[News Terms] Subsidies Cut Off, ‘LFP Battery’

Lithium-ion batteries are mainly composed of cathode materials, anode materials, electrolyte membranes, and separators, among which the cathode material is a crucial component that determines the battery's capacity and output. Depending on the cathode material, batteries are broadly classified into LFP or NCM (ternary) types. LFP batteries use lithium iron phosphate (Li-FePO4) as the cathode material, while NCM batteries use cathode materials made from nickel (Ni), cobalt (Co), and manganese (Mn). Chinese battery companies primarily produce LFP batteries, whereas Korean companies mainly focus on NCM batteries.

On the 20th, when the Ministry of Environment finalized the subsidy processing guidelines for the electric vehicle distribution project this year, vehicles were parked in an electric vehicle parking lot in Seoul. [Image source=Yonhap News]

The biggest advantage of LFP batteries is that they use iron phosphate instead of expensive nickel and cobalt, making them cheaper than NCM batteries. Chinese automakers have chosen LFP batteries mainly because of their price. LFP battery prices are generally 20-30% lower than those of NCM batteries. Additionally, they are considered safer as they do not explode even at high temperatures above 350 degrees Celsius.

However, LFP batteries have relatively lower energy density, resulting in shorter driving ranges and weaker instantaneous power. Although the raw materials are cheaper than those of NCM batteries, their value after use is lower. NCM batteries allow recovery of nickel, cobalt, and manganese after use, whereas LFP batteries can only recycle lithium and iron phosphate. In terms of quality, LFP batteries have been regarded as inferior to NCM batteries, which is why they have not received much attention compared to NCM batteries until now.

Recently, however, technological advancements have somewhat improved the energy density of LFP batteries, and with global inflation making price competition crucial in the electric vehicle sector, LFP batteries are gaining attention. The global market share, which was only 16% in 2020, increased to 35% in 2022. Tesla's Model Y and Volvo EX30, among others, have equipped LFP batteries to secure price competitiveness.

In response to these market changes, Korean companies are also moving quickly. LG Energy Solution is constructing the world's first energy storage system (ESS) dedicated factory in Arizona, USA, aiming for mass production by 2026. SK On, which unveiled a prototype of an automotive LFP battery at the InterBattery exhibition last March, is reportedly planning to start mass production of LFP batteries as early as 2026.

Meanwhile, according to the national subsidies for electric vehicles announced by the Ministry of Environment on the 20th, the highest subsidy this year goes to the Hyundai Ioniq 6 equipped with an NCM battery, with most models receiving 6.9 million KRW. In contrast, the subsidy for the Tesla Model Y rear-wheel drive (RWD) equipped with a Chinese-made LFP battery is 1.95 million KRW, a 62.1% decrease from last year's 5.14 million KRW.

Earlier, on the 6th, the Ministry of Environment announced a draft subsidy guideline, proposing the following directions for subsidy reform: ▲Promoting the distribution of high-performance and safe electric vehicles ▲Enhancing the eco-friendliness of electric vehicles through battery technology innovation ▲Encouraging manufacturers' efforts to improve after-sales service and charging conditions for electric vehicles ▲Reducing entry barriers for economically vulnerable groups, youth, and small business owners to access electric vehicles.