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The environmental benefits of electric vehicles (EVs) are undisputed, but the jury is still out on the lithium-ion batteries that power them. Many of the raw materials used in these batteries are toxic, difficult to source and hard to reclaim. As the EV industry strives toward a circular economy, the recycling and reclamation of the EV battery has become a priority for investors and entrepreneurs, the New York Times reports.
But these startups, along with existing recycling businesses, face a fundamental business challenge. EV battery recycling, particularly in the U.S., is unlikely to be profitable for at least a decade. There simply are not enough depleted batteries to fuel these rapidly expanding ventures.
The issues around economies of scale are evident in the electronics supply chain. Manufacturers and distributors of components and batteries are committed to environmental responsibility but have little control over where these devices end up. Additionally, because distributors accept product returns, they often stockpile faulty or out-of-date devices. The return on investment is nominal.
“We’ll aggregate a trailer load of scrap, seal it up and then send it to recycling,” Kevin Sink, VP of total quality for IP&E specialty distributor TTI, told EE Times. “That could represent, say, $1 million or $1.25 million worth of inventory, and we’ll get maybe $25,000 to $30,000 back. But it’s about safety and responsibility. We don’t want people dumpster diving, removing faulty components and cycling them back into the electronics supply chain.”
Still, automakers, energy companies and venture capitalists are pouring money into dozens of startup recycling companies in North America and Europe, according to the Times. But one of the business challenges is economies of scale. EV leader Tesla, for example, has been selling cars since 2008. It only reached the 100,000-vehicle threshold in 2017.
The carrot and the stick
The case for EV battery recycling is compelling. Materials used in batteries, such as cobalt, lithium and nickel, are hard to mine and often come from regions with poor human-rights records. Reclaiming these materials from used batteries could support the manufacture of new ones, making the EV industry more sustainable. It would also enable manufacturers to be less reliant on foreign-sourced materials.
And the market is forecast to be lucrative: The global Li-ion battery recycling market was valued at $4.6 billion in 2021 and is expected to reach $22.8 billion by 2030, according to MarketsandMarkets. A separate report puts the EV battery portion of that market at $13 billion by 2028.
Additionally, the U.S. Inflation Reduction Act signed last summer requires a growing share of a battery’s valuable minerals to be sourced domestically or from a trade ally before vehicles qualify for tax credits.
EU lawmakers have passed tough new laws on environmental and due diligence standards for battery manufacturers selling into the European market, including requirements to recover almost all of the nickel and cobalt and half of the lithium in batteries at the end of their useful life.
As of late 2021, China had more than 3× as much existing and planned Li-ion battery recycling capacity as the U.S., according to a recent report. But currently, estimates sourced from Chinese media report that only about 30% to 40% of battery materials are being recycled.
Although new recycling methods are evolving, it’s worth noting that Li-ion, nickel cadmium and nickel metal hydride batteries have been reprocessed for decades. But for many businesses involved in the electronics and battery industries, there’s little return on investment for these efforts.
The investment picture
Most battery recyclers rely on scrap collection to generate the volumes necessary to run a business. With demand for EVs skyrocketing—BCG projects that battery-powered vehicles will make up 59% of global light-vehicle sales in 2035—recycling operations are expanding their facilities, machinery and headcounts to stay ahead of the competition.
The EV battery value chain is expected to increase by as much as 10× between 2020 and 2030, to reach annual revenue as high as $410 billion, according to McKinsey. But if recyclers expand too quickly, they could run out of capital before a significant number of aging batteries accumulate. The lifespan of EV batteries is 15 to 20 years.
Relatively few electric vehicles are on the road, and most are new. Smartphones, laptops and other electronics also contain Li-ion batteries, but they are difficult to collect and there are not enough to meet the growing needs of the auto industry.
In the U.S., regulations governing battery recycling differ from state to state. Some states require brand owners to fund the collection and disposal of batteries. Other states have no regulations at all. Many recycling organizations work with nonprofits like Call2Recycle.org, which manages recycling logistics for dead batteries.
Sager Power Systems, which produces customized battery assemblies, is a member of Call2Recycle, said Najib Habiby, program manager at Sager. Sager is not directly involved in EV batteries but is aware that its products can end up anywhere. “Call2Recycle.org keeps us in compliance of mandated collection laws that exist currently and those that will likely be enacted,” Habiby told EE Times.
Once EV batteries are collected, dismantling them is the next hurdle. Li-ion batteries are known to cause fires and auto units are extremely heavy. Plus, EV batteries are packaged and built differently from car model to car model. Standardized designs could streamline the recycling process, but most auto and battery companies have shown little interest in that.
One of the more notable businesses in the EV battery space is Nevada-based Redwood Materials, which was founded in 2017 by Jeffrey Straubel, a former chief technology officer of Tesla. Redwood markets itself primarily as a producer of battery supplies—comprised of recovered or mined metals—and has established recycling partnerships with Ford Motor, Toyota, Volkswagen and Volvo. Redwood additionally recycles scrap from a battery plant run by Panasonic and Tesla.
Investments in the company total $792 million, according to Dealroom.
Other companies are focused solely on recycling. Li-Cycle, a Canadian firm, was founded in 2016 by two former engineering consultants. Li-Cycle identifies as a clean technology company that uses an environmentally friendly process to recycle Li-ion batteries.
Li-Cycle first breaks down batteries and manufacturing scrap. The batteries are shredded and then submerged in a proprietary chemical resolution to forestall fires. The ensuing items are separated, and Li-Cycle harvests a granular substance, which is processed into its element metals elsewhere. For the fourth quarter and year 2022, Li-Cycle revenues were $3.0 million and $13.4 million, respectively, compared with $4.4 million and $7.3 million in the corresponding periods of 2021.
Sweden’s Northvolt combines battery recycling with manufacturing. Founded by Peter Carlsson, Tesla’s former supply chain head, in 2015, Northvolt has secured close to $8 billion in equity and debt since 2017 to deliver on its plans to establish a supply of sustainable batteries to enable the decarbonization of society.
A key aspect to Northvolt’s strategy involves establishing in-house competences and a presence throughout the battery value chain, including cathode material production and recycling. Through its large-scale recycling program, Northvolt intends to enable 50% of its raw material requirements to be sourced from recycled batteries by 2030.
Lawmakers and environmental groups want recycling to take off quickly to cut carbon emissions, protect nations from an overreliance on foreign producers and promote the safe disposal of batteries. But balancing capacity, demand and supply is tenuous.
“The big takeaway here is that the need for EV batteries is ramping up fast, and the requirement for reuse-and-recycle infrastructure isn’t far behind,” business consultancy Kearney concluded. “Vehicle manufacturers, capital investors and governments need to plan for the entirely foreseeable ramifications of the coming upsurge in EV adoption—including a skyrocketing demand for battery raw materials and the need for a circular lithium economy.”