In this round of China-US trade war, all eyes are on the rare earth card, but the other new energy card is being overlooked.

In fact, when faced with Trump's sudden declaration of war, China calmly played four cards on October 9th.

rare earth elements, lithium iron phosphate cathode material, graphite, and superhard materials

Among them, the most immediately effective strategy to threaten the US is undoubtedly the "rare earth resources card". After all, if we were to do without this "industrial vitamin", there will be a risk of shock for the US military industrial system.

However, in terms of long-term follow-up impact, lithium iron phosphate may be the protagonist.

After all, the scale of rare earths is only a few billion dollars, while the battery market is a ten billion dollar market, and the driving force and energy storage business behind batteries is a real trillion-dollar market.

Musk suggested that since the US is short of electricity in terms of AI, it should store the electricity generated at night using batteries. This could directly double the utilization of electricity in the US.

However, in reality, more than 90% of the energy storage batteries conceived by Musk are lithium iron phosphate batteries. On October 9th, China not only restricted the lithium iron phosphate material, but also banned the equipment for producing the

Since June this year, the United States has witnessed an explosive growth in imports of lithium iron phosphate materials from China, which mainly flowed to South Korean battery factories located in Michigan to Mississippi.

China's explosive growth in lithium iron phosphate materials for use in the United States

At this point, the West has realized that unremarkable mixing machines and grinders, these apparently ordinary equipment, have accumulated an unprecedented amount of 'know-how' from cutting tools to grinding tools by Chinese manufacturers. If one wer

UBS, a Swiss bank, commented to the point that South Korea's lithium iron phosphate cathode material manufacturers "lack both commercialization capabilities and clear plans for expanding production."

The chain reaction is that the energy storage battery supply chain required by the United States 'huge power grid renovation plan will also face huge challenges.

Looking back just five years ago, lithium iron phosphate was still synonymous with low-end, and its shipment share fell to rock bottom.

In 2019, lithium iron phosphate batteries accounted for only 23% of total shipments, with a continuous decline for three years, and the utilization rate once dropped below 30%.

At that time, all major manufacturers were under extreme financial pressure, and the industry widely regarded it as just a transitional technology route due to its low energy density, poor winter endurance and other issues.

Who would have thought that more than 80% of domestic power batteries and over 90% of global energy storage batteries are now occupied by lithium iron phosphate material, and this market share is still expanding like a snowball.

Hunan Yunao, the industry leader, revealed that its capacity utilization rate reached 117% in the first half of the year, indicating a possible turnaround in the industry's boom cycle.

Actually, 10 days before the Ministry of Commerce issued the ban, Ningde Times officially announced an increase in capital of 2.56 billion yuan in Jiangxi Shenghua. After the transaction is completed, Jiangxi Shenghua will become a wholly-owned subsi

This is the first time that a battery giant has directly acquired shares in a lithium iron phosphate material plant, which is enough to prove the rapid rise of material plants in the new energy supply chain.

China's lithium iron phosphate has completed an epic transition from over-competition hell to strategic weapon, and the technology and business logic behind this are far more profound than we can imagine.

01

4th generation lithium iron technology revolutionizing high-end and long-lasting batteries

The technological key to the current lithium iron boom is high-voltage solid technology revolution.

In plain terms, it means more positive material can be packed in the same volume to improve battery life.

On June 26th, 2025, Xiaomi released its second model, the Xiaomi YU7. One subtle detail that went unnoticed is that

This popular SUV's long-range version is equipped with a lithium iron phosphate battery, with a range of up to 835 kilometers.

This completely breaks people's stereotype of 'standard lithium iron phosphate with long-lasting ternary batteries'.

Once in a while, the new car manufacturing companies often criticize the lithium iron batteries. As early as March 29, 2020, Li Xiang publicly expressed his view on this matter:

Using lithium iron phosphate batteries in extended-range or plug-in hybrids for vehicles is a disaster.

