UBS raises LFP global battery market share outlook to 40% by 2030

UBS analysts said Aug. 16 they expect iron-based lithium-iron-phosphate (LFP) batteries to represent 40% of the global battery market by 2030, 25 percentage points higher than previous projections, due to improved driving range performance from LFP batteries and growing interest from battery producers to seek alternatives to the more common high-nickel content battery chemistries.

"The main reason for the revision is we believe that electric vehicles equipped with LFP battery packs are capable of more than 500 kilometers of range, whereas previously we saw the use case of LFP being limited mainly to entry level and mass market vehicles," UBS Global EV Battery Research Coordinator Tim Bush said during a webinar.

With longer driving ranges, Bush said LFP batteries could become a more viable option to power a greater portion of vehicle models, especially medium-sized vehicles. However, LFP batteries will likely need to be larger than high-nickel content batteries to achieve similar driving ranges, he added.

"For a vehicle with a 500-kilometer range, a next generation NCM (lithium-nickel-cobalt-manganese battery) will only require a 48 KWh battery system, whereas LFP will require a 54 KWh system,"Bush said. "This largely owes to lower energy density, which results in greater battery system weight."

NCM is a common nickel-based battery chemistry.

Bush said the global average battery pack size is anticipated to be around 80 KWh by 2030, up from a current average of 57 KWh in China and 78 KWh in the US and Europe.

LFP market share in China is expected to remain around the current 50% through the end of the decade, but its negligible market share ex-China may rise to 20% by 2030, he added.

Bush said nickel prices may largely influence the relative price competitiveness between next generation LFP and NCM batteries, describing the comparison as "nickel price sensitive and lithium price agnostic."

"If the nickel price is below $20/kg, then NCM systems win on cost, but if nickel prices go above $20/kg, then LFP wins on cost," he said.

"In both of the chemistries, we find an identical level of sensitivity to nickel price," he added. "If OEMs take a diversified chemistry approach with both NCM and LFP, they can hedge out the nickel price risk through this strategy, but they cannot hedge out the lithium price risk."

The LME nickel cash bid price settled at $21,835/mt ($21.825/kg) Aug. 16.

Bush said automakers can also increase the driving range and lower production costs of batteries based on either chemistry through more efficient battery packaging design.

Lithium demand forecast up, nickel down

UBS co-head of Australia Mining Lachlan Shaw said the new LFP market share expectation boosts lithium demand forecasts while slightly lowering nickel demand forecasts.

"We still see the nickel market in structural deficit later this decade as EV penetration rates lift towards UBS' 'top-of-the-street' level of 55%, but just not quite as much demand as we saw previously," Shaw said. "With LFP cells coming through the industry more cheaply, we do expect an uptick in EV penetration in the near term, and that's also positive for all battery commodity demand growth."

Shaw said heavier vehicles that transition to electric platforms will require larger battery packs, thus driving demand for all battery metals even higher. However, improvements in technology may also allow battery producers to reduce metal content in batteries, he added.

"Offsetting those factors that are all quite bullish for the outlook on battery [metal] commodity demand... as cell performance improves, we're actually seeing lithium intensity reduce in terms of weight of lithium per kilowatt-hour of battery capacity, which provides somewhat counterintuitive results," he said.

Meeting battery requirements in US IRA bill

The US Inflation Reduction Act, which President Joe Biden signed into law Aug. 16, introduces a $7,500 tax credit for EV purchases.

By 2023, automakers can qualify their EVs for half of the credit, totaling $3,750, if 40% of the vehicle's battery metals by value are sourced from the US or a country with which the US has a free trade agreement. The requirement grows each year to 80% in 2027.

To qualify for the other half of the credit, 50% of the value of battery components in an EV would have to come from the US or its free trade partners in 2023. The figure climbs to 100% in 2029.

Automakers may have an easier time qualifying for the battery metal sourcing requirements but may face challenges with the sourcing of battery components, said Paul Gong, the head of China automotive research for UBS.

"For most of the [battery] materials... it seems that the major beneficiary should be Australia and Canada," Gong said, adding that batteries manufactured in China mostly utilize commodities sourced from US trade partners. "That criterion seems to be easier to fulfill."

Meanwhile, battery component manufacturing capacity has been slower to develop ex-China, so automakers may have to settle on qualifying for only half of the tax credit, he added.

"Some may forgo the second $3,750 credit, and they might still be qualified for the first $3,750," Gong said.

Depending on the costs to produce the battery, automakers may still be able to competitively market their EVs while still only qualifying for half of the credit, he added.