Tesla, the world’s leading electric vehicle (EV) manufacturer, has announced its collaboration with BYD, a leading player in the EV and battery industry. The partnership involves Tesla incorporating BYD’s lithium iron phosphate (LFP) blade batteries into the rear-wheel-drive entry-level version of the Model Y, which will be produced at Tesla’s Berlin factory in Germany. Deliveries of this model are slated to commence in June 2023. Let’s delve into the significance of this collaboration from the perspectives of both Tesla and BYD.

Tesla’s Perspective

Tesla’s Berlin factory has thus far been responsible for manufacturing the premium variant of the Model Y, equipped with Panasonic’s 21700 lithium-ion batteries. In contrast, the entry-level version of the Model Y had been imported from Tesla’s Gigafactory in Shanghai, China, with CATL’s LFP batteries installed.

With this collaboration, Tesla will now produce the entry-level Model Y directly at its Berlin factory, integrating BYD’s LFP blade batteries with a capacity of 55 kWh. This battery configuration will offer an approximate range of 440 kilometers. Although this variant features a reduced capacity of 5 kWh compared to the CATL battery-equipped Model Y, the BYD LFP blade batteries boast improved energy density. This enhancement results in an increased range per kilowatt-hour, from 7.6 km/kWh to 8 km/kWh.

Additionally, the adoption of BYD’s blade batteries provides Tesla with cost advantages. The blade batteries employ cobalt- and nickel-free battery materials, which are more affordable. Consequently, Tesla stands to save approximately $750 in battery pack costs when considering a battery cost of $150 per kilowatt-hour. Moreover, the square-shaped design of the blade batteries enables tighter and more efficient packaging, leading to higher energy density. This design also facilitates Tesla’s integration of Cell to Chassis (CTC) technology, which reduces packaging material usage and overall costs.

Considering these factors, the decision to utilize BYD’s blade batteries aligns with the cost-effective preferences of the entry-level Model Y’s target consumer group while fulfilling Elon Musk’s commitment to cost control.

BYD’s Perspective

In 2022, BYD overtook Tesla as the world’s largest EV manufacturer, boasting sales of 1.86 million electric vehicles. As a result, BYD’s market share in battery assembly has steadily increased, owing to its self-supply capabilities. As of the first quarter of 2023, BYD stands as the second-largest global supplier of power batteries, with a market share of 16.2%, surpassed only by CATL’s 35%.

Despite BYD’s remarkable growth in the electric vehicle sector, its battery production capacity initially struggled to keep pace. This resulted in a period during which BYD could only fulfill its own demand and was unable to export batteries, impeding the growth of its battery business in terms of customer quantity.

Apart from its use in BYD’s own EVs and the recent collaboration with Tesla for the Model Y, BYD’s batteries primarily find application in Changan Ford vehicles. Furthermore, a staggering 98% of BYD’s electric vehicle sales currently originate from the domestic Chinese market. This high market concentration poses the dual risks of relying excessively on a single market and a single customer for battery sales.

BYD’s inclusion in Tesla’s supply chain with its blade batteries marks a significant step toward diversifying sales risks. Nevertheless, for BYD to maintain its position as the second-largest battery supplier in the future, the company will need to adopt a proactive and diversified market strategy, expanding its presence in the supply chains of various automakers.

(Photo credit: Tesla)

Sodium-ion batteries are burgeoning as a popular alternative to lithium-ion batteries, thanks to the efforts of Chinese automakers who are pushing for its mainstream adoption.

Leading Chinese companies like CATL and BYD are ramping up the production of sodium-ion batteries. In mid-April, CATL and Chery unveiled their new battery brand, “ENER-Q”, which includes full product lines including sodium-ion, iron phosphate lithium, and ternary lithium batteries. Chery’s new energy vehicles will be the first to use CATL’s sodium-ion batteries.

Following CATL, BYD is rumored to start mass production of its sodium-ion batteries in the second half of this year, which will be used in its compact hatchback, the Seagull series. Both the moves have once again sparked discussions about battery technology in the market.

Geopolitical risks fuels Sodium-ion Batteries

Considering market supply and technical stability, lithium-ion batteries and iron phosphate lithium batteries are still the most popular types of batteries for electric vehicles. The former has a higher energy density but contains cobalt and nickel, which drives up costs. The latter has a lower cost but a lower energy density.

Sodium-ion batteries, on the other hand, have been overlooked due to their low energy density compared to traditional lithium-ion batteries.

So, why are companies like CATL and BYD turning to sodium-ion batteries?

Geopolitical risk is a major factor. Most lithium mines are located in countries like the US, Australia, and Canada. In today’s anti-China political climate, these materials could be used as bargaining chips to curb China’s electric vehicle industry. China won’t want to be at the mercy of other countries when it comes to the fate of its EV industry, so developing new technological routes is crucial.

