From east Asia to Europe and North America, companies along the battery supply chain are investing billions of dollars in recycling capabilities as they confront projected shortages of the raw materials that will power the next generation of electric vehicles.
But as carmakers, battery producers and miners develop their own recycling capacity or partner with specialists in an effort to make supply chains more secure, greener and ultimately more profitable, fundamental aspects of the nascent industry are yet to be worked out.
“Right now everyone is concerned about how we can set up all the battery factories that we need,” said Andreas Breiter, who runs McKinsey’s Center for Future Mobility in North America. “But in 10 years or so, the question will be what we do with all these batteries once they come back.”
It remains unclear which battery chemistry will prevail in the global race between Chinese producers CATL and BYD and their Korean and Japanese rivals, making it hard to know which recycling processes will be required.
Uncertainty also hangs over future regulation, materials prices, recycling technologies and even who will own an EV battery at the end of its life — all of which will have a bearing on the industry’s development and the viability of specific business models.
“There is a sense of disorder in the industry because no one has lived through this before,” said Simon Linge, chief executive of battery materials producer and recycler Lithium Australia. “There will be people who are not even being spoken about today who in five or 10 years’ time will emerge as major players in the market.”
Battery recycling, which typically involves smelting, chemical treatment or both, also has its own environmental impact and recyclers face a challenge in demonstrating that their output will remain both greener and more economically attractive than mined materials, given advances in cleaner extraction techniques.
With few EV batteries having reached the end of their lives, the principal sources of feedstock for recyclers remain cells from consumer products such as laptops and “scrap” from battery plants.
Production scrap will account for 53 per cent of the feedstock for battery recyclers in 2025, according to McKinsey projections. But that will fall to 43 per cent by 2030, 14 per cent by 2035 and just 6 per cent by 2040 as more and more EVs are sold — the International Energy Agency forecasts that the global fleet will surge to 350m vehicles by the end of this decade.
“We see manufacturing scrap as the number one driver for recycling volume this decade,” said Tim Johnston, chair of Li-Cycle, a New York-listed battery recycler backed by commodities group Glencore. “End-of-life batteries is next decade.”
The coming transition presents a dilemma for recyclers because the logistics and business models for recycling scrap and end-of-life batteries are very different.
For recyclers focused on production scrap, it makes sense to set up facilities next to battery plants to circulate materials straight back into the production process.
In North America, where battery production is being turbocharged by US president Joe Biden’s flagship climate legislation, that has led to a series of partnerships between battery makers and recyclers.
Redwood Materials, a recycling start-up founded by former Tesla chief technology officer JB Straubel, announced a deal last year with the EV maker’s battery partner Panasonic to supply nickel-rich cathode materials for the Japanese cellmaker’s new Kansas plant.
Similar partnerships have been agreed between Canada-based Li-Cycle and Korean battery producer LG Energy Solution, and between Massachusetts-based recycler Ascend Elements and Korean battery maker SK.
End-of-life batteries, on the other hand, need to be collected from vehicles and assessed for safety and performance before being disassembled and undergoing the recycling process.
With cellmakers, car manufacturers and individual consumers all likely to stake a claim to ownership of a battery, it is unclear how recyclers will secure stable supplies.
One model is to have the battery manufacturer, carmaker or a third party own the battery throughout its life. A battery manufacturer could lease the battery to a carmaker, then a consumer, and then reuse or recycle it after it can no longer power a vehicle.
Sam Abuelsamid, analyst at Guidehouse Insights, said the model was “kind of like securitising loans — you’re securitising the battery”, and that it might prove a natural fit for carmakers, who already operate captive finance arms that lend customers the money for new vehicles.
In China, where the EV, battery, and recycling markets are all more mature than in the west, CATL has formed a so-called closed loop partnership allying its recycling subsidiary Brunp with Chinese recycling group GEM and Mercedes-Benz China to recycle end-of-life batteries.
That offers a potential model by which carmakers — some of which harbour their own battery production ambitions — and recyclers work together to secure end-of-life batteries to create their own closed loop systems. In the US, Redwood Materials is building closed loop partnerships with Volkswagen, Ford, Volvo and Toyota.
But some industry executives, noting the logistical challenges of attempting to oversee the collection, assessment, transportation and dismantling processes as well as the recycling itself, are sceptical that the closed loop system will prove attractive in the long term.
The model is complicated further by the fact that a battery no longer suitable for use in a vehicle still has the potential to be used for other purposes, ranging from lighting streets and homes to powering appliances or offering energy storage.
“It is absurd and against any logic not to try to make the best use out of used EV batteries, knowing the effort, R&D, energy, materials and investment involved in developing them,” said José María Cancer Abóitiz, head of insurer Mapfre’s Mobility Lab.
Noting that the recycling market is already “much less structured” than the rest of the battery supply chain, Mathias Miedreich, chief executive of Belgian recycler Umicore, predicts the market will bifurcate as recyclers build separate supply chains for scrap and end-of-life batteries.
“It’s a question for companies like us where to put your battery facilities,” said Miedreich. “Should you put it close to the battery world or should you put it close to where the [car manufacturers] develop their circular loop? It could be that two ecosystems are forming.”
The industry will also be shaped by technological developments and politics in Europe and the US, where they are striving to limit reliance on China in emerging industries and establish homegrown supply chains.
The EU has passed regulations designed to create a “circular economy” in batteries by preventing spent batteries from leaving the bloc, mandating that they must have minimum recycled content at 16 per cent for cobalt and 6 per cent for lithium and nickel. Brussels is targeting 65 per cent of the weight of lithium-ion batteries to be recycled by the end of 2025.
Sarah Colbourn, senior analyst at consultancy Benchmark Mineral Intelligence, said Chinese recyclers, who are presently “far ahead” of western peers in technology and scale, were looking to enter the European and North American markets by partnering with local players.
She noted the “real concern” of EU officials about battery materials leaking from Europe to China, undermining the development of the European recycling industry. One option being considered in Brussels, she said, was for “black mass” — the crushed remnants of batteries after unwanted steel and plastic have been removed — to be redesignated as hazardous waste as a means of preventing it from leaving the bloc.
Another consideration for western recyclers is whether the lithium iron phosphate, or LFP batteries that dominate the Chinese market, will win the global battery race against the nickel-manganese-cobalt, or NMC batteries in which Korean and Japanese battery makers specialise.
Because iron phosphate is much more abundant than the nickel and cobalt used in NMC batteries, the value of the materials recovered by recycling an LFP battery is considerably lower, meaning LFP recyclers tend to have significantly lower margins.
That is less of a problem in China, where recyclers operate at huge scale and with lower capital costs. But it could have repercussions for western recyclers — and in turn, for western environmental and resource security ambitions — if LFP were to prevail.
Breiter of McKinsey, meanwhile, notes the industry could yet be upended by proprietary techniques being developed by a new generation of smaller recycling companies.
“New technologies are being announced all the time, new technologies are in development, and there could be a breakthrough at any time,” he said.
“We don’t know what we will be recycling in the future, we don’t know what techniques we will be using, we don’t know how regulations will evolve, and we don’t know how the materials market will work out,” Breiter added. “These are the things that will determine the commercial viability of the recycling model.”
Written by: Christian Davies in Seoul, Harry Dempsey in London and Claire Bushey in Chicago
© Financial Times
Main photo: Workers complete an electric car body at an assembly line at Volkswagen’s plant in Zwickau, Germany, Photo / AP, Jens Meyer
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