How profitable is battery recycling business?

The market around the recycling of lithium-ion batteries is huge and growing, mostly thanks to electric vehicles. Surely, a lot of other lithium-ion batteries get recycled, including from phones and power tools, but the majority comes from EVs.

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In , it was estimated that the recycling market was worth $1.5 billion. The projected amount of available lithium-ion batteries to be recycled in was 460,000 metric tons &#; a large amount compared with previous years. By , the market for recycling is expected to grow to $12.2 billion. After that, it should remain at an estimated 8% growth rate. To put that in perspective, the world is at equilibrium with lead acid batteries &#; the number of batteries that get produced is the number of batteries that come back for recycling. The market grows only along with new vehicle sales, and EVs are expected to take over in the coming decade.

Most EV batteries won&#;t have a second life, although Tesla is pushing it. Some of Tesla&#;s batteries get tested, confirmed they&#;re functional, and then reused in an EV. They may come back and test as functional, but they&#;re not good enough to go into a car. These may be repurposed for power storage in a house.

The lifetimes of EV batteries are long, much longer than lead acid (two to four years for LAB vs. an estimated 10 years for LIB). The batteries coming back for recycling vs. the amount being produced will not be at equilibrium for a long time. It won&#;t be until the EV market plateaus, and eight to 10 years have gone by to allow the old batteries to come back.

Recyclable Materials in Electric Vehicle Batteries

There are three main components that can come back for recycling. The first is unspent cathode material, which has nickel, manganese, and cobalt. With any factory, there is a certain reject rate for this material, and it&#;s very valuable. The facility would want to capture the value of that and/or get that nickel, manganese, and cobalt off the cathode and recycle it back upstream within the factory.

Second is unspent lithium-ion batteries. These are rejected in the factory for whatever reason, and the company making the batteries wants to recycle those or capture the value. It&#;ll send them out for recycling, sell them, and either let the recycler do whatever it wants with the material or perhaps send them off for processing and ask to have the nickel, manganese, and cobalt returned.

The third is spent LIB batteries, which are starting to come back for recycling but the volume percentage vs. current production is very low. In these cases, car companies hire third parties to replace the batteries, likely under warranty, and they are then contracted to be recycled.

The Types of Recyclers

There are two main types of recyclers. The first is companies that already recycle other things, including Umicore Corp. in Belgium and Glencore in Switzerland. The other is companies that recycle only lithium-ion batteries. Of those, there are two different varieties: ones that take any type of lithium-ion battery and others that focus only on EVs. Some of these EV-focused companies concentrate only on unspent coated cathode that has not been put into a battery yet, while others concentrate on unspent cells or unspent modules to then get recycled for the auto company. A third group focuses on spent cells. New companies are coming into the market every day.

From a high level of how these recycling companies operate, first they have a source of material. That could be a contract with General Motors to get unspent coated cathode, unspent batteries, or some combination. Comparatively, the lead acid battery space is mostly brokers going around and collecting batteries, then feeding them to recycling operations. Once a company has a source, the economics can change depending on the contract, whether it involves getting material for free or paying for it, or a tolling contract where an automaker pays the recycler by the metric ton of batteries or material that it processes and returns.

The Costs of Recycling

The cost to break the battery down is similar to lead acid, mostly because the process uses similar equipment, and the operating expenses are comparable &#; about $100 to $200 per metric ton of the black mass paste. Black mass (the mixture of nickel, manganese, and cobalt oxides with carbon) makes up about 60% of the incoming battery weight. When you adjust for that, it&#;s about $90 per metric ton of converting the incoming batteries. Of this 60%, half is carbon and the other half is either spent or unspent metal oxides, cobalt, nickel, and manganese, plus miscellaneous pieces of plastic and metal. The cobalt consists of about 5% to 10%, depending on the manufacturer. About $300 per metric ton of the incoming battery unit is the black mass that sells on the open market, or $500/MT of the actual black mass.

The aluminum and copper are quite valuable. If you consider the amount of copper and aluminum that are in the battery, multiply that by 30% of London Metal Exchange prices, and you get approximately $450 per metric ton for the copper and $53 for the aluminum. That adds almost as much value to what&#;s coming out of this process as the black mass does. It&#;s important for recyclers to take both of those into account because they almost equal the value of the black mass.

One metric ton of incoming batteries will cost approximately $90 for processing, with black mass selling for about $300 or more and the metallics for about $500. That&#;s a profitable recycling operation.

About Patrick Curran

Patrick Curran is Chief Executive Officer at Lithium Recycling Systems, specializing in the disposal and recycling of lithium-based and lead-acid batteries. Patrick has 13 years of experience in the battery recycling sector. Previously, he was a Plant Manager at Exide Technologies, one of the largest lead-acid battery equipment manufacturers in the world.

