Charge or die – which battery is the best?

Carmakers are rushing to secure battery supply for their future electric vehicle (EV) models, but the real battle is between the different battery chemistries.

Bottom line

Given the booming demand for EVs, the global battery manufacturing capacity is planned to increase fivefold by 2025. Batteries are crucial components of electric vehicles: they determine a car's driving range and performance. They also account for 30-40% of the overall EV price. The race for battery development is heating up and leveraging different chemistries. Within the lithium-ion battery technology (the undisputed market leader), high-performance nickel-based battery chemistries (NMC/NCA) account for 75% of EV battery demand, the remaining being captured by nickel-free ones (LFP) that are cheaper but provide a lower driving range. In the context of high commodity prices and potential material scarcity, we believe that LFP chemistries will see a significant uptake in the near future.

Executive Summary

Battery supply is at a critical stage

  • Driven by the fast uptake of electric vehicles, demand for EV batteries is surging and is set to accelerate in the coming years. Global electric vehicle sales were 6.6mn units in 2021 (+113% YoY), representing about 9% of all new car sales, and are expected to reach 24mn by 2025 and 49mn by 2030.

  • To cope with EV demand, the global annual manufacturing capacity of lithium-ion batteries is to grow from about 800GWh in 2021 to >4'000GWh by 2025.

  • While future demand looks bright, there remain several challenges associated with the fast production ramp-up. Demand for key materials is booming, affecting prices and creating uncertainty of future availability. Securing future battery supply has become a crucial issue for car makers.

The LFP vs. NMC debate

  • The biggest debate in the battery industry is on cathode composition. While various chemistries are currently used in lithium batteries, two tend to stand out: on one side nickel-based cathodes such as nickel manganese cobalt oxide (NMC) or nickel cobalt aluminum oxide (NCA). On the other side, lithium iron phosphate (LFP) cathodes are starting to gain market share.

  • These two battery types feature different characteristics with pros and cons for each option. Generally, NMC & NCA batteries tend to feature higher performance (higher energy density), but their composition is based on more expensive materials than LFP.

  • Several criteria have to be taken into account when comparing the two technologies (e.g., safety, energy density, power density, cost, cycle lifespan, etc.) and car manufacturers are often using different battery chemistries depending on the car model.

And the winner is…

  • We believe that nickel-based and LFP chemistries are complementary and will co-exist in the future. NMC batteries tend to be used in higher-end and more performing cars, while LFPs tend to be used in cheaper car models (NCA remains exclusively used by some Tesla models).

  • The ongoing Ukraine-Russia conflict is accelerating the LFP uptake since most battery-grade nickel supply comes from Russia.

  • While both technologies will thrive, we believe the fastest growth will be in LFP batteries thanks to cost advantages, improved energy density (despite being still lower than nickel-rich chemistries), and the increasing number of affordable electric car models.

Battery supply is at a critical stage

Customers are hungry for EVs, and it won't stop

Despite the Covid-19 crisis and headwinds from higher raw material prices, the demand for electric vehicles (and batteries) keeps rising. In 2021, EV sales reached 6.6mn, and about 9% of global car sales were electric (a 4x increase in market share since 2019). The global fleet of electric cars on the road reached 16.5mn, triple 2018's fleet.

This trend is not reversing this year, with 2 million electric cars sold in Q1 2022, representing a +75% increase YoY.

The appetite for EVs is driven by several factors, including government support, car manufacturers' electrification plans, model availability, technological progress (improving cars' driving range, recharging time, etc.), and affordability. In November last year, at the COP26, several governments and key international automakers issued a joint declaration stating their intention to achieve 100% zero-emission vehicle (ZEV) sales by 2040 globally and by 2035 in "lead markets". Today, approximately 450 different EV models are available on the market (five times more than in 2015), and automakers keep releasing new models.

Raw material availability is tightening up

While future demand for EVs looks bright, the availability and price of essential materials are questioned. In 2021 alone, the costs of lithium carbonate rose by as much as 150%, steel by 100%, aluminum by 70%, copper by 33%, nickel by 25%, and graphite by 15%, all directly impacting the cost of manufacturing EVs.

