Paul Lienert & Hyunjoo Jin

(Reuters] – While Tesla (NASDAQ)’s profit and price grabs headlines last Wednesday, a potential pivotal step for the global automotive industry flew largely unseen.

U.S. Electric pioneer, John Dewey revealed that more than half of its vehicles in the first quarter had been equipped with lithium ironphosphate (LFP), a less expensive alternative to nickel-and-cobalt cells which dominate the West.

This revelation was eclipsed by Tesla’s $19 Billion revenue and Elon Musk’s tweet (NYSE:) charges. It marked the first time Tesla has disclosed details about its battery-making process.

This signal was strong that iron-based cell are starting to gain global popularity at a moment when nickel’s supply is being hampered by Russia’s war with Ukraine, and cobalt is under threat from reports of unsafe conditions in artisanal mining operations in the Democratic Republic of Congo.

Tesla isn’t the only one betting LFP batteries can be introduced to Western markets.

According to a Reuters analysis of electric vehicles (EVs) and interviews with many players, more than a dozen companies may set up factories in America and Europe for LFP components and batteries over the next three-years.

You can find the following factbox regarding the plans.

Mujeeb Ijaz founder of U.S. startup Our Next Energy, which claims it is looking for a U.S. manufacturing site. The electric car industry has a long-term and clear advantage because of it.

Ijaz is a veteran of the industry and has seen a technology that was rejected in America 10 years ago gain momentum. A123 (Michigan-based producer of LFP battery batteries) was founded by Ijaz. It was abandoned in 2012, and it was later acquired by a Chinese business.

LFP supporters, like him, cited iron’s relative availability and lower prices as the key reason for LFP cell adoption. LFP cells are larger and more heavy than NCM cells and have a narrower range of energy.

But there is still a mountain to be climbed.

LFP chemistry has accounted for just 3% of EV batteries in the United States and Canada in 2022 and 6% in the European Union, with nickel-cobalt-manganese (NCM) cells accounting for the rest, according to data from Benchmark Mineral Intelligence (BMI).

China has a tighter competition. LFP holds 44% and NCM 56% of the electric vehicle market, respectively.

For Western LFP cells manufacturers, it could prove difficult to compete with Chinese rivals.

Caspar Ralles, chief data officer at BMI, says that a company’s continued dependency on Chinese suppliers is the biggest concern.

LFP cells are also more lithium-rich than NCM counterparts. However, industry experts worry that iron-based batteries could lose their historic advantages of being less expensive to make due to the rising cost of metal.

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Tesla uses LFP for certain entry-level Model 3s that are made in America since last year. They have expanded their use of this technology beyond China where it began to use LFP batteries manufactured by CATL (China’s biggest EV battery manufacturer) about two years back.

However, given America’s history of using nickel-and cobalt-based batteries as their primary source of energy, some experts and specialists in battery technology were surprised by Tesla’s use of LFP cells during the first quarter 2022. These LFP cells are found in approximately 150,000 vehicles.

Tesla didn’t respond to our request for comment.

Mitra Chem is a company founded by Vivas, a former Tesla supply chain manager. It aims at building LFP batteries, first in California. According to him, nickel prices will remain volatile due to supply chain disruptions.

He added that “the best insurance policy automakers can have…is to include more iron based cathodes within their portfolio.”

Fisker is a U.S. startup that makes electric vehicles. It plans to use LFP battery technology in its SUVs of lower price. However, it will initially source cells from CATL. Henrik Fisker, CEO of Fisker Electric Vehicles stated that the company was currently in discussions with suppliers for batteries manufactured in America, Canada and Mexico starting in 2024.

Fisker states that it’s important to source local supplies because shipping heavy loads from Asia can prove costly, particularly for high volume, low-cost vehicles. This is also harmful to the environment, said Fisker, who believes there will be a significant place for LFP battery in the global electric vehicle mix.

“If I don’t leave Los Angeles or San Francisco I will never leave London. He said that LFP is a great option for urban-dwelling electric vehicle owners, who can drive less distances.

Another premium carmaker is looking into the chemistry after the Ukraine conflict. Volkswagen (ETR.) has Audi. It’s the first time that the company has used LFP battery technology before.

In March, Audi CEO Markus Duesmann stated that LFP may be seen in a greater portion of the fleet. After the war, there will be a new environment. We’ll adapt and pick battery specifications and technologies accordingly.

Joachim Post, BMW’s chief procurement officer, also stated recently that they were examining LFP. “We’re exploring different technologies that minimize resource use and optimize chemistry,” Post said.

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Among their advantages, LFP cells tend to pose less of a fire risk than NCM cells, and can be fully charged continually without losing as much performance over the life of the battery.

As the global EV market expands, the chemistry is expected to find its way into more entry-level consumer and commercial vehicles where longer range is not as critical.

Yet the hurdles to widespread LFP cell adoption include finding solutions to improve energy density – thus reducing the size and weight – and grappling with the rising cost of lithium.

Here’s a graphic: https://tmsnrt.rs/3uUejfn

Meanwhile, building out and scaling up LFP production in the United States and Europe will take time, underscoring the challenge to Western governments in reducing reliance on China.

American startup companies face a difficult task in scaling up to meet the demands of CATL (Contemporary Amperex Technology Ltd), a Chinese state-backed company that supplies Tesla with LFP cells and supports it with government subsidies.

Bob Galyen is a former chief tech officer at CATL and now leads a consultancy for batteries, Galyen Energy.

He added that a U.S.-based business does not need to be concerned about geopolitical concerns like China or the U.S.