Financial Times perspective: Disruptor Musk’s electric car battery switch – big implications for SA miners

Use Spotify? Access BizNews podcasts here..Use Apple Podcasts? Access BizNews podcasts here..___STEADY_PAYWALL___.Tesla's reverse on battery cells signals shift for electric vehicles.Carmaker switches to older but cheaper iron-based technology after surge in raw material prices of minerals now used in the cars' biggest cost component .By June Yoon of The Financial Times of London.Technological progress is not supposed to go into reverse gear. But that is what appears to be happening in the world of batteries for electric cars after prices surged for raw materials..Tesla, which has led the way in the development of electric vehicles, is switching the type of battery cells used for all its standard-range cars globally to one that analysts once forecast would soon become obsolete..The Elon Musk-controlled company will use iron-based batteries in those cars, also known as lithium iron phosphate batteries..This technology is used widely in simple, less sophisticated devices such as golf carts and residential back-up power systems. But in electric cars, they have long been regarded as a less efficient option. Globally, about 10 per cent of all electric car battery cells produced are now iron based..Their biggest drawback is lower range. The material used in iron-based batteries have a lower energy density, offering less driving distance on a single charge for the same weight compared with widely used nickel-based lithium-ion batteries. For this reason, almost all automakers outside China have moved on to use the latter type — which use nickel, cobalt and manganese as core materials..But the switch to iron-based batteries would have one critical advantage: price. Batteries are the most expensive part of an electric car. The older batteries are significantly cheaper — costing about 30 per cent per battery cell less than their nickel-rich counterparts, mainly due to the lower price of the raw materials that go into them..Given surging commodity prices and squeezed margins, battery makers have been raising the price of lithium-ion batteries. LG Energy Solution for example, which supplies Tesla, Porsche and BMW, is reported to have increased battery prices by a tenth this year as nickel prices quadrupled last year..There are also potential savings to be made on recall costs. Iron-based batteries are more thermally stable, meaning a lower risk of fires. Recalls of 140,000 Chevrolet Bolt vehicles produced by General Motors due to battery fires cost $2bn — and supplier LG Energy Solution estimates its share of the expense will be $1.2bn..When spread over each car sold, recall costs could start to erode advantages the batteries have over older technology..Despite such costs, global automakers have largely opted to stay with expensive nickel-based lithium-ion batteries manufactured by South Korean and Japanese makers, which make up 88 per cent of the electric car battery market outside China. Almost all the world's high-end battery cells are made by three companies: Japan's Panasonic and South Korea's LG Energy Solution and Samsung SDI..Tesla's switch could be a tipping point for change. It could convince rival carmakers wary of using iron-based batteries that they are a reliable and viable option. Volkswagen also plans to use them in some models. More carmakers using the battery means they could one day become the new global standard in entry-level electric cars, especially if charging infrastructure develops to a point where longer range is less of a concern..The timing is opportune. Key patent restrictions that blocked Chinese battery makers from exporting iron-based batteries overseas expire this year. Licensing fees for producers outside China to use key technology for iron-based batteries will also end..However, a switch to iron-based batteries would mean a power shift to China. More than 95 per cent of iron-based battery cells are made in China. Of the four Asian battery makers that make most of the world's electric car batteries, it is only the two Chinese makers — BYD and CATL — that make these types of battery cells and then only for domestic market until now. China also controls more than 80 per cent of the world's refining and mining of electric car battery raw materials..For electric car consumers, a switch back to older technology might allow manufacturers to avoid price increases. But longer term, the potential for supply and price disruption is high. It is difficult and costly for automakers to change battery makers at short notice because of the highly customised nature of battery designs..The current global chip shortage has highlighted the consequences of relying too heavily on a handful of countries and companies for crucial components. For carmakers to avoid a similar fate, they should not underestimate the true cost of making the switch today.

Financial Times perspective: Disruptor Musk’s electric car battery switch – big implications for SA miners

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