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As electric mobility increases globally, so does the need for electric-vehicle (EV) batteries. This demand has led to considerable growth in battery production, with over five terawatt hours (TWh) per year of gigafactory capacity expected globally by . There is also considerable growth in EV battery volumes as they approach end-of-life, with over 100 million vehicle batteries expected to be retired in the next decade. Moving from fossil-fuel based to electric mobility is a clear positive for the environment and for many consumers&#; pocketbooks, but overhauling our transportation system requires new supply chains to be designed and scaled. With this challenge comes an opportunity&#;to scale a supply chain that is more stable, more resilient, more efficient, and more sustainable than that of the fossil-fuel and internal combustion engine (ICE) vehicle industry. Battery recycling is the key to pursuing that opportunity (see sidebar, &#;Batteries&#; second lives: An additional revenue stream&#;).

About the authors

This article is a collaborative effort by Andreas Breiter, Martin Linder, Thomas Schuldt, Giulia Siccardo, and Nikola Vekić representing views from McKinsey's Advanced Industries Practice.

In China, Europe, and the United States, which are all undergoing a large EV transition, most of the battery material suitable for recycling still comes from consumer electronics cells, such as those in laptops and other household items, and cell manufacturing scrap generated from faulty batteries that don&#;t pass quality control. With cell manufacturing scrap being as high as 30 percent when a new battery factory launches, a significant source of volume for recycling evolves in markets where EV battery manufacturing is kicking into high gear. In markets where EV adoption has been pervasive for some time, such as China, end-of-life EV batteries represent a greater volume. Yet, globally, production scrap will likely remain the primary source of battery materials for recycling until , when end-of-life EV battery volumes will have grown to the point of overtaking (Exhibit 1).

1

Batteries&#; second lives: An additional revenue stream

Unlike consumer electronics batteries, which are too small to integrate into second-life systems, and cell production scrap, which cannot be used in batteries, end-of-life EV batteries can be profitably remanufactured and used again in other applications. This can create an additional revenue stream for battery owners before those batteries are recycled. Upon reaching their end-of-life in EVs (typically after ten to 15 years or more than 200,000 miles), EV batteries can find profitable second-life applications, such as stationary backup power, among others, which have less rigorous cycling demands than EVs. Batteries that are suitable for these second-life applications may well take this detour on their way to being recycled but, when taking a value-maximizing approach, all EV batteries should eventually find their way into recycling processes.

This is especially the case for batteries using chemistries based on high-value inputs (for example, nickel-manganese-cobalt oxide cathodes) in comparison to chemistries with low-value inputs (such as lithium-iron-phosphate cathodes), though commodity fly-ups, geopolitical shocks, and regulation have the potential to shift the recycling business case, even for nickel and cobalt-free batteries.

In this article, we examine the market context that has led to growth in battery recycling, common technology pathways and business models, and success factors in this sector. While our research is tightly focused on battery recycling, we find that understanding the potential scope of the circular economy for batteries sheds light on a supply chain approach that could be adopted by other industries, within and beyond energy and transportation, to drive sustainable growth.

Factors driving EV battery recycling

Numerous levers are fueling growth in the battery-recycling industry:

Technological progress as processes scale and mature is enabling higher recovery rates, lowering greenhouse-gas footprints, and improving economics. In addition, research and innovation project grants from governments are promoting recycling technology advancement, such as the EU&#;s European Battery Alliance and the United States&#; National Science Foundation Phase II Small Business Innovation Research grants.

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Supply-chain stability considerations are being prioritized by various automotive OEMs and cell producers who are looking to secure local (recycled) raw material volumes at stable prices. For instance, VW has entered into a partnership with Redwood Materials in the US, and GM with Li-Cycle and Cirba Solutions.

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Decarbonization and ethical supply-chain targets set by automotive OEMs lead to a preference for recycled battery materials over newly mined battery materials, given the former is characterized by about four times lower carbon emissions, resulting in a more than 25 percent lower carbon-emissions footprint per kilowatt-hour (kWh) of battery cell capacity produced (Exhibit 2). Furthermore, sourcing from recyclers domestically avoids creating primary demand for raw materials sourced from conflict regions or extracted using child labor, or both. Our own research indicates that recyclers may even be able to access &#;green raw material premiums&#; as a result.

2

Regulatory incentives are creating conducive conditions for local recycling, such as the US Inflation Reduction Act that allows recycled battery materials (for example, lithium, cobalt, and nickel) to qualify for significant tax credits available through the domestic materials clause, even if those materials were not originally mined in the United States or in countries with which the United States has free-trade agreements.