This unprecedented demand for batteries, combined with underinvestment in new capacity, is creating pressure on the supply of critical metals. While factories' utilization rate remains relatively low (at 43% for battery factories in 2021), additional investments are needed (especially in mining, where lead times are of several years) if future demand is to be met. The current surge in battery material prices is likely to drive interest in new mines exploration (drill counts have increased +50% for nickel and threefold for lithium from 2020 to 2021).

Regions are expanding capacity production

Today China produces roughly three-quarters of all lithium-ion batteries, accounting for 70% of cathodes' production capacity and 85% of anodes' production capacity (both critical components of batteries, see next section). Europe accounts for about 25% of global EV assembly but is home to only 16% of battery manufacturing capacity. The U.S. plays an even smaller role, accounting for only 10% of EV production and 7% of battery manufacturing capacity.

Global battery manufacturing capacity will rise five-fold by 2025, and all regions are expected to increase capacity. China will remain the leading country with about 69% of the world's production, but Europe and the U.S. will capture 17% and 10%, respectively.

The LFP vs. NMC debate

Basics of a lithium-ion battery

Lithium-ion (Li-ion) batteries have become the most used and preferred choice for EVs and consumer electronics. They consist of four main elements: a cathode (the positive electrode), an anode (the negative electrode), a separator (used to avoid contact between the two electrodes), and the electrolyte (carrying ions back and forth between the cathode and the anode via the separator).

The operating principle of a Li-ion battery is as follows:

  • Li-ion batteries exchange lithium ions (Li+) between the anode and the cathode, which are made from lithium intercalation compounds.
  • Charging: the cathode gives up some of its lithium ions which move through the electrolyte to the anode and remain there. That is how energy is stored.
  • Discharging: the lithium ions move back from the anode through the electrolyte to the cathode. In both cases, electrons flow in the reverse direction of the ions around an outer circuit.

 How to compare different batteries

Batteries are for electric vehicles, what engines are for gasoline vehicles. Hence automakers see it as the main differentiating factor. Batteries determine driving range, recharging time, and are key contributors to the price of an electric car. Numerous characteristics can be used to compare different battery technologies:

  • Energy and power density: energy density describes how much energy the battery can store, while power density indicates how fast energy can be delivered.
  • Discharge/charge rate: measures how fast a battery can be charged and discharged.
  • Safety: depends on the material used, the battery pack design, and thermal management.
  • Cycle life: represents the number of cycles (of charge and discharge) the battery can withstand before it becomes no longer usable in EV applications (due to loss of active lithium or material degradation).
  • Cost: represents simply the cost of the battery pack, which depends significantly on the cathode material.

While all four elements of a battery (cathode, anode, electrolyte, separator) play a role in the performance of a battery, the cathode is arguably the most significant one and the main differentiating factor between battery types. The cathode is where the ions are released (or absorbed), and batteries' energy density and stability can vary based on their material combinations. Also, cathodes represent between 54% and 72% of batteries' material costs, making them the main cost driver. Li-ion batteries are generally named based on the chemistry of their cathode.

High commodity prices are accelerating the shift to LFP

Today, two main categories of cathodes dominate the automotive sector: nickel-based chemistries such as nickel manganese cobalt oxide (NMC) or nickel cobalt aluminum oxide (NCA), and lithium iron phosphate (LFP).

Higher nickel content, such as in NMC and NCA batteries (NCA is exclusively used by Tesla), provides higher energy density but uses more expensive materials and requires a more complex manufacturing process. On the other hand, LFP batteries are cheaper and more stable (lower fire risk) but have a lower energy density (typically 65-75% of high-nickel NMC batteries).

The current context of high commodity prices is accelerating the shift to LFP batteries as they contain no nickel (note that battery-grade nickel is being mainly produced in Russia) and no cobalt. Also, recent technological progress (such as the cell-to-pack technology used in BYD's Blade batteries and CATL's third-generation LFP batteries) has increased LFP batteries' energy density to around 85% of conventional NMC batteries.

