A lot of people are waking up to the potential of LFP, sure,
we were talking about it a year ago, and all the benefits and how
great a battery chemistry it is for electric vehicles, but it would seem now others are
catching on to it too. Except they seem to think it is some sort of mircale battery.
We dont have to go over all the benefits of LFP,
but the main ones are that it is cheaper, more abundant, safer and more durable.
The main downside is that they are less energy dense, which in turn affects range.
Most of the Chinese
EVs are using LFP batteries, in order to reduce costs, to meet their lower cost price points,
than legacy or Tesla. However, this does massively effect range. Or if they put enough
batteries in a vehicle, to increase range, then the performance is greatly compromised.
However, the Chinese market seem to be more accepting of vehicles with lower range.
We are seeing and hearing LFP growth, particularly
with the largest battery company CATL. LFP is over taking nickel. Why might that be? Well nickel
batteries have not been increasing much at all lately. The growth is minimal, especially when you
look at batteries like 2170. Whilst we hear about CATL adding and building new factories regularly.
Well the Tesla is the largest consumer of nickel batteries,
and they have been working on their own in-house nickel battery. Therefore Tesla didn't see any
need to expand their 2170 production by building or extending battery fabs.
It's terribly inefficient and these batteries would end up being expensive to manufacturer,
with less energy density, especially compared to Tesla's in-house 4680 batteries.
So nickel based battery production is kind of at a stand still whilst
the world has been waiting for Tesla to set up theirs. Of course the legacy autos have
all realized that if you want to make electric vehicles, then you do actually need batteries,
and the global battery market, is pretty much spoken for already.
Therefore they are all scrambling to partner with a battery company to build their own
battery factories. But of course they are taking a really long time to do that.
And they are using the same technology from when giga Nevada was being built 8 years agi. There's a
reason Tesla only built 1/3 of the building and stopped there, as it was clearly not the way.
So there has been a shortage of nickel batteries, as no one has been able to produce that many more,
sure the current fabs improve production speed and yields,
but not massive expansions. And these nickel batteries are expensive.
But in the meantime, there
is a lower cost alternative, the iron cathode LFP batteries. CATL is the largest producer,
in China, and in China you can get manufacturing set up a lot faster than the rest of the world,
as we have witnessed when comparing Giga Shanghai with Giga Berlin. Also
CATL use prismatic form factor, which is easier in production than cylindrical. So
CATL seem to have a few tail winds going for them, in getting batteries produced.
Tesla is always
wanting to purchase more batteries. But from an early on stage, Elon has been laser focused on
getting the weight of these Tesla's down, and good drag coefficients too. As a result Tesla
vehicles have been in a unique position to adopt LFP batteries in their vehicles,
whilst still offering a satisfactory range, thus reducing battery costs significantly,
whilst also being able to tap into another large source of battery supply.
As a result, Tesla has almost a separate business, the Chinese LFP vehicle business. Which is due
to Tesla's diversified cathode approach. It has now allowed a diversified business too.
Yes, China alone can grow into Tesla's current valuation, even without FSD, or 4680s, or even
2170s. This is a back up, or safety net. Of course we have 2170 vehicles from Fremont on top of that.
Tesla sells products that are very expensive, relative to other products like phones,
or a coffee machine. However, Tesla also generates huge margins from these
products. Therefore they can make huge profits, to warrant a high stock price.
But Tesla China can only grow at the rate of
LFP batteries. Now I think some people think that because iron is so much more abundant than nickel,
then for some reason the batteries can be produced that much faster. I think LFP battery factories
can be set up that much faster are because they are prismatic, and a more simple production line,
and being in China too. Either way, it's still a great supply of batteries for Tesla to tap into.
However, just like legacy autos having to build
their new factories using the same technology as Tesla from 8 years ago when they started building
Giga Nevada, well CATL are also using similar manufacturing processes. Massive factories,
that result in a relatively small output. Highly capital intensive processes. Yes, CATL production
has increased 165% in 2021 over 2020. That is a big jump. But they were only at 36 GWh in 2020,
it's not a big number, only about half a million cars. Then to jump to 96 GWh, well
it's still not a big number. But the thing is, it will be harder to grow 165% in 2022. And then
even harder in 2023. The grow is somewhat linear, therefore these percentages will quickly dwindle.
It takes technology improvements to increase production to decent numbers. By decent numbers
I mean the sort of growth we need to be looking at in order to move over to renewable energy. CATL is
only ever going to be hitting rookie numbers. They need to work out the dry battery electrode process
in order to have a chance, otherwise it will take too long to build factories, in even in China. The
dry battery electrode process can produce the same output in 1/10 the footprint, a big difference.
However, that is still half the battle, as you still need to produce these batteries as fast
as possible. The fastest production process is cylindrical using tab less design batteries.
Prismatic will always be too slow in production, at least for Tesla numbers,
or transitioning the world numbers. CATL can make enough batteries to serve the Chinese EVs though,
as some use such small batteries. They just aren't legal for developed nations.
This is why LFP is over rated,
it is a lower cost battery, and made from more abundant materials. But we need a lot
of batteries, and we need them as soon as possible, at this current rate, we would
be looking at over a century, for CATL to make enough batteries just to replace the global fleet.
LFP is also not able to generate vehicles with enough range for a lot of consumers in
a lot of markets. Except Teslas of course, achieving around 270 miles on LFP is a real
break through, which is what Tesla can reach with the Model 3 standard range.
Tesla can even hit about 220 miles of range with LFP in a Model Y.
Tesla are about to launch
their 4680 battery. This is the reason there hasn't been much action with nickel batteries,
because Tesla haven't been expanding the old production processes,
as the 4680 production process is just that much better. Therefore all resources should
be poured into getting this battery out into as much production as possible as early as possible.
We hear insane numbers like 250 GWh just out of Berlin, which makes us only wonder what the
capacity for the 4680 line will be in Texas, but we would assume at least 250 GWh too. You know
eventually within time when Tesla have ramped it up, which could take a year or two possibly. It's
not a matter of simply pressing a button. But once it starts ramping, then after that year or two,
from Texas and Berlin, the 4680 battery will not only be the most produced battery in the world,
I would say possibly most of the batteries being produced in the world will be 4680,
that's how big a jump these new manufacturing processes are.
I don't expect Tesla to build a 4680 factory in China, or even make any 4680 vehicles in
China. My guess is that once the 4680 engineers have set up the Texas line,
then it should time in well for the Berlin 4680 factory to be complete,
and the engineers can then move over the Berlin and set that line up also.
But from there, we would expect Tesla to just keep building more 4680 factories and expanding.
Except where next? There aren't really any other factories. So I am not really that sure. Unless
possibly we are being sandbagged again, and these lines could do something insane like a TWh a year.
So LFP is great,
don't get me wrong. But don't be distracted by BYD or CATL's LFP break throughs, or growth.
They are very small in the grand scheme of things. What you need to be excited
about is Tesla's battery manufacturing processes, and how Tesla will apply all
of those to LFP battery production. Once 4680s are ramping, the next milestone is Tesla's LFP.
Yes FSD is a big deal, but to transition to renewable energy,
LFP is a much bigger deal than FSD. We need lots of batteries, LFP is the most abundant,
but it's only a big deal when it can produced at 4680 levels.