Lithium Iron Phosphate Regains Confidence, And the Industry Structure Is Gradually Optimized

In November this year, the cumulative proportion of lithium iron phosphate batteries has reached 40% and the installed capacity of lithium iron phosphate reached 4.71GWh, a significant increase of 95.5% from the previous month, and the market share reached 44.45%. On December 30, lithium iron phosphate manufacturers collectively increased their prices by 1,000 yuan per ton, which is nearly 3%. The market is in short supply and the supply is tight.

LFP material is the earliest power battery technology route adopted in the development of new energy vehicles in China. Its main advantages are abundant raw material resources, low cost, battery safety, and good cycle performance, while its main disadvantage is low battery specific energy.

LFP Regains Competitiveness Due to the Subsidy Effect

New energy vehicle subsidies have requirements for energy density and cruising range. The higher the energy density and the longer the cruising range, the higher the corresponding subsidy. Under the guidance of subsidy policies, the penetration rate of high-energy-density ternary batteries has increased rapidly, suppressing the application of lithium iron phosphate in passenger cars. Compared with 2018, the subsidy policy announced in March 2019 has dropped significantly. The installed capacity of power lithium iron phosphate batteries has rebounded in 2019. In the field of new energy special vehicles and buses, lithium iron phosphate batteries have begun to warm up, and the installed capacity has increased significantly. On April 23, 2020, the four ministries and commissions continued to promulgate policies to extend the subsidy policy period to the end of 2022, and decline by 10%, 20%, and 30% from the previous year in 2020-2022. At present, the maximum bicycle subsidy for passenger cars is 22,500 yuan/vehicle, which is a significant decrease from 60,000 yuan/vehicle in 2018, and the subsidy effect is weakened. In the post-subsidy era, the market returns to cost-effectiveness, and the lithium iron phosphate route with cost advantages will regain competitiveness.

Since 2020, the proportion of installed capacity of lithium iron phosphate power batteries has rebounded, and the proportion of passenger cars has increased significantly. The installed capacity of lithium iron phosphate from January to July 2020 was 6.69GWh, accounting for 29.4%, lower than the 33.8% in 19 years. However, according to monthly data, the installed capacity of lithium iron phosphate in July was 1.7GWh, which accounted for 34.56% of the installed capacity of power batteries, and the overall proportion was increasing. Among the installed capacity of lithium iron phosphate from January to July 2020, passenger car installed capacity accounted for 16.3%, higher than 2019's 12.2%. Among the installed capacity of lithium iron phosphate in July, passenger cars were still dominated, accounting for 57%, and the proportion of passenger cars increased to 20.72%. From the perspective of passenger cars, lithium iron phosphate accounted for 7.2% from January to July 2020, higher than the 6.5% in 2019; the percentage of lithium iron phosphate increased to 10.8% in July. On the whole, the trend of lithium iron phosphate picking up in passenger cars has already appeared. With the delivery of a number of explosive models of lithium iron phosphate in the second half of the year, the proportion will continue to increase.

With rising expectations, global electric vehicle sales will increase by more than 60% next year. Driven by both policies and the strength of new energy vehicle products, global electric vehicle sales are expected to reach 2.8 million in 2020, an increase of about 30% year-on-year; among them, about 1.25 million in the Chinese market and 1.2 million in the European market. Looking forward to 2021, with a further increase in high-quality supply, global electric vehicle sales are expected to reach 4.7 million units, an increase of approximately 68% year-on-year. In the European market, due to carbon emission reduction, subsidy policies, and the acceleration of the electrification of traditional car factories, sales are expected to reach 2 million vehicles, YoY+67%. According to the estimates of the Automobile Dealers Association, sales in the Chinese market are expected to reach 2 million vehicles in 2021, an increase of approximately 60% year-on-year.

Backup Power Supply for Communication Base Stations: Lead-Acid Ends, Iron-Lithium Debuts

Since the development of the mobile communication industry, lead-acid batteries have been the first choice for backup power sources in the field of communication base stations due to their extremely high-cost performance and technical maturity and stability, coupled with the huge market of lead-acid batteries and complete back-end resource processing facilities. The market for base station backup power is over 90%. As the cost of lithium iron phosphate batteries continues to decline, the backup power position of lead-acid batteries is in jeopardy. From the price point of view, lithium iron phosphate batteries are twice that of lead-acid batteries, but from the perspective of use cost, the life cycle cost of iron-lithium batteries in the field of base station energy storage has far exceeded that of lead-acid batteries. We believe that the replacement of lead-acid batteries is the inevitable result of the development of the industry. As the power consumption of 5G base stations has increased significantly, the cost of electricity has increased significantly. The speed cannot meet the needs of the 5G era, and the iron-lithium battery brings great economic efficiency to the 5G base station in this regard.

5G base station energy storage contributes a deterministic increase. If the country completes the layout of 7.6 million 5G base stations, uses iron-lithium batteries as a backup power source, and performs peak-shaving and valley-filling, it will save 19.4 billion yuan in electricity bills annually compared to using lead-acid batteries. In the face of huge pressure on electricity bills, the importance of lithium-ion batteries as high-frequency peak and valley adjustment in base stations has been highlighted. We are optimistic that lithium iron phosphate batteries will become an essential power source for 5G base stations. With the layout of 5G base stations, assuming that the proportion of lithium iron phosphate batteries used in 2020-2022 is 50%, 70%, and 80%, respectively, the demand for lithium-ion batteries in the next three years will be 7.2GWh, 14.8GWh and 22.1GWh.

From Power to Base Station, The Future of Iron-Lithium Is the Sea of Stars

From power to base stations, the future of iron-lithium is that of stars and seas. The logic of iron-lithium recovery has been verified in power batteries. Now in the 5G era, iron-lithium batteries will play a greater role in energy storage in communication base stations. The future of iron-lithium does not stop there. As the cost of lithium batteries continues to decline, iron-lithium batteries are expected to completely open up supporting space in the field of large energy storage, and are widely used in various industries on the power generation side, transmission and distribution side, and power consumption side. In various fields, it plays a powerful role in smoothing power generation and transmission, peak shaving and valley filling, peak shaving and frequency modulation, peak and valley arbitrage, optical wind storage, and backup power.

The Pattern of the Lithium Iron Phosphate Industry is Trending Towards Concentration

Under the long-term oversupply environment in the industry in the past, product profits showed a gradual decline. Finally, in the stage of competing for cost control capabilities, leading companies gradually gained competitive advantages through scale effects, customer stickiness, and historical experience, and market concentration showed an upward trend. Lithium iron phosphate domestic enterprises are basically stable, with a relatively high concentration of shipments and production capacity. After a round of reshuffle, the concentration of lithium iron phosphate batteries has increased significantly, forming a first-line echelon dominated by CATL, BYD, and Guoxuan High-Tech. The market share of the top three companies in 2017 was 76.8%, and in 2019 it reached 84.7%. The degree of concentration has further increased, and the clearing of the industry has begun to take effect.

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