Tesla Buckles Under Supply Chain Pressure.

In Tesla’s third-quarter earnings report, Elon Musk’s company announced that its Standard vehicles are switching back to iron-based battery cells. This creates some awkward roadblocks for Tesla’s marketing team, but also pushes the beating heart of the EV market further into China’s hands.

Lithium-iron-phosphate (LFP) batteries differ to the classic Tesla Lithium Ion battery, in that their construction relies far less on nickel and cobalt. These two minerals are experiencing colossal shifts in price, thanks to demand far outstripping mining supply (largely due to Electric Vehicle production):

Lithium is also rocketing up in price, but this material has less simple alternatives than nickel and cobalt:

I wrote about how this can further degrade the Electric Vehicle market here, but suffice the Lithium-iron batteries represent a choice: price over power.

LG Energy Solution — the main battery supplier to Porsche, Tesla and BMW — have recently increased prices by a tenth, and it doesn’t appear as though they’ll be offering discounts any time soon, with Nickel prices set to increase further still.

Tesla is following similar market moves in the West: Ford said they’ll be implementing LFP batteries in some commercial vehicles. Meanwhile, Volkswagen announced that LFP will be used in some of their entry-level EVs.

Musk mused on how the transition,

“..is actually good because there’s plenty of iron in the world,”

At the moment, iron-based batteries cost 30% less per cell. This is largely due to its abundance: iron is one of the earth’s most-produced commodities, after crude oil and coal.

Though this means Tesla is even more heavily reliant upon the highly-noxious iron ore mining industry, it may help prevent drastic price increases for consumers in the short-term.

Unfortunately, this shift presents an awkward conversation with potential EV owners: fears around mileage is a classic EV-newbie concern, and keeps many clinging to the familiar comfort of their Internal Combustion vehicle.

Previously, Lithium-Ions have helped position Tesla as a market leader explicitly thanks to the battery’s higher mileage capacity: George Hawley writes

The reason for the existence of Tesla as a company is simply that Lithium ion batteries have the highest charge capacity of any practical battery formulation in history for the money, high enough to make BEVs practical.

The underlying fact of iron-based batteries: they do offer lower mileage. This is because the cells are less energy dense - so you need more volume to fit the same capacity of battery.

TNW reported how EV car ownership in the UK grew by 280.3% between 2019 and 2021, while charging stations increased by just 69.8% in the same period.

Similarly, the number of EVs on the road rose by an even more impressive 586.8%, whereas rapid and ultra-rapid charger stock grew by only 82.3%.

This sudden shift to a lower-capacity battery type chafes uncomfortably against many consumers’ anxieties around mileage and range.

Lastly, this continent-wide shift in battery solutions has greater ramifications for the industry at large. Whilst the West has spent the last decade heavily investing in Lithium-Ion, China has largely stuck with iron-based.

With Western EV companies now pulling out of the lithium-ion scene, we’re seeing the industry reality where more than 95% of iron-based battery cells are made in China. China also controls more than 80% of the world’s refining and mining of electric car battery raw materials.

If we’ve learnt anything from the current global chip shortage, it’s that industries which over-rely on too few companies and countries are at constant risk of supply chain crisis. As vital Chinese iron-battery patents expire this year, it is up to market leaders to break free from this compromised supply chain.