The recent adoption of the EU Battery Regulation will stimulate the EV battery recycling industry.  Large recycling volumes are to be expected from 2027 onwards. However, the visibility to participate in the growth opportunities of battery recycling as a long-term investor is already there.

The outlook for the battery recycling market is positive. The basis for the industry's growth in Europe is provided not least by the new EU Battery Regulation (BattVO), adopted in July 2023, which is the first piece of legislation to take a full life-cycle approach. With the included regulations regarding simple replacement options as well as recycling efficiency, the circular economy and thus battery recycling service providers will be strengthened. In principle, the regulations of the End-of-Life Vehicles Ordinance and the Battery Act already stipulate that used batteries from electric vehicles (so-called industrial batteries) may not be disposed of in landfills or incinerated.

With the increasing electrification of the automotive industry, there is likely to be a lagging demand for recycling capacity in the future. The scarcity of certain raw materials, such as cobalt, nickel or graphite, which are contained in the battery cells, is also likely to increase interest in battery recycling as the market grows. The low volumes of batteries from the e-car value chain are currently still a problem for the economic operation of recycling facilities. With the existing experience regarding the longevity of battery cells, the recycling industry will probably need a few more years to be able to utilise large-volume plants globally, despite the rapidly growing sales of e-vehicles. It is not without reason that companies such as Aurubis are initially only entering the market with so-called pilot plants.

Dynamic increase in demand to be expected from 2027 onwards

Historical sales of EVs combined with industry-standard battery warranties could shed some light on the profitability perspectives of the EV battery recycling industry. In Germany, e-car manufacturers such as Tesla, BMW, Volkswagen and Hyundai usually offer an 8-year warranty on the battery in combination with a certain mileage. As the degeneration of the battery cells currently indicates that in most cases at least 80% of the battery capacity is still available after 8 years, larger recycling volumes can only be expected with a time lag of around 10 years. Based on historical sales, a dynamic increase in demand can therefore be expected from 2027 onwards.

According to Statista, the number of e-cars worldwide was still 3.4 million in 2017, while the global fleet has already grown to 27.7 million in 2022. However, the regional focus for the circular economy in terms of volume is likely to be China, which recently sold one in two of the world’s e-cars. In 2022, 6.5 million so-called electric cars were sold in China alone. BYD has been able to displace Tesla from the top in terms of the number of new sales.

In addition to volumes, the development of raw material prices for the main commodities has to be taken into account when assessing future profitability. Although the prices of lithium and heavy metals such as nickel, cobalt and manganese are expected to increase in the long term, they are very volatile and therefore difficult to predict.

Long term investment opportunities

Although the market is relatively young, it makes sense for companies to invest early in order to benefit from economies of scale. Due to the structure of long-term supply contracts for battery cells for future car models, it is important to establish partnerships for the return of old batteries at an early stage. Another positive side effect could be found in the security of supply for the manufacturers of new battery cells. As certain raw materials are likely to remain scarce in the longer term, a certain quota of material from recycling will reduce procurement risks. On the marketing side, a high proportion of recycled materials should also have a positive effect on the sales of electric vehicles.

In principle, the visibility to participate in the growth opportunities of battery recycling as a long-term investor is already there. Many companies along the battery value chain are investing to ensure that part of the value creation of battery cells is created in the circular economy. A few examples :

• Lithium producer Ganfeng has invested in the recycling of 70,000 tonnes of used batteries. The aim is to extract at least 90% of the lithium from old battery cells.
• CATL, the world's largest producer of battery cells, has not yet planned any recycling plants in Europe, but is active in the US with its partner company BRUNP. Earlier this year, CATL also announced plans to spend 23.8 billion yuan (about 3.2 billion USD) to expand its recycling facilities in Foshan, southern China.
• BASF is expanding its cathode materials business with the opening of a battery and recycling centre in Schwarzheide in June 2023.
• Since March 2022, Aurubis has been active as a metal specialist with a recycling pilot plant in Hamburg.
• Umicore has the longest experience in this field, with more than 15 years of experience in recycling batteries. The company generates about half of its sales in the recycling sector and is the market leader in the recycling of e.g. mobile phone batteries with its site in Hoboken / Belgium.

Investing in the battery recycling value chain

Should investors who want to profit from the trend rather focus on niche players or on broader business models? This depends very much on the risk profile of the respective investor. Due to the lagging volume effects, the P&L of niche players is likely to be more affected initially by the investments required to expand recycling facilities. However, they should benefit more in the future from the expected improvement in profitability. Companies with a broader business structure, on the other hand, may find it easier to cope with the investment phase, provided that other units generate sufficient cash flow.

However, successful electromobility companies show that it can be advantageous to be active at many levels of the value chain. Tesla, for example, has pursued a very high degree of in-house production of its vehicles, right down to the battery management system and cell production. BYD also has a high degree of vertical integration, with its own cell and even chip production. For example, BYD is planning to use the old batteries from electric cars for stationary battery storage systems, thus completing the cycle.