However, by September 2025, Li Xiang announced the release of the main electric vehicle model i6 equipped with lithium iron phosphate batteries. Li Xiang himself emphasized that the new car has better low-temperature performance and fastest charging

Model Y is also being used.

The innovation of the fourth-generation cathode material company is supporting this technological breakthrough.

Currently, mass-produced lithium iron phosphate materials are divided into first to fourth generation based on their tap density. The early first-generation lithium iron phosphate materials have already exited the mainstream market and are only appli

70% of the energy storage and power batteries on the market are the mainstream second-generation and third-generation lithium iron batteries, which also constitute the impression people have of lithium iron batteries

The stereotype that it can be used, but not for high-end cars.

Real aroma reversal is based on the fourth-generation high-voltage solid iron lithium technology.

Its compaction density is ≥2.6g/cm³, approaching the compaction density of ternary batteries, and significant progress has been made in fast charging performance, enabling Ideal to push the price of pure electric vehicles below 250,000.

In this process, the front runners are Jiangxi Shenghua and Hunan Yunehmen who have been acquired by Ningde Times.

Nine years ago, Jiangxi Shenghua had already placed bets on the technological route of synthesizing lithium iron phosphate from ferrous oxalate. In theory, this route can produce more densely compacted materials and break the curse of lithium iron ph

However, practice is fraught with obstacles. Over 90% of lithium iron phosphate on the market is synthesized from iron phosphate. The sublimated iron(II) oxalate, which is a minority production with many impurities, is difficult to obtain qualified p

The precursor of lithium iron phosphate determines more than 80% of its electrochemical performance, which can be regarded as the gene of the material. This made Subhitech have to choose to build its own precursor production line, with initial invest

To put it bluntly, the core contradiction of the ferrous oxalate technical route lies in "putting advantages behind and putting pain points ahead."

Its advantages of high compression and fast ion conduction will be demonstrated in the fourth generation lithium-iron era. However, challenges such as raw material control and process stability are difficult to address in the early stages of industry

It was not until the demand for ultra-fast charging batteries from companies such as Ningde Times exploded, and Jiangxi Sublimation broke through impurity control and sintering processes through thousand-ton pilot tests that the route transformed fro

Jiangxi Shenghua has made a considerable investment in this unlikely technological path, but has suffered losses in 2018, 2020, and 2023. In 2023, with just a 3% market share, it incurred losses exceeding RMB 1 billion.

However, in the first half of 2025, Jiangxi Sublimation's revenue reached 3.958 billion yuan, and its net profit turned into a profit of 63.78 million yuan. It finally began to get out of the quagmire of the iron-lithium price war.

Currently, high-voltage lithium iron phosphate has become a powerful tool to improve battery fast-charging performance while balancing high energy density. It is becoming the core competition of technological innovation among companies in the industr

In 2024, the fast charging technology of the lithium iron batteries, represented by the CATL's Shenxing battery and the Hornet Energy's short-blade battery, will accelerate their installation in vehicles.

In 2025, the industry is known as the 'super-charging era', and the market demand for super-fast charging is rapidly increasing.

Of course, the big brother in the industry represented by Hunan Yuneng has also successfully entered the fourth-generation iron-lithium route through process improvements such as secondary sintering. The performance of high-pressure solid materials r

The recent surge in the fourth-generation lithium iron phosphate (and the third-generation half lithium iron phosphate) has fundamentally changed the automotive market landscape since 2024.

The main pure electric models such as the Ideal i6, Zero Running B10, and Xiaopeng MONA M03 are all equipped with a full range of lithium iron phosphate, completely subverting the inertial configuration of "low iron lithium and high three-element" an

Starting from the second half of 2025, sales of pure electric vehicles will grow rapidly, and the penetration rate of fast-charging vehicles has also increased rapidly from 35%-40% at the beginning of the year to 52%-55%.

Behind every popular model, the efforts of the supply chain are indispensable.

02

The Battle of Energy Storage for Three-generation Lithium Iron Phosphate

In the field of power batteries, the fourth generation lithium iron phosphate (LFP) has achieved decisive success in the pure electric vehicle market with its high integration and fast charging capabilities.

