LFP battery demand to rise as China's new NEV subsidies disqualify expensive models

SHANGHAI, Apr 27 (SMM) – Demand for lithium iron phosphate (LFP) batteries in the new energy vehicle market, which enjoy more cost advantage as compared to high-nickel ternary batteries, will likely increase with support from the latest 2020 NEV subsidy policy, under which only passenger cars costing less than 300,000 yuan/unit will receive subsidies. 

Such threshold concerning vehicle prices is outlined for the first time in the NEV subsidy policy.  

The requirements also indicate the call for more efforts by Chinese automakers to control costs, and highlight the medium- to low- end markets for the shift to electrification. 

With the advantage of low costs and evolving technology, LFP batteries are expected to expand their application on NEVs. 

The Ministry of Finance and related authorities on April 23 unveiled the NEV subsidy policy for 2020, to continue providing incentives for the purchases of clean energy vehicles till 2022, as part of its efforts to stimulate domestic demand. The subsidies were originally to terminate by the end of this year.

Under the new policy, NEV subsidies for 2020 are 10% lower from the previous year level, with a further subsidy cut by 20% in 2021 and 30% in 2022. 

The minimal drive range per charge for a NEV to obtain subsidy is lifted from 250km to 300km. The government will only subsidise up to 2 million NEVs this year. 

Unlike previous years, authorities did not further increase the threshold for battery energy density, which will enable the steady development of the high-nickel ternary battery market. SMM expects the share of NEVs equipped with high-nickel batteries to expand after 2022. 

The new scheme took effect on April 23, with the period before July 22 as a transition period. This followed the government's granting of an exemption from the purchase tax on NEVs for 2021-2022.