From a mass production perspective, sodium is a more abundant element in the Earth’s crust than nickel, cobalt, or lithium carbonate, with a distribution that’s more evenly spread out. As such, sodium could be a better fit as a positive electrode material in batteries in the long run. Industry experts predict that sodium-ion batteries could even cost 20% less than iron phosphate lithium batteries once it reaches economies of scale.

The Supporting Actor in EV Batteries

However, a closer look into the pros and cons of both the materials may reveal that it’s not a zero-sum game. Instead, their characteristics can complement each other and help to accelerate battery technology development.

CATL’s new sodium-ion battery has an energy density of up to 160Wh/kg, which is comparable to the iron phosphate lithium battery in its Kirin battery system, but still lags behind the 255Wh/kg of ternary lithium batteries.

As a result, CATL is mixing sodium-ion and ternary lithium batteries in Chery’s new energy vehicles to balance cost and performance.

BYD is also expected to use a mix of sodium-ion and iron phosphate lithium batteries. Assuming this is true, it will echo the market’s assumption that sodium-ion batteries are not overturning the battery industry, but rather helping battery manufacturers maintain flexible product portfolios that cater to different market segmentations.

To give an example, CATL’s lithium iron phosphate batteries have been utilized in heavy-duty vehicles like 120-ton ore trucks and marine service vessels since 2022, where charging efficiency and cost take precedence over high energy density.

Therefore, sodium-ion batteries are likely to become a complimentary choice for lithium iron phosphate batteries, as they offer advantages such as high-rate charging, low cost, and high safety. This will definitely give car makers more flexibility in their future product strategies.

As a consequence of rising power battery raw material prices, a number of global new energy vehicle (NEV) brands including Tesla, BYD, NIO, Li Auto, and Volkswagen, have successively raised the sales prices of electric vehicles (EV) in 1Q22. TrendForce believes that power batteries are the core component that account for the greatest portion of an EV’s overall cost and reducing the cost of power batteries will be an important strategy for companies to remain competitive in the future. As technology continues to innovate, lithium iron phosphate batteries are expected to account for more than 60% of installed capacity in the global power battery market by 2024.

TrendForce indicates, from the perspective of the world’s largest EV market, China, the power battery market reversed in 2021 and lithium iron phosphate batteries officially surpassed ternary batteries with 52% of installed capacity. Lithium iron phosphate installed capacity continued to grow in 1Q22, rising to 58%, and demonstrating a growth rate far beyond that of ternary batteries. However, from the perspective of the global EV market, thanks to the increase in the penetration rate of NEVs in Europe and the United States, ternary batteries still accounted for a market share of more than 60% in 2021, far exceeding that of lithium iron phosphate batteries, which captured a market share of approximately 32~ 36%.

Although the current gap between these two materials remains substantial, according to production capacity planning of global new energy battery cathode material manufacturers in the past two years, the scale and speed of lithium iron phosphate materials expansion will far exceed that of ternary materials. According to TrendForce investigations, planned expansion projects announced by global cathode material manufacturers are currently concentrated in China and South Korea, with a nominal total planned production capacity of over 11 million tons, of which planned production capacity of lithium iron phosphate cathodes accounts for approximately 64%. However, since planned production capacity exceeds market demand, there will be a certain shortfall between the industry’s total planned production capacity and actual future production capacity. It remains to be seen to what level actual effective production capacity can rise in the future.

It is worth noting, as the price of core battery raw materials such as lithium, cobalt, and nickel has moved up clearly since 2H21 and the global power battery supply chain is plagued by uncertainty including the Russian-Ukrainian war and the global pandemic, there will be a short-term disparity between the growth rate of supply and demand and companies will focus more on reducing the cost of battery materials and supply chain security, two major issues related to future competitiveness. As a result of this trend, TrendForce expects the cost-effective advantage of lithium iron phosphate batteries to become more prominent and this type of battery has an opportunity to become the mainstream of the terminal market in the next 2-3 years. The global installed capacity ratio of lithium iron phosphate batteries to ternary batteries will also move from 3:7 to 6:4 in 2024

The conflict between Russia and Ukraine has escalated in recent days. In addition to the surge in natural gas and crude oil prices, the conflict may also impact the supply of non-ferrous metals including aluminum, nickel, and copper. According to TrendForce, nickel is a key upstream raw material for the manufacture of electric vehicle power batteries and mainly used in the production of ternary cathode materials. In 2021, global nickel mine production was approximately 2.7 million tons, originating primarily from Indonesia, the Philippines, and Russia. Russian nickel production accounts for approximately 9% of the world’s total (including low, medium, and high-grade nickel), ranking third globally. At present, the market penetration rate of new energy vehicles is accelerating and ternary power batteries account for nearly half of power battery market share, which signals strengthening demand for upstream raw material nickel for automotive power batteries. Although Russian nickel exports remain unaffected for the time being, if the situation on the ground between Russia and Ukraine continues to deteriorate, global nickel supply may be impacted in the short term, pushing up nickel prices, and further increase cost pressures on end product markets such as the electric vehicle industry.