The third generation of lithium iron phosphate has established its absolute advantage in the energy storage field.

In the early development of energy storage batteries, the market dominance was held by South Korean companies, with their core product being the ternary lithium battery. For example, the early Megapack energy storage equipment used by Tesla adopted t

However, the poor thermal stability and short cycle life of ternary batteries have become a weakness in energy storage systems.

Numerous cases have confirmed this issue.

Moss Landing energy storage station in California, USA, which uses LG Chem's NCM622 ternary cells initially and is one of the world's largest lithium battery energy storage projects, has experienced four consecutive fires over the four years from 201

Moss landing energy storage fire

If energy storage batteries are to achieve a lifespan of 15 years while maintaining two charges and two discharges per day to achieve economic arbitrage, it means that the cycle life of the battery cells needs to reach more than 8,000 times, while th

The industry needs a technological breakthrough, and the opportunity comes from Nanshan, Shenzhen.

In the laboratory, Kong Lingyong, at the age of only 28, discovered a new synthetic method to prepare nanoscale lithium iron phosphate, which prompted him to name his company Defang Nano.

No one expected that this company, founded with just 500,000 yuan in 2007, would rise to become the second largest positive electrode material company in the world relying on this technology.

The method is lithium iron phosphate produced by liquid phase method, which changes the process route of positive electrode material in the later stage.

Previously, all positive electrode materials were prepared using a grinding mechanism with mature processes, and everyone competed in optimizing within the framework of the solid-state method.

The liquid phase rule of Defang Nano completely overthrows this model.

The precursor materials are directly mixed in liquid form in a reactor, and then sintered to achieve atomic-level element mixing and nano-scale particle preparation in liquid preparation.

It sounds beautiful, but the process is extremely challenging. Those who are familiar with chemical engineering understand that once the process reaction enters a liquid state, the reaction process often becomes a blind box.

The transition from laboratory to pilot line, and from pilot line to production line, will be extremely treacherous at each step. Careless mistakes can lead to material scrap or even production line accidents, which requires a large amount of experim

A Defeng Nano investor mentioned that Kong Lingyong has long-term experience of living and working in the factory, gradually taking the liquid phase method from technical concept to mass production scale.

Finally, lithium iron phosphate materials prepared by the liquid phase method have achieved breakthroughs in cycle life, becoming a supplier for Tesla, while the DY3 and DY5 products from DeFang Nano have also become a generation of popular long-cycl

The richness of Chinese manufacturing lies in the fact that although De Fang Nano successfully passed liquid phase amplification, other technological routes were also advancing simultaneously during the same period.

Leading enterprises such as Hunan Yuner and Hubei Wanrun have delivered the third-generation long-cycle materials with fine particles and uniform materials through the improvement of solid-phase process by grinding the material particles to extremely

By now, China's lithium iron phosphate energy storage products have formed a dual advantage of "low cost + long lifespan", ultimately achieving a global market monopoly, and produced the legendary 314Ah battery cell, a hit in the energy storage indus

Data from 2025 shows that the average cost of China's 314Ah lithium iron phosphate energy storage cells is only 0.28 yuan/Wh, which is 49% lower than that of Korean ternary energy storage cells (0.55 yuan/Wh).

Since its mass production in late 2022, the 314Ah battery cell has quickly captured 60% of the global energy storage battery market share, becoming one of the most popular standardized batteries in history.

Japanese and Korean companies, which once led the battery industry, are now falling behind in growth due to their complete collapse in the energy storage battery sector.

Since then, the supply chain of energy storage, the core equipment of the next-generation power system, has been increasingly localized in China irreversibly.

When the United States tried to support Korean manufacturers like LG along the Mississippi River to break away from China's supply chain, it was discovered that these subsidized factories were placing large material orders to mainland China.

This is probably what it feels like to have your neck choked.

