Sodium ion batteries could mean the future of EV batteries

Investors may need to rethink their preferred energy-transition trade if sodium is the new lithium.

One of the most potentially disrupted snippets of news to come out of the Shanghai auto show this week was not from Tesla or one of its flashy Chinese competitors but from a company that doesn t make vehicles at all: CATL. The world's largest battery producer said its first sodium ion battery would power electric vehicles built by Chinese brand Chery, though it didn t say when.

This adds to a drip-drip of signals that cheaper sodium-ion battery chemistry is moving out of the science lab and onto the streets. Another one: China EV leader BYD on Tuesday launched a hatchback, the Seagull, a variant of which may run on a sodium-ion battery, according to some reports that the company hasn t confirmed. If the Seagull lacks the new chemistry, other BYD models will likely use it.

When it comes to the car industry, new technologies often come into play, as consumers can afford the newest gadgets. Batteries innovation, where the biggest objective is reducing costs, are shaping up differently.

Less powerful but less powerful Lipton iron phosphate, or LFP, batteries were tipped to be a mainstream alternative to those that drive most EVs outside China today, which are rich in nickel and cobalt. Then, nickel and cobalt prices skyrocketed, necessitating automakers to seek workarounds as they prepared their EV supply chains for expansion. In 2021, Tesla said it would adopt LFP for some lower-range models. Ford, Volkswagen, and others have since taken the same route.

Can sodium ion technology follow the pattern? LFP replaced scarce nickel and cobalt with abundant iron, but doubled down on scarce lithium. When nickel and cobalt prices dipped last year, lithium prices were at a record high at the end of last year. In turn, sodium ion replaces scarce lithium with abundant sodium. The cost of battery-grade lithium carbonate in China has dropped 60% this year, according to data provider Benchmark Mineral Intelligence. The slowdown of EV sales in the nation is the most evident reason, but behind the scenes the rise of sodium ion might be another.

The new technology is less powerful than the current lithium batteries. It matches the older generations of lithium batteries that are in EVs today, so consumers might not care. It has other advantages - being less fire-prone and more capable in freezing temperatures.

The fast-growing battery industry is likely to be led by Sodium ion, especially for applications where energy density doesn't matter much, such as grid storage and small city EVs. How wide will the question be? The value of lithium is not only influenced by technology, but also by lithium prices. The recent price drop may take some of the momentum out of the search for alternatives, he said.

If signs continue to mount that sodium ion is going mainstream in the same way LFP did, investors may have to reconsider their expectations for top lithium producers such as Albemarle and SQM. While their share prices have fallen in recent months and appear cheap on eight and seven times forecast earnings, they are still underpinned by the belief that lithium-based batteries will be essential in the energy transition.

Now, the future of batteries is starting to look more like a battle between different chemistries, driving and driving by prices of the underlying commodities. To keep up with electric vehicles, investors need to work hard to keep up with the fast-changing technology.