TrendForce states that in the medium to long term, since the lion’s share of new nickel ore smelting and processing projects have been located in Indonesia in recent years and Indonesia’s nickel ore production accounted for approximately 37% of the world’s total production in 2021, Indonesia’s concentrated production of nickel is expected to improve supply and demand in 2H22. TrendForce also emphasizes, regarding the export ban on mines announced by Indonesia last year, this ban only prohibits the export of raw ore and does not prohibit Chinese companies such as Zhejian Huayou Cobalt, Tsingshan Holding Group, Lygend Resources, and GEM from investing in the processing end of nickel mines in Indonesia. Therefore, smelting nickel ore and highly processed products are not affected by the export ban.

From the perspective of suppliers, among the top five nickel ore manufacturers in the world, Russian manufacturer Norilsk supplies approximately 9% of the world’s raw nickel materials, or 90% of overall Russian production, and its high-grade nickel production accounts for 22% of the world’s total (Note: according to nickel content, nickel materials can be divided into high-grade nickel, medium-grade nickel, and low-grade nickel with high-grade nickel referring to Ni content ≥ 10%), ranking first in the world. China’s Jinchuan Group ranks second at 17%, followed by Switzerland’s Glencore at 13%, and Brazil’s Vale S.A. at 12%. TrendForce believes, looking at the current conflict between Russia and Ukraine, if Europe and the United States impose sanctions on Russia, a change in the flow of Russian nickel may occur due to the high concentration of production and processing by Norilsk.

TrendForce states, at present, high-nickel-based ternary cathode materials (primarily referring to ternary materials with high nickel content such as NCM622, NCM811, and NCA) rely on the two advantages of higher energy density and less dependence on the precious metal cobalt as a raw material, its market share of ternary cathode materials has increased rapidly, 10% in 2019 to nearly 40% in 2021. The development of high nickel content means that consumption demand for nickel corresponding to each ton of ternary cathode materials has increased. With the acceleration of the penetration rate of new energy vehicles in China, Europe, and the United States, the market demand for lithium power batteries is strong and overall nickel inventories continue to decline. At present, the global refined nickel inventory is only 100,000 tons. In the context of tight supply and increasing demand, inferring from the Chinese market where new energy vehicles accounted for 53% of the global market in 2021, the spot market price of electrolytic nickel in China reaching RMB130,000 to RMB150,000 per ton in 2021, and prices jumping in early 2022 to RMB160,000 to 170,000 per ton, the possibility of continued pricing spikes in the future cannot be ruled out.

As of February 8, 2022, it has been 3 months since Russia began amassing troops on its border with Ukraine and tensions have yet to ease. Since Ukraine is a major producer of gases required for semiconductor manufacturing, once the two sides go to war, some gases may be in short supply.

Ukraine primarily produces neon, krypton, and xenon, which are key materials for exposure and etching processes

According to TrendForce research, Ukraine supplies approximately 70% of the world’s neon gas. In the semiconductor manufacturing process, neon gas can be used in KrF lasers utilized during exposure. In addition to neon gas, Ukraine also supplies approximately 40% of the world’s krypton gas. Krypton gas is also used in KrF lasers and both neon and krypton gas are closely tied to the exposure process. Furthermore, Ukraine produces xenon which can be used in semiconductor etching processes, accounting for approximately 30% of the world’s supply. Since Ukraine is a major supplier in the neon, krypton, and xenon markets, if a war breaks out, shortages of neon, krypton, and xenon are likely to follow. Even if the market is quick to find new gas suppliers or expand gas production capacity, product certification will take several months or even more than half a year, plunging the supply of electronic gas required for semiconductor manufacturing processes into scarcity.

A shortage of neon and krypton due to the war will affect the shipment of mature process products

TrendForce indicates, the large supply of neon and krypton in Ukraine is primarily used in KrF lasers and KrF lasers are utilized in mature 8-inch wafer 250-130nm nodes. At present, products manufactured at the 250-130nm nodes include power management chips (PMIC), micro-electromechanical systems (MEMS), and power semiconductor components such as MOSFET components and IGBTs. Once Ukraine and Russia go to war and the war expands into a stalemate, the shortage of neon and krypton will affect shipments of the aforementioned products to varying degrees. From the perspective of end-user products, the automotive industry, which requires large quantities of power management chips and power semiconductors, will face a new wave of material shortages.

（Image credit: iStock）