03

The Paradox of a Great Victory Turned into a Rout

Chinese material enterprises have helped China's new energy sector win three consecutive battles in energy storage, power, and electric vehicles, but the rapid over-competition in the supply chain goes hand in hand with it.

In 2020, both Ningde Times and BYD introduced the CTP technology and blade battery, which are two key lithium iron phosphate technologies that greatly improved the energy density of lithium iron phosphate. Coupled with the launch of second-generation

Especially BYD's first generation blade battery outperformed ternary batteries of the same level in needle puncture tests, fully demonstrating the safety advantage of lithium iron phosphate batteries.

A wave of expansion in lithium iron materials has kicked off.

In the first half of 2022, the planned production capacity nationwide soared from 3 million tons in the previous year to 9 million tons. If fully implemented, it will be enough to supply batteries with a capacity of 4,000 GWh, which is more than four

Expansion of lithium iron production capacity

The lithium iron phosphate production capacity will only reach 1.5 million tons by the end of 2022.

At that time, there were three schools of lithium-iron manufacturers

Pure lithium iron phosphate enterprises (such as Hunan Yunar and Defang Nano), ternary material crossover manufacturers (such as Huayou Cobalt and Greeneder), and pure crossover manufacturers (Longmetal Bali, CNNC Titanwhite, etc.).

Because the precursor of lithium iron phosphate, iron phosphate, is a by-product of titanium dioxide, titanium dioxide companies are particularly aggressive in cross-border expansion. China National Titanium Dioxide announced a production capacity of

The production capacity announced by these two crossover companies is almost equivalent to the sum of the whole industry in the previous year, which gives people an impressive view that anyone can do it well.

In 2022, the author traveled to various lithium iron production lines across China and was most impressed by the western regions of Sichuan, Yunnan, Hubei, and other areas along the river.

Relying on their unique advantages in cheap energy, these places are setting off a boom in the construction of iron-lithium production capacity, and vigorous construction and production scenes can be seen everywhere.

The head of a certain lithium iron factory in Sichuan described the scene as follows:

Heavy truck convoys can be seen winding along the mountain roads or riverside, transporting materials. The entrance of factories is stacked with unfinished reaction vessels and grinders. Some workshops are not even fully roofed yet, with some equipme

At that time, almost everyone in the industry was immersed in the optimistic expectations for the future. Investors, recruitment officials, and project parties would repeatedly calculate based on a simple cost sheet.

According to the market conditions at that time, if the profit per ton of lithium iron material can be stabilized at 5000-10000 yuan, a production line with an annual output of 10,000 tons can recover its initial investment in about two years.

The most famous wealth legend is Rongtong High-tech itself.

This company was only established in 2016. Under the leadership of He Zhonglin, who was once a senior manager at Pronic Technology, Rongtong High-Tech completed its D-round financing worth over 5 billion yuan in 2022, with an estimated value of billi

Such growth story is a fast runner even in the Silicon Valley.

Beneath the feast, risks are continually accumulating.

Firstly, at the time point of 2022, the real major downstream buyers of lithium iron phosphate are almost only two companies: Ningde Times New Energy and BYD. The third-place Guoxuan High-tech chooses to sell products directly to end users themselves

Therefore, almost all positive electrode material plants have experienced a customer structure dominated by two major companies, with very weak bargaining power.

Secondly, due to the lack of bargaining power in both upstream and downstream markets, many cathode material manufacturers have found another "path to prosperity" compared to earning meager processing fees.

Over-purchase lithium carbonate to enjoy the benefits brought by inventory appreciation. After all, the processing cost of several thousand tons is too insignificant compared to the inventory appreciation of hundreds of thousands or even millions.

However, no one expected the industry situation to take a sudden downturn just one year later in 2023.

First, the price of lithium carbonate experienced a steep collapse from a high level, with a decline exceeding market expectations.