If current high commodity prices persist, the uptake of LFP batteries (driven mainly by the Chinese market) could accelerate and expand to Europe and the U.S.

And the winner is…

Both will co-exist

There is no one-size-fits-all technology for EV batteries. Nickel-rich chemistries remain well suited for high-level long-range models. At the same time, LFP appears to be a good option for entry-level short-range models and medium and heavy-duty vehicles (thanks to its lower price and superior cycle life).

In 2021, nickel-based chemistries represented 85% of the EV battery demand, the remaining 15% being captured by LFP (note that LFP's market share has already more than doubled from 7% in 2020).

China dominates, but others are waking up

China dominates most steps of the battery supply chain from raw material processing, cathode and anode production, and battery assembly. While the geographical distribution is unlikely to shift significantly in the near term, we still expect Europe and the U.S. to grab a bit of market share from China, driven by favorable policies and automakers' willingness to relocate battery manufacturing closer to car factories. For instance, Volkswagen recently announced a new partnership with Umicore to build cathode material in Europe. Northvolt expects to produce 100GWh/year of its cathode material, and Tesla plans to build a giant new facility to produce cathode materials next to its Texas Gigafactory.

On the LFP front, China benefited over the past decade from licensing fee exemptions thanks to an agreement with a research consortium owning a series of crucial LFP patents. These patents will expire this year, which could foster LFP production outside of China since the license fee won't be applicable anymore.

LFP to sustain the most significant growth

While the entire EV battery is expected to surge in the coming years, we believe that LFP chemistries will enjoy an even steeper growth, rising from 15% market share up to 40% in the near future. Major non-Chinese automakers have already started substituting NMC/NCA batteries for LFP ones. Tesla is already using CATL's LFP batteries in most of its standard range Model 3 and Model Y (in the first quarter of 2022, half of all Tesla EVs produced were using LFP batteries); Volkswagen plans to shift its entry models to LFP starting 2023. Ford confirmed it would begin using CATL's LFP batteries for many of its commercial EV models (Mustang Mach-E, F-150 Lightning, E-transit, etc.).

Diversifying batteries' chemistries is also a way for automakers to add new supply channels in an industry where we might see a supply deficit in the near future. 

Today's leading manufacturers of LFP batteries are BYD and CATL, together capturing close to 70% of LFP's market share. Most battery manufacturers explore different cathode chemistries (CATL and BYD produce both LFP and NMC batteries) and formats (pouch, cylindrical, prismatic, blade). Leading battery makers also dedicate time and money to the development of new generation batteries, such as solid-state batteries (using solid electrolyte instead of liquid), which intend to improve stability (non-flammable) and use metal anodes (increasing energy density) while keeping costs lower. Many established battery makers (e.g., Samsung SDI) and new entrants (e.g., Quantumscape, Solid Power) are exploring the solid-state path. However, the technology still has to overcome several challenges (formation of dendrites, scalability, manufacturing costs, etc.) and is not expected to enter the market before 2030.


  • Higher-than-expected EV demand. With surging oil prices and the ongoing strong government support, EVs' adoption could occur faster than anticipated.  

  • Stationary storage uptake. Beyond EV applications, batteries can be used in stationary applications to store excess renewable energy generation.  

  • Technological breakthrough. Fierce competition in the battery industry fosters innovation to improve energy density, charging time, and cost. New emerging technologies, such as solid-state batteries could represent a potential game changer and accelerate EV adoption.


  • Material scarcity. Insufficient investment in new supply capacity could exacerbate raw material price increases and slow EV adoption.

  • Power market crisis. Fears of sufficient electricity supply could discourage consumers from buying electric cars in the near term.

  • Increased competition. Competition in the battery manufacturing industry is likely to increase, and since batteries are crucial to electric vehicles, automakers might want to vertically integrate their production and further increase competition. 


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