Battery 'All-Out Battle for Cost Competitiveness'

Price Burden Amid Preference for Chinese Batteries Including Tesla
Risk Management Through Supply Contracts and Equity Investments with Mining Companies

The former industrial copper and cobalt mine Tilwembe located on the outskirts of Kolwezi, the capital of Lualaba Province in the southern Democratic Republic of Congo (DR Congo), a major cobalt mining area. (Image source=Reuters Yonhap News)

[Asia Economy Reporter Moon Chaeseok] As prices of key materials for electric vehicle batteries surge, the battery industry is making every effort to secure cost competitiveness. Judging that survival is difficult under the existing management method that links raw material prices to battery unit costs, companies are actively managing risks by signing supply contracts and making equity investments with mining companies. In particular, major automaker clients such as Tesla and Volkswagen prefer Chinese-made lithium iron phosphate (LFP) batteries, making it even more urgent for domestic battery companies, which mainly produce ternary batteries such as nickel-cobalt-manganese (NCM) and nickel-cobalt-aluminum (NCA), to secure cost competitiveness.

According to the Korea Resource Information Service on the 7th, the price of nickel reached $23,475 per ton as of the 4th, soaring 33.9% compared to the same period last year. This is the highest level since 2011. During the same period, cobalt rose 56.5% to $70,720 per ton, and manganese increased 20.8% to $1,685 per ton. Aluminum (LME 3-month spot) was $3,065, up 54.5%, and lithium carbonate jumped 429.2% to 362.5 yuan per kilogram.

What is noteworthy is the sharp rise in cobalt prices. It is more expensive than nickel, manganese, and aluminum, and also carries significant supply risks. Since cobalt is extracted as a byproduct when mining nickel and copper, it tends to have relatively unstable supply and high prices. South Korea’s cobalt imports from China account for 87% of the total.

The problem is that Chinese companies are the biggest competitors to domestic battery manufacturers. For companies such as LG Energy Solution, SK On (parent company = SK Innovation), and Samsung SDI, which supply mainly NCM and NCA batteries to automakers, this poses a burden. The unit cost of NCM and NCA batteries is higher than that of LFP batteries. Since LFP batteries use iron for cathode materials, their production costs are lower than those of NCM and NCA batteries. In fact, the battery price of Chinese CATL, which produces LFP batteries, is about $120?130 per kWh based on battery packs, while domestic battery prices are approximately 40% more expensive. For this reason, global automakers such as Tesla, Volkswagen, and Ford prefer LFP batteries. This is why the industry is as focused on reducing manufacturing costs as it is on increasing energy density (performance).

The domestic battery industry is directly engaging in supply contracts and equity investments with mining companies. Unlike in the past, when companies absorbed losses by delivering batteries at contract prices despite rising raw material costs, the approach has changed. Last month, LG Energy Solution signed a five-year supply contract starting in 2024 with Australian mining company Liontown for 700,000 tons of lithium concentrate (ore), a raw material for lithium hydroxide that increases battery capacity. On the 31st of last month, LG Energy Solution also signed a five-year supply contract with German company Vulcan Energy for 45,000 tons of lithium hydroxide from 2025 to 2029, which is expected to create synergy with the Liontown contract. SK On plans to overcome the crisis by leveraging its affiliate supply chains, while Samsung SDI intends to develop low-cost next-generation battery technologies. An industry insider said, "For items expected to face supply difficulties, we are closely monitoring the situation and responding by making efforts to secure inventory in advance."

This content was produced with the assistance of AI translation services.