DETROIT (BLOOMBERG) - Tesla says it is shifting to cheaper lithium iron phosphate (LFP) batteries globally, a move away from the chemistry used to power most electric cars, as prices for key materials soar.
The switch to LFP batteries will apply to Tesla's standard-range vehicles, the company said in its third-quarter earnings release, confirming a strategy flagged last year to use the budget components to deliver lower-cost models.
Most of the auto industry relies on nickel and cobalt in lithium-ion batteries to boost electric car performance. Yet supplies of both materials are constrained, and ethical issues have long dogged cobalt mines in the Democratic Republic of Congo, the top supplier. Nickel, which helps provide power and range, is also prone to fire, a risk the industry is spending billions to control.
Higher prices of nickel are currently having an impact on battery cells, according to Tesla chief financial officer Zach Kirkhorn. "Some of those costs have been flowing through to us," he said on an earnings call. "It's not a substantial amount of cost, but it's not small."
Tesla has been using LFP batteries in China supplied by Contemporary Amperex Technology Limited (CATL), the world's largest battery maker. Though the batteries, which are cheaper and more stable than alternatives, have in the past lacked the energy density - a key factor for electric cars - that is quickly changing.
CATL has delivered methods to eke out better performance from the components, along with start-ups like Michigan-based Our Next Energy, which has won backing from billionaire Bill Gates' Breakthrough Energy Ventures. Those advances mean the batteries are increasingly suitable for most regular electric models in all markets.
At Tesla's Battery Day last September, chief executive Elon Musk flagged that the firm could look to use LFP components for lower-cost models, a nickel-manganese-based chemistry for long-range cars and a high-nickel chemistry for harder-working vehicles. Mr Musk has also frequently warned about tight supply and the surging costs of nickel.
Mr Musk appears to be "getting very concerned when he's looking at long-term supplies of nickel and, to some extent, cobalt, and he doesn't see a clear solution to how we ramp up production of those minerals in time to ensure price stability", said Mr Jim Greenberger, executive director of NAATBatt, a non-profit trade association for advanced battery technology in North America.
Tesla likely also has confidence that LFP technology will continue to improve, Mr Greenberger said.