1. Overview of Cathode Materials

Cathode materials are one of the core materials of lithium batteries. Their performance directly affects the energy density, safety, lifespan, and applications of lithium batteries, accounting for over 30% of the total material cost. Currently, common cathode materials in the industry mainly include lithium iron phosphate (LFP), ternary materials (NCM, NCA), lithium manganate (LMO), and lithium cobaltate (LCO).

2. Current Status of the Cathode Material Industry

Driven by China's carbon neutrality initiatives, energy transition, accelerated 5G infrastructure construction, and further development of new energy vehicles, China's cathode material industry has developed rapidly, with market prosperity maintaining an upward trend. According to statistics from GGII, China's cathode material shipments reached 1.89 million tons in 2022, a year-on-year increase of 68%. Shipments are expected to continue rapid growth from 2022 to 2025, reaching 4.71 million tons in 2025.

3. Development of the Lithium Iron Phosphate Cathode Material Industry

① Overview of Lithium Iron Phosphate Cathode Materials

Lithium iron phosphate is an olivine-structured cathode material mainly made from lithium, iron, phosphorus, and carbon sources through processes such as raw material mixing, drying, sintering, and crushing. It offers comprehensive advantages in terms of lifespan, safety, and cost. Benefiting from its excellent structural and thermal stability and abundant raw material sources, lithium iron phosphate can provide lithium batteries with a long lifespan and good safety, possessing broad development prospects in applications such as new energy vehicles and energy storage.

② Current Status of the Lithium Iron Phosphate Cathode Material Industry

Driven by the booming downstream markets of new energy vehicles and energy storage, as well as the driving force of relevant industrial policies and technological advancements in lithium iron phosphate, the market demand for lithium iron phosphate cathode materials in China is experiencing rapid growth. According to GGII's statistics and forecasts, China's lithium iron phosphate cathode material shipments reached 1.11 million tons in 2022, a year-on-year increase of 132%. It is expected that China's lithium iron phosphate cathode material shipments will reach 2.4 million tons in 2025, with a compound annual growth rate of approximately 50% from 2021 to 2025.

Data Source: GGII

According to GGII's statistics, since 2021, the proportion of lithium iron phosphate in the cathode material market structure has significantly increased. In 2021, the market share of lithium iron phosphate in the cathode material field rose from 24% to 43%, while the market share of ternary materials decreased from 46% to 38%. In 2022, lithium iron phosphate batteries accounted for 61% of the power battery market and ternary batteries accounted for 39%, while lithium iron phosphate batteries accounted for over 95% of the energy storage lithium battery market.

③ Driving Factors for the Development of the Lithium Iron Phosphate Cathode Material Industry

Since 2021, the shipments of lithium iron phosphate cathode materials in China have grown rapidly, and their share in the cathode material industry has also increased significantly. The main driving factors for the rapid development of the industry include:

1) Safety and Cost Advantages

In terms of safety, ternary materials usually exhibit self-heating above 180°C, decompose and release oxygen at around 200°C, and the electrolyte rapidly burns at high temperatures, causing an intensified chain reaction. Lithium iron phosphate has relatively better safety performance, exhibiting thermal phenomena only above 250°C and decomposing only at 700-800°C. Decomposition does not release oxygen molecules, and combustion is less intense than ternary materials, resulting in relatively higher safety performance.

In terms of manufacturing cost, cobalt salts, nickel salts, and lithium salts are the main raw materials for preparing ternary materials. Cobalt and nickel salts have relatively small exploitable reserves in China and are in short supply, resulting in higher production costs for ternary materials. For lithium iron phosphate, the main raw materials are lithium, iron, and phosphorus sources. Iron and phosphorus sources are abundant, giving lithium iron phosphate a certain cost advantage.

2) Development of Lithium Iron Phosphate Technology

With the promotion and application of new technologies such as CTP technology and blade battery technology in the lithium iron phosphate cathode material field by downstream lithium battery manufacturers such as CATL and BYD, the performance of lithium iron phosphate batteries has been significantly improved, further highlighting their high cost-effectiveness and leading to wider application in power batteries. The development of lithium iron phosphate technology has further driven the increased demand for lithium iron phosphate cathode materials.

