DISRUPTIVE TRANSFORMATION IN THE BATTERY INDUSTRY

As nickel-based investments give way to low-cost and sustainable LFP batteries, industry giants are changing direction

Today, even in the remotest corners of the world, battery investments are on the agenda. From electric transportation to balancing the electricity grid, the battery is considered the “building block” of a sustainable future in countries around the world.

For decades, industrialized countries, China in particular, have been working hard to develop a technology that will enable energy to be generated, stored, and even mobilized independently of demand. This technology stands out as a critical step in making the net zero goal in transportation possible.

The lithium-ion battery, which has managed to attract hundreds of billions of dollars of investment in the last decade, whose production capacity has increased exponentially, and whose unit cost has become 90 percent cheaper, shows that the global industry has made its technology choice and that the future is built on lithium batteries.

For the business world, the fact that massive battery investments, especially in the West, have come to a standstill in the last year, and that some projects worth tens of billions of dollars have been completely canceled, is a confusing situation.

The fact that companies such as Northvolt, Frey Battery, and iM3NY halted their factory investments in Europe and the US, the Total-Mercedes-Benz-Stellantis ACC initiative canceled its plans for many facilities, and the Ford-LG-Koç Holding partnership abandoned cell production in Türkiye seems to be enough to worry the industry about the future of the battery. However, it is clear that the negative winds blowing in the battery industry are caused by a destructive technological transformation. At the center of this transformation are “chemical” preferences. We can understand the situation more clearly by looking at the story of Northvolt’s collapse, the canceled factory in Türkiye, or the ACC investments marketed with great hopes.

Among the reasons for the correction in the battery markets, some experts cite an attempt to create excess battery capacity, while others argue that Western countries have been licensing technology and building a billion-dollar business model on bespoke production equipment rather than developing their own core technologies and manufacturing processes. However, it would be incomplete to explain the problem in terms of these factors alone. In fact, a lack of investment in the right battery chemistry and inaccurate forecasting of market demand are deeper causes of this correction.

Looking beyond the headlines and fancy stories, most of the recent battery investments that have been canceled, suspended, or changed customers have been based on lithium-ion cell chemistry using nickel, manganese, and cobalt. This nickel cathode cell technology, which dates back to the famous Argonne Laboratory in the US, was the dominant technology in the power battery market, especially in the first 10 years of the electric vehicle transformation, thanks to its high energy density. The largest battery plants of the period in the US, South Korea, and Japan were basing all their production and investment plans on this technology.

What changed the technology trend in the battery industry was China’s investment in an alternative lithium-ion cell chemistry, the lithium iron phosphate (LFP) battery, where China felt more secure in terms of material supply, lower cost, and did not have to make large license payments to the West for many years due to the use of technology. The battery industry has undergone a correction of sorts, with manufacturers first experiencing demand problems and then canceling investments due to the LFP conversion, which has gained great momentum in the last few years.

Recently, however, the industry has been reshaped with investments and technology licensing agreements for the LFP cell. The advantages of the LFP battery over nickel-based cell technologies include the ability to create a more “democratic” supply chain thanks to the fact that it does not require materials that are objectionable in terms of sustainability, such as cobalt; it provides convenience to automotive companies in terms of safety; and most importantly, it can spread the possibility of energy storage to wider systems and regions by reducing the kWh unit cost below 50 dollars.

In 2024, the electric vehicle (power) battery sector will reach 894 GWh (SNE Research) and the energy storage systems sector will reach 205 GWh (Rho Motion), while the share of LFP batteries in energy storage has exceeded 90 percent and 50 percent in the power battery sector. In China, the largest player in the global market with 548 GWh, three out of every four electric vehicle batteries are produced using LFP cathodes.

Today, LFP battery technology has become the main “chemistry” of choice for both the vehicle battery and energy storage sectors, while the nickel-based battery investments that the West has been planning for years, seeking funding, licensing the technology, receiving incentives, and starting construction have come to naught. While countries that will integrate gigawatt-hours of batteries into their grid demanded LFP batteries because they are both cheap and safe, while automobile manufacturers preferred LFP in many of their projects because it would reduce costs, the business model of initiatives such as Northvolt and Freyr was collapsing.

Today, it is possible to say that investments have changed direction and that significant progress has been made towards the establishment of large-scale LFP battery factories in Europe. However, this should not be taken to mean that the transformation of the sector is complete. Because the LFP battery, due to its low cost, seems to prevent a competing technology from emerging in the short-medium term and causing a similar destruction. However, it is important to keep in mind that the battery technology war between the major industries is not yet over, as the needs of the major industries that are customers of the battery vary.

Sodium ion, which also holds great opportunities for Türkiye, is one of the technologies that promises great potential for the future, although it is not yet mature enough to compete with LFP. Moreover, unlike lithium-ion, where the supply of battery- grade processed materials such as lithium and graphite is largely monopolized by China, this type of battery offers significant opportunities for developing countries to build their own battery industry. Batteries, which have developed and transformed at an unprecedented pace in the last decade, now affect almost every country and sector, from the world’s largest economies to underdeveloped countries.

Although the explosion in demand has led to the failure of some of the investments that were rushed into action, overshadowing the growth of this huge sector, it is clear that the main trend has not changed. It is certain that the battery challenge will continue to create important opportunities for countries like Türkiye that are struggling with industrialization. However, the technology trend has reached an interesting dimension by becoming quite critical not only at the macro level but also at the micro level.