Long-suffering cobalt bulls were dealt another blow on Wednesday after reports that the world’s largest electric carmaker is shifting some production of its most popular model away from batteries that contain nickel and cobalt.
In a surprise move China’s top battery manufacturer CATL will supply Tesla with lithium iron phosphate (LFP) batteries for its Model 3 production at its newly built $2 billion factory outside Shanghai.
The Model 3 is Tesla’s most popular model and the US-made version uses the company’s nickel-cobalt-aluminum (NCA) cathode chemistry. Most other automakers favour nickel-cobalt-manganese (NCM) cathode chemistries.
Cobalt miners may make up some lost ground if the Model 3 proves popular in China, which accounts for half the world’s EV sales.
LFP batteries are cheaper than batteries using NCA and NCM chemistries but lack the energy density, reducing driving range. LFP batteries power almost the entire electric bus fleet in China and is popular for smaller city runabout vehicles where range is not an issue.
According to Benchmark Mineral Intelligence, a battery supply chain and price reporting company, cobalt played no part in Tesla’s decision to use LFP cells:
The move is a specific strategy to balance the cost reduction of Model 3 with appropriate range and performance for China’s domestic market.
Benchmark believes LFP powered model 3s will qualify for China’s EV subsidies as range estimates with Tesla’s drivetrain efficiency will take it beyond the 250km (155 miles) threshold for the minimum subsidy payout of CNY 18,000 or roughly $2,600.
Benchmark estimates that the total cost saving for Model 3 made in the US using NCA cells will be in excess of 25%, but is unlikely that Tesla will produce LFP models outside China.
Cobalt miners may make up some lost ground if the Model 3 proves popular in China, which accounts for half the world’s EV sales. Tesla plans to use NCM 811 cells (~80% nickel, ~10% cobalt) supplied by LG Chem for its long-range Model 3s for the domestic market.
Benchmark domestic Chinese prices for cobalt sulphate jumped by more than 10% in January, to $6,900 a tonne. Measured from multi-year lows hit during the summer, prices for cobalt used in the battery supply chain have recovered 30%.
Chinese nickel sulphate prices fell an average of 5.8% on the previous month in January according the Benchmark data, but at CNY24,500 ($3,500) ex-works >22% nickel content, prices are flat year-on-year.