3) Changes in Industry Policies and Progress in Supporting Facilities

With the gradual reduction of new energy vehicle subsidies, new energy vehicle and lithium battery manufacturers have shifted from pursuing high energy density to focusing more on safety, cost, and cost-effectiveness, leading to a rapid rise in the status of lithium iron phosphate cathode materials, which have a cost advantage. In the energy storage field, because energy storage batteries generally do not have high energy density requirements, they place more emphasis on economy. Therefore, lithium iron phosphate cathode materials with low cost and high cycle numbers have greater advantages. In addition, the increasing progress of fast charging technology and the further popularization of charging piles are also conducive to the further promotion of lithium iron phosphate batteries.

4) Downstream Automotive Customer Business Planning

Based on the above advantages and development trends of lithium iron phosphate cathode materials, downstream new energy vehicle companies have expanded the application of lithium iron phosphate cathode materials. Currently, lithium iron phosphate power batteries are widely used in major popular models such as Tesla Model 3, Model Y, BYD Han, BYD Qin, and Wuling Hongguang Mini EV. Automakers such as Volkswagen, Daimler, and Hyundai are also planning to adopt lithium iron phosphate batteries. According to GGII's statistics, in the first half of 2022, there were as many as 125 models equipped with lithium iron phosphate batteries, a year-on-year increase of 58%.

4. Downstream Application Areas of Lithium Iron Phosphate Cathode Materials 域

1) Development of the Power Battery Industry

With strong government support, China's new energy vehicle industry has developed rapidly. According to statistics and forecasts from the China Association of Automobile Manufacturers, China's new energy vehicle sales reached 6.887 million units in 2022, a year-on-year increase of 93.4%, with a market share of 25.6%. The electrification penetration rate of new energy vehicles is expected to reach nearly 45% by 2025.

Data Source: China Association of Automobile Manufacturers

According to GGII's statistics and forecasts, China's lithium battery shipments reached 655 GWh in 2022, a year-on-year increase of 100%, of which power battery shipments reached 480 GWh, a year-on-year increase of over 100%. It is estimated that China's power battery shipments will reach 2,230 GWh in 2030, with huge market potential.

2) Development of Energy Storage Batteries

Since 2021, supportive policies such as "Guiding Opinions on Accelerating the Development of New Energy Storage" and "Notice on Encouraging Renewable Energy Power Generation Enterprises to Independently Build or Purchase Peak-Shaving Capacity to Increase Grid Connection Scale" have been successively issued, proposing to achieve a transformation from the initial stage of commercialization to large-scale development of new energy storage by 2025, with an installed capacity of over 30 million kilowatts, and to achieve comprehensive market-oriented development of new energy storage by 2030.

Since 2021, driven by dual-carbon and other environmental protection policies, the number of power storage projects in China has increased. Domestic and foreign base station enterprises have increased their procurement scale, and the overseas market demand for power storage has also promoted export growth, leading to the rapid development of China's energy storage battery market. According to the data statistics and forecasts of GGII, the shipment volume of energy storage batteries in China in 2022 was 130 GWh, a year-on-year increase of 1.7 times; by 2025, the shipment volume of energy storage lithium batteries in China is expected to reach 180 GWh, more than 10 times the scale of 2020, with a five-year compound growth rate exceeding 60%.

4. Changes in regulatory policies in the past three years

From the perspective of actual product applications, lithium iron phosphate cathode materials are mainly used in power batteries and energy storage batteries. With the increasing emphasis on energy conservation and emission reduction, environmental protection, and strategic emerging industries, relevant ministries and commissions have successively introduced a series of laws, regulations, industrial policies, and measures regarding the development of new energy vehicles, power batteries, and energy storage technologies, effectively promoting the development of the lithium iron phosphate cathode material industry.

