GWh of power lithium battery shipments, a battery market size of approximately 171.3 billion yuan, and a corresponding LFP cathode material market size of approximately 24.2 billion yuan.
Meanwhile, Huatai Securities also predicts that by 2025, the market size of non-power lithium batteries in my country is expected to reach 155GWh.
According to relevant data, as of 2019, my country's lead-acid battery production was approximately 202.5 GWh, accounting for nearly 40% of the total. Lithium iron phosphate (LFP) batteries have energy density and cycle life that are four times that of lead-acid batteries. As the price of LFP batteries approaches that of lead-acid batteries, LFP is expected to seize market share from lead-acid batteries.
According to Huatai Securities' estimates, by 2025, the replacement scale of lead-acid batteries by lithium iron phosphate batteries may reach 82 GWh. In addition, the application of lithium iron phosphate in base stations, energy storage, and electric ships will reach 10 GWh, 28 GWh, and 35 GWh, respectively.
