The Attractiveness of EV Battery Recycling

Interest in EV battery recycling facilities and capabilities have increased over the past year due to a surge in battery raw material prices and expectations that the lack of these critical metals will cause a lot of western auto OEMs to not meet their EV sales targets from 2025. Battery manufacturers generate a lot of scrap material in the manufacturing process; this is unspent cathode material or batteries that are rejected and can be as high as 40-70% when a plant is starting up to 5–10% at steady state. To auto OEMs, this scrap, when recycled together with the wave of spent EV batteries that are hitting their end-of-life, can be a valuable source of critical metals. (Interestingly recycled cathode material can actually produce more performant batteries which is another reason to recycle! Recycled particles have larger pores which make it easier for Li ions to diffuse through and allow the cathode to be more resistant to cracking after repeated charging and discharging.)

Legislation is also moving in the direction of requiring a higher percentage of battery recycling. In California, the legislative council is currently considering policy recommendations to ensure that close to 100% as possible of lithium-ion batteries in the state are reused or recycled at end-of-life in a safe and cost-effective manner (AB 2832). In EU, where the level of recycled battery materials is still low (teens %), targets are set for recovering metals from waste batteries at 90% for cobalt, copper, lead, and nickel, and 35% for lithium by the end of 2025. EU battery producers also have to comply with carbon footprint thresholds by 2027.

Europe and the US in particular woefully lack an EV battery supply chain after years of under-investment. Auto OEMs are hugely dependent on China and other countries for their EV battery needs. The DRC holds 2/3rd of the world’s cobalt reserves (the most expensive metal to go into the cathode) and the Chinese own or have financial interest in 15 of 19 mines there. In 2019, 84% of cobalt mined in DRC went to China and the White House sees the nation’s cobalt supply to be most vulnerable compared to any other metal. Lithium-wise, Australia, Chile and China hold 88% of the world’s reserves. These materials, together with nickel (largely from Indonesia), travel thousands of miles to China which controls 80% of the world’s processing and packaging factories for battery cells. Within the US, the majority of critical metals are imported (76% of cobalt, 50% lithium and 100% of graphite and manganese). This is increasingly seen as a national security issue because of the stranglehold China has on the supply chain and the fact that China is also home to 148 of the 200 lithium battery mega-factories in the pipeline going out to 2030.

This portends a lot less availability of battery material for Western OEMs who have publicly announced that they expect to sell 40mil EVs per year by 2030 (incl. ~20mil from Tesla). This number looks very unlikely to materialize. Benchmark Minerals terms this “the huge raw material disconnect” and estimates that even if every single raw material project in the pipeline came online and existing operations expand aggressively, we would still be in deficit in these critical metals going into 2030. Just on lithium alone, they estimate that we would need investment of $7B a year going out to 2028 to meet lithium demand by 2030. (Note that as of now, the US Govt. has allocated only $3bil in funding for the battery value chain and an additional $500m in grants for battery materials which they snuck into the Ukraine aid bill — altogether woefully inadequate.) In light of this, Chinese EV manufacturers see an opportunity and are preparing to enter the US EV market, threatening the market share of western OEMs (cue Waymo using Chinese Zeekr EVs).

The confluence of all these factors have made building out the EV battery value chain a key priority for EV market players for economic, supply chain resiliency and environmental reasons (domestic production can cut down thousands of miles traveled by battery materials).

IHS Markit estimates that there are about 500,000 tons of batteries that have reached their end-of-life point and need processing today (based on EVs alone). That figure is expected to rise to 1.2 mil tons in 2025 and reach 3.5 million tons in 2030. Global battery recycling capacity will need to more than triple by 2030 (grow from ~1 mil tons/yr today to 3.5 mil tons/yr). Within the US, only 5% of lithium batteries are recycled today; this intimates an even greater demand for battery recycling capacity domestically.

Basic unit economics of EV battery recycling

There are several business models depending on whether the recycler pays for the starting material, if they are exposed to commodity pricing of the metals or if they just take a tolling fee for the processing (which is the typical model for lead acid battery recycling).

Here is a quick rundown of the basic economics assuming a case where lithium batteries are being recycled to raw metal material giving exposure to today’s LME metal prices.

Source: Lithium Batteries presentation by Patrick Curran, CEO, LIthium Recycling Systems

At >$1200/mt of lithium battery recycled, near-term profitability is very attractive. Given the prodigious length of time required in permitting new mines (taking a mine from conception to production can take 10yrs) and the current lack of investment in new developments, prices for many of these critical metals look to stay high (with some cobalt-specific caveats below).

Unit economics can be significantly enhanced by having capability to work with battery chemistries and turn recycled raw materials into cathode precursors. This is the direction that players like Ascend Materials and Redwood Materials are taking. The latter is looking to go even further upstream into ore processing, providing the end-to-end value chain play.

Unit economics are also enhanced when utilization rate is high. This is where we see a spate of partnerships between recyclers and mega/giga-factories for the recycling of scrap. In fact, having these partnerships to process scrap is important for near term profitability as the volume of spent EV batteries start low before ramping.

Caveats and Strategies
While very attractive near term, there are important considerations that should go into one’s calculus as to whether EV battery recycling is an attractive long-term play.

The million-mile battery, which seemed to be a pipe dream not too long ago, is actually coming onstream commercially. BYD and CATL are already advertising EV batteries lives of 750,000 to 1 million miles. GM’s Ultium to be used in the electric Hummer launched later this year will supposedly last a million miles. And it is not just CATL/BYD’s LFP chemistries that succeed in this space. Jeff Dahn claims to have developed a 36mil mile battery off a formulation of NMC that uses larger, single crystals that is only 1% more expensive than NMC made of smaller polycrystalline particles. Such a technology would combine both an incredibly long battery life without the attendant range anxiety that comes with using LFP chemistries. In addition, battery management systems (BMS) technology keeps improving, e.g. TitanAES’ system boasts an increase of 50% battery life. Should all these solutions proliferate, expected volumes of spent EV batteries coming online from 2030 will need to be significantly tampered.

Due to the high price of cobalt and increasingly nickel, more western auto OEMs are starting to adopt chemistries that utilize a much lower proportion of cobalt. GM’s Ultium battery will utilize an NCMA formulation which is designed to reduce cobalt content by 70%. The likes of Tesla, Ford and Volkswagen are increasingly adopting LFP (lithium-ion-phosphate) chemistries. Such a development will negatively impact profitability as these metals account for the bulk of the value from recycling lithium batteries.

Therefore, to increase unit cost economics for long term sustainability, operators should:

• Locate their recycling plant near regional collection center of spent batteries or a battery Gigafactory, thereby reducing transport distance (batteries are classified as hazardous waste and transportation can constitute over half of end-of-life recycling costs) Players like Li-Cycle promulgate their spoke and hub model for this reason.
• Partner with a mega/giga-factory for discarded unspent cathode precursors and batteriesas spent battery volume ramps (recycling plants really start reaping economies of scale from 20,000mt)
• Have flexibility to expand capacity in tandem with increasing visibility of spent battery volumes
• Go further downstream to produce cathodes and anodes instead of just recycling into raw material.
• Get access to profitable chemistries (more NMC etc.) and uniform pack designs (a wide range of proprietary battery structures complicate the recycling process)