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Europe should embrace LFP innovation and put in motion a raft of industrial policies to onshore some of the manufacturing, including via better joint ventures.
For years, if not decades, the main barrier slowing down the mass-market uptake of electric cars (EVs) around the world has been their price tag.
No more. Thanks to the fast pace of innovation in battery chemistry, electric models on the market today can deliver the necessary range, and they charge quickly and safely, all while not breaking the driver’s bank.
This is largely thanks to one battery chemistry in particular: lithium-iron phosphate batteries, or LFP.
LFP has many benefits over competitors: it’s safer, cheaper and does not rely on some of the more problematic (socially or environmentally) critical minerals such as cobalt or nickel. On average, LFP battery packs cost $94 per kWh (and even lower for some companies) compared to $130 for the nickel-rich NMC, which is more widespread in the West. And thanks to recent innovations, they can deliver more than 200 Wh per kg.
No wonder European automakers are rushing to adopt them in their mass market EV models, from VW’s ID2 to Citroën’s eC3.
But as Europe embraces the benefits affordable LFP batteries offer, at least two concerns are often raised.
Can Europe catch up?
The first one is that the LFP supply chain is almost entirely dominated by Chinese companies: over 99% of LFP batteries in 2024 were made in China, as well as LFP cathodes – the most valuable active material that contains processed lithium, phosphate and iron.
After years of trying, the EU is still struggling to produce the NMC chemistry, so how can we possibly ever catch up on LFP? But catch up we must.
Over 40% of all electric cars sold in 2024 ran on LFP chemistry, and BNEF predicts close to 60% will do so by 2030. While many of those are sold in China, almost every affordable model under €25,000 that is entering the EU market this year will run on LFP.
There is no way around the fact that LFP chemistry is critical to global, and European, EV mass market penetration. We cannot stop the innovation: just like the Kodaks of this world could not stop the advent of digital cameras. Those invested in NMC in the West have to accept that they will have to co-exist with their LFP competitors.
What Europe should do, and urgently, is embrace the LFP innovation and put in motion a raft of industrial policies to onshore some of the manufacturing, including via better joint ventures. Some European companies are already trying to produce LFP locally, eg. ElevenEs in Serbia or Inobat in Slovakia. Some of the bigger ones, including VW’s PowerCo and Stellantis-backed ACC are also considering pivoting part of their plans to LFP.
European and national policy instruments, including the EU Battery Fund, state aid and EIB programmes should ensure they have a balanced portfolio of battery projects they support across all chemistries, including LFP.
The EU should also attract companies processing the minerals these LFP batteries need. The continent already has numerous plans to sustainably extract, process and recycle lithium, as well as some innovative projects to make graphite and anodes. Beyond supporting these, the focus should be on onshoring the lithium-iron phosphate active material, the core midstream part of the supply chain happening almost exclusively in China today. Incentivising more EU content in batteries and better leveraging Chinese foreign direct investment, as promised in the Automotive Industrial Action Plan, will also help.
Where will all these LFP batteries go?
The other major concern relates to the environmental footprint of LFP batteries, which are more difficult to recycle.
Technologically, LFP batteries and their components can be recycled. A number of European companies, such as Cylib in Germany, are preparing to do that. But what’s missing today is a clear business case.
This will come with scale, when the millions of EVs with LFP batteries that are being sold today approach their end of life. Commercialising graphite recycling – the heaviest material in the LFP battery – will also help.
Ultimately, this is where regulation will play the biggest role. The EU Battery Regulation already sets binding recycling targets to ensure all EV batteries are recycled at the end of their lives regardless of chemistry.
Given the lack of technology maturity, LFP batteries were given a few years’ leeway but will have to be recycled from 2030. This date should not slip any further as it sends a clear signal to industry and investors to scale recycling capacity in time.
The EV mass market segment is embracing ever improving LFP chemistry whether we like it or not. Industrial policy to capture part of the value chain and staying firm on recycling mandates will ensure the EU gets the most out of it.
