LG Energy Solution Excludes LG Chem Cathode Materials from Tesla Batteries
LG Chem Fails to Meet Tesla’s High Energy Density Standards and Competitors Fill the Gap
LG Energy Solution has decided not to apply cathode materials from LG Chem, a fellow affiliate, to batteries supplied to Tesla, the world’s No. 1 electric vehicle company. This is because LG Chem failed to meet the ‘high energy density’ material innovation specifications that Tesla has been aggressively demanding. Analysts note that amid the prolonged electric vehicle chasm (temporary demand slump before mass adoption), a ruthless survival competition is unfolding where material suppliers that fail to secure performance and price competitiveness in time will fall behind—even if they are affiliates.
According to the battery industry on March 5, Tesla has launched a speed battle to apply ultra-high nickel batteries with nickel content raised to 95% in its electric vehicles and humanoid robot ‘Optimus.’ The company plans to introduce these batteries across all models, starting with the new Model Y Long Range and Cybertruck. When battery energy density increases through higher nickel content, not only do driving range and output improve, but costs can also be reduced by achieving the same performance with fewer batteries. Cathode materials with 95% nickel content have over 20% higher energy density compared to existing 90% products. However, as nickel content rises, fire risk increases, making highly advanced mass production technology essential.
LG Chem, which has mainly mass-produced cathode materials with nickel content below 90%, has reportedly not yet met the mass production yield and quality standards for the 95% or higher ultra-high nickel products that Tesla demands. Competitors such as L&F are filling LG Chem’s void. At this rate, LG Chem’s supply volume will inevitably decrease significantly as Tesla increases its ultra-high nickel ratio. As global automakers are likely to follow Tesla’s dual-track approach of equipping premium electric vehicles with 95% ultra-high nickel batteries and mid-to-low-end models with lithium iron phosphate (LFP) batteries, the material density war is expected to intensify further.
A battery materials industry official said,
Automakers urgently needing breakthroughs in performance and price are demanding technology at the limit level,
Adding,
Battery manufacturers also cannot afford the luxury of ‘taking care of affiliates.
LG Energy Solution’s exclusion of LG Chem’s cathode materials from Tesla battery volumes demonstrates the harsh reality of the current battery market. With the electric vehicle market slumping and the emergence of future mobility and humanoids rapidly changing the downstream market, analysts suggest that a survival battle is underway where even ‘affiliate premiums’ are disappearing. As Tesla, the global No. 1 company that sets industry standards, is raising material innovation standards to a harsh level, observations indicate that the restructuring of the battery materials market landscape will continue.
According to the battery industry on March 5, since the second half of last year, cathode materials from L&F alone, instead of LG Chem, have been used in LG Energy Solution batteries supplied for Tesla’s new Model Y Long Range and other models. A supplier change is occurring as Tesla introduces ultra-high nickel NCM (nickel-cobalt-manganese) ternary batteries with 95% or higher nickel content into its electric vehicle models.
Tesla, which is experiencing weak demand, is trying to make ‘cheaper and better’ electric vehicles using ultra-high nickel with 95% or higher nickel content. Tesla believes that price cuts and performance improvements are possible not only in entry-level models using lithium iron phosphate (LFP) batteries but also in premium models (Model S·X, Model 3·Y Long Range, Cybertruck, etc.).
Energy efficiency improves as nickel content increases. Ultra-high nickel batteries with nickel content raised to 95% are 30-40% more energy-efficient than ‘NCM 811’ (80% nickel, 10% cobalt, 10% manganese), a general ternary product, and over 20% more efficient than NCM9½½ (90% nickel, 5% cobalt, 5% manganese). Meanwhile, the increase in production costs is minimal as the use of expensive cobalt can be reduced. Electric vehicles with improved driving range can be produced at the same price, and they can also be utilized for next-generation technologies such as vehicle artificial intelligence (AI), which consumes significant electricity. Conversely, by reducing battery capacity, electric vehicles with the same driving range but lower prices can also be produced. Recently, Tesla has been lowering overall product prices in global markets including Korea, with ultra-high nickel playing a significant role.
The problem is the high technological barrier. When nickel content exceeds 95%, the structure becomes unstable, increasing fire risk and making it difficult to achieve yield (ratio of normal products to total production). To overcome this, advanced mass production technology such as ‘single crystal’ processing, which firmly binds particles without breaking, is essential. LG Chem judged that batteries with 88-90% nickel were sufficient, and since customers did not particularly demand higher nickel content, the company was one step behind in securing mass production technology. In contrast, L&F, which made the most preemptive technology investments, is absorbing the Tesla volumes that LG Chem missed and is expected to turn profitable for the first time in four years this year, posting operating profit of around 120 billion won.
LG Chem, for which LG Energy Solution’s Tesla battery volumes are estimated to account for 30-40% of total cathode materials, faces inevitable damage. Compounded by other automakers effectively suspending their electric vehicle businesses, cathode material shipments, which were typically at the level of 60,000-70,000 tons annually, are at risk of being halved to below 30,000 tons this year. Another concern for LG Chem is that LG Energy Solution is also increasing volumes from cheaper small and medium-sized companies instead of LG Chem, which has higher unit prices, in bids for auxiliary battery materials such as conductive agents and insulation materials to reduce costs. However, LG Chem’s position is that it will narrow the gap through rapid mass production technology investment to restore LG Energy Solution volumes and expand its reach to other customers.
The high energy density material war that Tesla is triggering is also set to unfold in the humanoid battery market. Tesla plans to apply cathode materials with 95% or higher ultra-high nickel content to its humanoid robot ‘Optimus,’ which it will begin mass-producing as early as next year.
Robots have far greater space constraints than automobiles. Highly efficient batteries must be crammed into the limited space of a human chest size to secure operating time and precise work performance. This is why ultra-high density batteries based on ultra-high nickel are considered core components for gaining first-mover advantage in the humanoid market. This means that the dominance of the coming robot era hinges on energy density innovation in battery materials.
Domestic material companies are well aware of this point. Long-term competition over the electric vehicle and humanoid robot markets will inevitably become more intense. Each company’s strengths and weaknesses are clearly divided. L&F and Ecopro BM are evaluated as being one step ahead in high energy density mass production technology, but they face challenges of financial soundness and lack of customer networks. On the other hand, LG Chem and POSCO Future M have capital strength but are latecomers in ultra-high density high-nickel mass production technology. Depending on each company’s strategic decisions and success, observations suggest that the future market landscape will continue to shift.
An industry official said,
Depending on what decisions are made during the chasm period, the outcome of victory or defeat in the future electric vehicle rebound period and humanoid blossoming period will be completely determined.
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LG Energy Solution Excludes LG Chem Cathode Materials from Tesla Batteries, source