Regulatory pressure is further encouraging organizations to recycle. The EU, for example, has instituted its End-of-Life Vehicles Directive that mandates automotive OEMs to take back vehicle owners&#; end-of-life batteries. The EU&#;s Fit for 55 package has further promoted OEM interest in recycling by requiring the publication of battery carbon footprints, as well as by setting collection and recycling targets including minimum recycled content requirements for newly built batteries. In the United States, regulatory initiatives in California (Lithium-ion Car Battery Recycling Advisory Group) and Texas (EV Battery Reuse and Recycling Advisory Group) have recently provided recommendations that are expected to influence regulatory measures further toward battery recycling.

Battery recycling technology is well known, but innovation is on the horizon

There are two battery recycling technology pathways that are most commonly used, and further innovative recycling methods that are undergoing research and development.

Once end-of-life batteries have been collected and received at the recycling facilities, they are initially tested, discharged, and disassembled (Exhibit 3). At this point, disassembled batteries go through a process called &#;shredding.&#; This typically consists of a thermal treatment of batteries before or after crushing to remove impurities such as the organic fraction (for example, plastic), optimize the separation of electrode active material and current collector foil, and change the phase of valuable metal to a reduced form for optimized efficiency in hydrometallurgical processing. After various screening and sorting steps leveraging physical properties of battery components such as size, shape, magnetism, density, and conductivity, the process yields multiple material fractions, which includes &#;black mass,&#; a powder containing valuable material such as nickel, cobalt, lithium, and graphite. Alternatively, mechanical pre-treatment can be performed without the use of heat, usually yielding a more complex black mass composition with more impurities.

3

Once the black mass is generated, one of the two following processing methods is typically used:

Hydrometallurgical processing: The screened black mass is extensively treated with acids where the metals are dissolved. A series of so-called &#;solvent extraction,&#; &#;crystallization,&#; and &#;precipitation&#; steps separates the different metal ions, which can then be used to produce battery-ready materials such as nickel sulfate or lithium carbonate. Thermally treated black mass is the preferred feedstock for this process, mainly due to the absence of organics (such as solvents, binders). Mechanical pretreatment combined with hydrometallurgical processing presents a complex, though viable process, which requires more reagents to achieve high material recovery rates and battery-grade quality products.

Pyrometallurgical processing: Pyrometallurgical recycling can use black mass as a feedstock but, unlike hydrometallurgical processing, doesn&#;t necessarily require it. Usually, batteries are directly smelted in a furnace to recover cobalt, nickel, and copper, in the form of an alloy, while other components mostly end up as slag (such as lithium, aluminum, and silicon). Subsequently, the produced alloy is further processed in a comparatively simpler hydrometallurgical refining method to extract the raw materials and produce battery metal salts ready for battery-precursor production. Pyrometallurgical processing typically can be operated as a robust process with very high nickel, cobalt, and copper recovery rates, yet it yields lower total material recoveries compared to mechanical pretreatment in combination with hydrometallurgical processing, as many materials are burned or lost in the slag. Further, the process requires sophisticated gas cleaning systems.

More innovative recycling processes: Various recycling methods, such as direct recycling or hydro-to-cathode-active-material recycling, are currently in the research, development, and commercialization stages. These new recycling pathways aim to increase material recovery rates, decrease energy and reagent consumption, and decrease emissions and wastewater. For example, research projects in Europe and the United States both propose froth flotation, a metal concentration method typically used in the mining industry, as an effective method to recover graphite that is currently burned or sent to landfill during or after the recycling process. Recovering graphite, a component that represents around 15 to 25 percent of a battery&#;s weight, may become a requirement under the recently proposed EU regulation that mandates a 65 percent and 70 percent material recovery by and , respectively.

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Profitability is in sight

Across the battery recycling value chain, from collection to metal recovery, revenues are expected to grow to more than $95 billion a year by globally, predominantly driven by the price of the recovered metals, expected battery cell chemistry adoption, regionalization of supply chains, etcetera. The monetary value generated per ton of battery material could approach approximately $600 by as early as (Exhibit 4). Going forward, we expect the value creation potential to grow to similar levels to the primary metals industry, which is around 30 percent depending on price developments.

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Battery recycling revenues are driven by the sales of recovered raw materials, which typically are composed of the raw materials price times the mass content per battery times the recovery rate for each metal in the battery. Today, automotive OEMs pay disposal companies to take scrap or end-of-life batteries, and ownership of the battery is entirely transferred. In the future, battery recyclers will likely shift to a tolling model in which the recycler charges a fee for the service of recycling the battery while the OEM maintains control over the recovered raw materials. Alternatively, automotive OEMs may sell their battery scrap and spent batteries to recyclers for whom the value of raw materials in those batteries is above the recycling cost plus margin.

