Tesla’s partnership with Chinese battery maker CATL on lower-cost cobalt-free batteries could drive a big shift in the industry, according to one investment bank, which expects China sales of the product to surge more than 50% this year.

Why it matters: The much-anticipated “Tesla effect” on China electric vehicle (EV) sales may be underway. As the EV maker enjoys a surge in Model 3 sales due to lowered prices on its domestically made version, a significant rebound in overall EV sales is expected to follow.

  • Tesla’s total number of orders in China has surpassed 100,000 as of late January, according to persons familiar with the matter. A Tesla salesperson on Tuesday confirmed to TechNode that its deliveries are booked up into May.
  • Investment bank China International Capital Corporation (CICC) estimates a 34% increase in China’s EV sales to 1.56 million units this year, lifted by sales of the locally made Model 3.

Details: The total sales volume of lithium iron phosphate (LFP) batteries is set to grow up to 54% year on year to 31 gigawatt hours (GWh) in 2020, compared with an annual decrease of 8% last year, CICC said on Thursday in a report.

  • Market share for the LFP battery in all-electric vehicles fell to a mere 4% in 2019, but CICC expects a strong rebound of up to 20% this year. Currently it is primarily deployed in electric buses, where it dominates with market share exceeding 90%, according to figures from Chinese consulting firm GGII.
  • Analysts said a significant reduction in manufacturing cost will support growth as the technology reaches maturity. Citing Chinese battery giant CATL as an example, the cost of LFP battery could be 20% lower than that of its main product, nickel-cobalt-aluminum (NCA) batteries, CICC analysts said.
  • Market share for LFP batteries plunged to 32% from 82% over the past five years. EV makers including Tesla and Nio use NCA batteries on passenger vehicles, which deliver a longer range for EVs thanks to their higher energy density.
  • However, LFP batteries handle wider variations in temperatures, and have a higher self-discharge rate, which translates into longer lives and lower likelihood of fire or explosions.

Context: CATL’s share price rose 4.4% to RMB 160 ($23) on Thursday on the Shenzhen Stock Exchange after the company confirmed it was partnering with Tesla to supply LFP batteries, according to Chinese media reports.

  • The US EV maker unveiled its partnership with CATL during its fourth quarter earnings call in January, and has reportedly agreed to use the cheaper LFP batteries for its China-made Model 3 vehicles to further reduce the cost.
  • Cobalt is a scarce resource, and is difficult and dangerous to mine. These factors make it the most expensive battery component, costing more than $33,000 per ton. Reuters reported CATL’s cobalt-free batteries will be cheaper than Tesla’s existing batteries by a “double-digit percent,” citing a person involved in the matter.
  • German automaker Volkswagen has made similar moves, currently negotiating with Chinese battery maker Guoxuan High-tech for control over its LFP battery supply.

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Jill Shen

Jill Shen is Shanghai-based technology reporter. She covers Chinese mobility, autonomous vehicles, and electric cars. Connect with her via e-mail: jill.shen@technode.com or Twitter: @yushan_shen

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