Technological progress is not meant to go backwards. But that’s what seems to be happening in the world of electric car batteries after soaring commodity prices.

Tesla, which led the way in the development of electric vehicles, is replacing the type of battery cells used in all of its standard-range cars worldwide with one that analysts say will soon become obsolete.

The company controlled by Elon Musk will use iron-based batteries in these cars, also called lithium iron phosphate batteries.

This technology is widely used in simple and less sophisticated devices such as golf carts and residential backup power systems. But in electric cars, they have long been considered a less efficient option. Globally, approximately 10% of all electric car battery cells produced are now iron-based.

Their biggest drawback is the lower range. The material used in iron-based batteries has a lower energy density, providing less driving distance on a single charge for the same weight compared to widely used nickel-based lithium-ion batteries. For this reason, almost all automakers outside of China have opted for the latter type, which uses nickel, cobalt and manganese as base materials.

But switching to iron-based batteries would have one critical advantage: price. Batteries are the most expensive part of an electric car. Older batteries are significantly cheaper – costing around 30% per battery cell less than their nickel-rich counterparts, mainly due to the lower price of the raw materials they are made from.

Given soaring raw material prices and squeezed margins, battery manufacturers have raised the price of lithium-ion batteries. LG Energy Solution, for example, which supplies Tesla, Porsche and BMW, reportedly raised battery prices by a tenth this year, with the price of nickel quadrupling last year.

There are also potential savings to be made on recall costs. Iron-based batteries are more thermally stable, reducing the risk of fire. Recalls of 140,000 Chevrolet Bolt vehicles produced by General Motors due to battery fires have cost $2 billion – and supplier LG Energy Solution estimates its share of the expense will be $1.2 billion. When spread over each car sold, recall costs could begin to erode the advantages of batteries over older technologies.

Despite these costs, global automakers have largely opted to stick with expensive nickel-based lithium-ion batteries made by South Korean and Japanese manufacturers, which account for 88% of the electric car battery market outside of China. . Almost all of the world’s high-end battery cells are made by three companies: Panasonic in Japan and LG Energy Solution in South Korea and Samsung SDI.

Tesla’s shift could be a tipping point for change. This could convince rival automakers reluctant to use iron-based batteries that they are a reliable and viable option. Volkswagen also plans to use them in some models. More battery-powered automakers mean they could one day become the new global standard in entry-level electric cars, especially if charging infrastructure develops to a point where longer range is less of a concern.

The time is right. Key patent restrictions that prevented Chinese battery makers from exporting iron-based batteries overseas expire this year. License fees for producers outside of China to use key technology for iron-based batteries will also end.

However, a switch to iron-based batteries would mean a shift of power to China. More than 95% of iron-based battery cells are made in China. Of the four Asian battery makers that make most of the electric car batteries in the world, only the two Chinese makers – BYD and CATL – are making these types of battery cells and only for the domestic market so far. China also controls more than 80% of the world’s refining and extraction of electric car battery feedstocks.

For consumers of electric cars, a return to older technology could allow manufacturers to avoid price hikes. But in the longer term, the potential for supply and price disruption is high. It is difficult and expensive for automakers to switch battery manufacturers at short notice due to the highly customized nature of battery designs.

The current global chip shortage has highlighted the consequences of over-reliance on a handful of countries and companies for critical components. To avoid a similar fate, automakers must not underestimate the true cost of change today.

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