In May 2022, the Ministry of Finance issued the "Opinions on Fiscal Support for Doing a Good Job in Carbon Peak and Carbon Neutrality", proposing to encourage regions with conditions to take the lead in piloting and developing new energy storage and pumped hydro storage according to local conditions, and to accelerate the formation of a power development mechanism supported by energy storage and peak-shaving capabilities. Vigorously support the development of new energy vehicles, improve supporting policies for charging and swapping infrastructure, and steadily promote the demonstration application of fuel cell vehicles. Increase the government procurement of new energy and clean energy vehicles and vessels for official use, and except for special geographical environments, official vehicles such as those for confidential communications should, in principle, procure new energy vehicles.

In January 2022, the State Council issued the "14th Five-Year Plan for Comprehensive Energy Conservation and Emission Reduction", proposing to increase the proportion of new energy vehicles used in urban public transportation, taxis, logistics, and sanitation sweeping. By 2025, the sales volume of new energy vehicles will reach about 20% of the total sales volume of new vehicles.

In December 2021, the Ministry of Finance, Ministry of Industry and Information Technology, Ministry of Science and Technology, and National Development and Reform Commission issued the "Notice on the Fiscal Subsidy Policy for the Promotion and Application of New Energy Vehicles in 2022", proposing that in 2022, the subsidy standard for new energy vehicles will be reduced by 30% based on 2021; for urban public transportation, road passenger transport, taxis (including online ride-hailing), sanitation, urban logistics distribution, postal express delivery, civil aviation airports, and party and government organs' official use, the subsidy standard will be reduced by 20% based on 2021.

In July 2021, the National Development and Reform Commission and the National Energy Administration issued the "Guiding Opinions on Accelerating the Development of New Energy Storage", proposing to achieve a transformation from the initial stage of commercialization to large-scale development of new energy storage by 2025, with an installed capacity of over 30 million kilowatts. By 2030, the comprehensive market-oriented development of new energy storage will be achieved. The installed capacity will basically meet the corresponding needs of the new power system. New energy storage will become one of the key supports for carbon peaking and carbon neutrality in the energy sector.

In December 2020, the Ministry of Finance, Ministry of Industry and Information Technology, Ministry of Science and Technology, and National Development and Reform Commission issued the "Notice on Further Improving the Fiscal Subsidy Policy for the Promotion and Application of New Energy Vehicles", proposing that in 2021, the subsidy standard for new energy vehicles will be reduced by 20% based on 2020; to promote the electrification of vehicles in public transportation and other fields, the subsidy standard for urban public transportation, road passenger transport, taxis (including online ride-hailing), sanitation, urban logistics distribution, postal express delivery, civil aviation airports, and party and government organs' official use will be reduced by 10% based on 2020. To accelerate the transformation and upgrading of the public transportation industry, local governments can continue to provide purchase subsidies for new energy buses.

In October 2020, the State Council issued the "Development Plan for the New Energy Vehicle Industry (2021-2035)", proposing to conduct research on key core technologies such as positive and negative electrode materials, electrolytes, diaphragms, and membrane electrodes, strengthen technological breakthroughs in high-strength, lightweight, high-safety, low-cost, and long-life power batteries and fuel cell systems, and accelerate the research and development and industrialization of solid-state power batteries.

In September 2020, the National Development and Reform Commission, Ministry of Science and Technology, Ministry of Industry and Information Technology, and Ministry of Finance issued the "Guiding Opinions on Expanding Investment in Strategic Emerging Industries to Cultivate and Develop New Growth Points and Poles", proposing to accelerate breakthroughs in technological bottlenecks in wind-photovoltaic-hydro-storage complementarity, advanced fuel cells, high-efficiency energy storage, and ocean energy generation, and to build infrastructure networks such as smart grids, microgrids, distributed energy, new energy storage, hydrogen production and refueling facilities, and fuel cell systems. Carry out urban demonstrations of comprehensive electrification of public vehicles, and increase the proportion of electric vehicles in urban public transportation, taxis, sanitation, and urban logistics distribution. Accelerate the construction of charging/swapping stations for new energy vehicles, and improve the coverage rate of fast charging/swapping stations in highway service areas and public parking lots.