LG Energy Solution has begun serious competition with Chinese companies, the leaders in lithium iron phosphate (LFP) batteries, by signing a supply contract worth 6 trillion won, the largest ever for a single contract. While South Korean products are gaining attention due to U.S. sanctions against China, there are still many challenges to overcome, such as pricing and technology, in order to compete in the global market that lacks sanctions against Chinese products.
The other party to LG Energy Solution's contract has not been disclosed due to confidentiality agreements. Industry insiders predict that, considering the quantity, it will likely be used for energy storage system (ESS) batteries by U.S. electric vehicle manufacturer Tesla, which has recently been focusing on this area. The LFP batteries, which have a low energy density but are inexpensive and long-lasting, are primarily used in energy storage systems, and Tesla has been utilizing LFP batteries made by Chinese company CATL.
There are growing expectations that domestic LFP batteries will increase their market share in the North American ESS market, which is dominated by Chinese products, thanks to this contract. Chinese battery manufacturers like CATL, BYD, and EVE currently hold over 70% of the global ESS market by leveraging cheap LFP batteries.
The U.S. government imposes a total tariff of 40.9% on Chinese LFP for ESS, including basic tariffs and reciprocal tariffs. This is expected to increase to 58.4% next year. Domestic products are subject to a 15% tariff. As a result, companies, including Tesla, are looking for alternatives to Chinese products.
According to the industry, the average price of Chinese LFP for ESS last year was $60 to $70 per kilowatt-hour, which is about 30% cheaper than the global average price of $90 to $100. With tariffs applied, the price of Chinese products supplied to the U.S. is projected to rise to $87, which is similar to the expected price (between $85 and $90) from Korean battery manufacturers.
Due to U.S. tariffs, price competitiveness in the U.S. market has reached similar levels, but there are many calls for Korean battery manufacturers to maximize cost efficiency in the medium to long term. Cathode materials account for 35% to 40% of the cost of LFP batteries, and Chinese companies have achieved vertical integration from raw materials to components.
Many evaluations suggest that the technological capabilities of Chinese LFP batteries are superior. While domestic products meet the requirements for battery cell lifespan and thermal stability demanded for ESS, there is still a relative lack of large-scale empirical data and global certifications as the business is still in its initial stages.
CATL announced a LFP battery technology that can charge to 80% in 5 minutes, even in cold weather, allowing a driving range of 520 kilometers with a 5-minute charge. BYD has introduced a blade battery that increases energy density, lifespan, and thermal stability while reducing production costs.
Among the three major Korean battery companies, LG Energy Solution was the first to begin mass production of LFP batteries for ESS in the U.S. Samsung SDI is converting part of its North American Stellantis joint venture production line for ESS and plans to start mass production at the end of this year. SK On is reviewing plans to establish a production system for LFP batteries for ESS by converting existing production lines.