In addition to the cost to procure the batteries to be recycled&#;the &#;feedstock&#;&#;there are more costs and associated operating decisions that can have significant impact on a recycler&#;s profitability:

• Collection and logistics: Transportation costs between collection point and processing plant including hazardous goods surcharge
• Testing and disassembly: Labor and energy costs to test incoming batteries and disassemble modules before processing (some players plan to leapfrog this step by shredding the entire pack with no discharge, testing, and disassembly needed)
• Processing: Shredding, pyrometallurgical and hydrometallurgical processing, driven by reagents, labor, and energy
• Capital expenditures for buildings and equipment

A whole reverse supply chain will need to be set up to collect, test, and recycle batteries. And companies are pursuing a variety of business models to facilitate that.

An increasingly integrated recycling value chain

Different business models exist within the battery recycling space. These range from companies covering individual value-chain steps (for example, shredding) to integrated companies covering all value-chain steps from end-of-life battery reverse logistics to battery material refining. Over the past few years, there has been a trend of consolidation and integration, as automotive OEMs become increasingly interested in end-to-end recycling offerings, instead of managing different players across the value chain themselves. Integrated companies can be characterized into three archetypes depending on the level of organizational integration:

1. Vertically integrated recyclers comprise individual companies that cover the entire value chain to provide an end-to-end offering, ideally from the reverse logistics of batteries to the recovery of battery-grade metals and sometimes even to the synthesis of cathode active materials. An example of such a player with an emerging offering would be the Belgian company Umicore, relying only on limited partnerships.
2. Recyclers engaging in cross-value chain partnerships are groupings of specialized companies&#;such as battery logistics experts, black mass producers, and metal refiners&#;that operate together under a partnership agreement to provide an end-to-end recycling solution. The partnership between Veolia and Solvay is one such example from Europe. The recently formed joint venture between Heritage Battery Recycling, Retriev Technologies, and Battery Solutions is another North American example.
3. In-house OEM recyclers at cell manufacturers and automotive OEMs allow for on-premises recycling of cell production scrap and end-of-life batteries to ensure a closed loop while maintaining battery material ownership and supply-chain visibility. The most prominent example of this archetype is the Chinese company Brunp Recycling, where CATL, the largest battery-cell producer in the world, holds a majority stake. Another common example is Hydrovolt, a joint venture between Hydro and Northvolt in the north of Europe. Several western auto OEMs have also launched internal battery recycling initiatives, with some even working on pilots such as Tesla or VW, usually with the strategic ambition to learn about the market. Yet almost all OEMs have, in many cases, set up even multiple partnerships with battery recyclers to outsource the service.

Success factors for battery recyclers

While the battery recycling market is growing fast, it&#;s still far from maturity, and market leadership is not yet consolidated. The European market alone has seen over 40 battery recycling related announcements. A similar pattern is emerging in the United States. Even in China, where the recycling market is more mature due to the larger availability of end-of-life batteries and production scrap, top players only control up to 15 percent of the market. We have identified three key levers that battery recyclers could adopt to keep or gain an edge in the battery-recycling market.

Secure sufficient access to feedstock: Battery recyclers need to secure large-enough volume to generate meaningful short-term scale with the potential for growth in the longer term. This can take the form of contracts with battery-cell producers for production scrap, as well as contracts with automotive OEMs for future volumes of end-of-life battery packs.

Build partnerships to stretch along the recycling value chain: Battery recyclers that are not already vertically integrated could explore building cross-value-chain ecosystems so that they are able to offer more attractive, end-to-end solutions to automotive OEMs.

Invest in technological performance, while keeping a pulse on battery design trends: OEMs are making their recycling selection based on demonstrated material recovery rates, product quality, and process efficiency, therefore investing in the technological pathways that can provide superior performance will be essential. That said, EV batteries are far from the point of standardization, so technology investments should be calibrated by close engagement with the R&D teams of the OEMs with which the recycler is collaborating or looking to collaborate. Exchanging information about planned changes to battery chemistry and pack design that OEMs may be considering, and about the resource intensity of the various steps of the recycling process, for instance, could pave the way for technical and design decisions that make it simpler, and even more profitable, for batteries to be recycled. &#;Design for sustainability&#; requires effort to coordinate across the value chain and develop a refined understanding of processes outside of the recycler&#;s direct scope, but can strengthen partnerships and supply chains significantly.

Without recycling, battery materials are expected to remain a critical bottleneck for electrification. As such, the growth and the profitability of the EV battery recycling sector has the potential to make or break the pace of the vital transition from an internal-combustion world to an electric one.

Thankfully, the potential value creation for EV battery recycling, at $95 billion per year by , is massive and is attracting attention from automotive OEMs, battery OEMs, and investors. While we expect a great deal of movement to continue in the space, developing at-scale offtake agreements, partnering and investing to fill gaps in the value chain, and collaborating with feedstock suppliers to drive efficiency in technology and design will set industry leaders apart. What&#;s clear for now is that for the automotive sector, the path to scaling the EV supply chain may not be a straight one, but a circular one.

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