In the following two years, the intensive release of lithium iron production that has been launched in advance has instantly reversed the market supply and demand, and the pressure of overcapacity has quickly spread to all sectors of the industry cha

The processing fee, once regarded as a profit key, has also plummeted in a straight line from 5000 yuan per ton to below the cost line. Those production lines that were still working overtime in 2022 to catch up with production are now becoming negat

In 2022, the lithium iron phosphate industry had profits of 9 billion. However, in 2023, the entire industry suffered significant losses, with each company setting a loss record.

The intensification of internal competition is also reflected in the industrial chain game of "downstream harvesting and material factory dilemma".

The head battery plant fully passes the price pressure to the upstream material plants through the cooperation mode of material cost + fixed processing fee.

For instance, at the peak of the industry in 2021, Wanrun Technology had a gross profit margin of 31.12% for its lithium iron phosphate products. However, this has been on a decline for three consecutive years since then, falling to just 0.08% in 202

Some leading companies in the industry had a product gross profit margin of over 30% in 2021, but it had dropped to less than 8% by 2024.

Processing materials has become something where the second generation does it at a loss, the third generation works for free, and only the fourth generation can recover the investment.

Under intense pressure, major manufacturers have to announce the fifth-generation lithium iron phosphate on PPT first to attract the attention of customers and investors.

The material factory has lost the pricing discourse, becoming a subcontracting role with severely squeezed profit margins. The lithium iron industry is also facing the ultimate paradox.

Positive-grade materials account for more than 50% of the cost of batteries, yet the market value of leading battery manufacturer CATL is already close to RMB 2 trillion, with daily profits exceeding RMB 200 million.n

The top four companies in lithium iron phosphate (Yuna, Defang, Wanrun, and Shenghua) have a combined value that is less than that of just 5% of Ning Wang's market value.

However, the head is not the worst situation. According to the data in 2024, the industry's CR5 (concentration ratio of top five) for lithium iron phosphate has reached 75%. Major enterprises such as Hunan Yunar and Defang Nano have taken away 90% of

This dilemma of leading technology but lagging profits has become an important challenge for the development of China's lithium iron industry.

During a financial report meeting, an investor asked Hunan Yuneng, the top player in lithium iron phosphate with the best earnings performance, about how to improve the company's extremely low ROE. The secretary to the board responded with a bitter s

Looking at the industry, we have done our best to achieve this.

Conclusion

An indisputable fact is that without the support of China's materials supply chain, there would be no star companies like Ningde Times or BYD. And it would be impossible for the new energy vehicle industry to achieve a penetration rate of over 50% in

It is China's lithium iron phosphate batteries that have won over 95% of the global production capacity and core technology, giving China the confidence to counter the United States with this material card. When Korean and Japanese manufacturers try

This is a strategic victory at the national level, a dual monopoly of technology and production capacity.

However, on this strategic track with a trillion-level scale, Chinese materials companies are still struggling with the loss of the entire industry, a gross profit margin of less than 10%, and a low return on equity (ROE) of leading enterprises barel

The technical barriers have been established, yet the commercial moat has not been fulfilled. In one sentence:

It used to be done with ease and mastery, but now it's a rush to get things done, scrambling and crawling.

The industry still seems to be in the vicious cycle of being criticized for it is high-tech when not done in China, but becomes excess production capacity when China does it.

The road is still ongoing, and the ultimate challenge for Chinese material enterprises is to

How to transform technological victories into long-term, stable, and reasonable business returns is not only a test of corporate innovation ability, but also a test of the healthy development of the entire industrial chain and the reasonable profit d

To break this paradox, a fundamental upgrade in industry cognition is necessary.

Battery materials are not traditional bulk chemicals with big open and big discharge characteristics, but rather a highly sophisticated engineering that requires extremely high precision and quality stability in terms of processes. This understanding

Fortunately, the advent of innovative technologies such as liquid phase method, ferrous oxalate method, secondary sintering method, as well as the premium prices of fourth and even fifth generation lithium iron batteries, and their emergence as strat

Only in this way, can the end destination of Chinese battery material enterprises be BASF, Dow, and 3M, rather than 'excessive production capacity'.

This article comes from the WeChat public account New Energy Industry Home