In brief
The growth of Europe’s lithium-ion battery manufacturing sector continues to accelerate, driven by new players, increased investment and capacity-building initiatives across the value chain. Before long, however, this rapidly growing sector will need to address the increasingly urgent issue of how to realize its promise of delivering a truly sustainable and circular battery economy. The need for battery recycling in Europe will demand a fundamental shift from today’s position, where just a very small percentage of lithium-ion batteries recycling occurs and only a limited volume of materials are recovered for reuse.
By 2025, volumes of spent batteries are anticipated to grow to 0.2 million tonnes per annum (mtpa), driven largely by gigafactory scrap rates as high as 20%–30% in the early years of production. These volumes will increase to 1.4 mtpa by 2035, as batteries start to reach the end of their working lives and warranty returns become more prevalent en masse. Currently, Europe’s recycling capacity is less than 0.04 mtpa, primarily using pyrometallurgic technology that limits recoverability to a few materials. Currently, the battery recycling sector’s infrastructure is primarily designed to handle cobalt. But as cell technologies shift towards higher nickel content and lower cobalt content, recycling technologies also need to pivot.
Put simply: today’s lithium-ion battery recycling value chain is not fit for purpose and demands a significant rethink. This presents a significant opportunity for building recycling infrastructure capable of supporting a battery market that will continue to grow in both technological complexity and diversity.
In this article, we assess the opportunities offered by the industry’s expansion, overview the sector’s game-changing technologies and current leaders, before concluding with an action plan for building a thriving and sustainable circular battery recycling economy in Europe.
Chapter 1
Significant capital investment and rapid development of new recycling technologies are required.
We have three choices when deciding what to do with spent lithium-ion batteries: recycle, reuse or dispose.
One way to dispose of batteries involves sending them to landfills, but this presents significant environmental risks. The European Commission (EC) is working on a long-term framework, the European Battery Directive, that actively encourages recycling with a phased approach to mandating minimum recycled content thresholds across key commodities.
A second alternative to battery recycling in Europe involves repurposing batteries for a second life, particularly in energy value chains. This option is likely more suitable for lithium iron phosphate (LFP) batteries than it is for lithium nickel manganese cobalt oxide (NMC) batteries. This is because the value of recycled materials in LFP batteries is lower, their lifecycle is significantly longer and performance requirements are not as critical.
As electric vehicle (EV) batteries drop below 80% rated capacity, they can be used in other applications ranging from static storage to EV charging infrastructure. Once again, however, making repurposing commercially viable means overcoming significant challenges. One challenge — among many others — involves understanding the residual value of a spent battery.
Until such issues are resolved, recycling remains the most viable — and fastest growing — option. As battery recyclers take steps to capitalize on proliferating opportunities, significant investment is flowing into R&D partnerships behind the emerging technologies designed to make the recycling process more efficient and sustainable.
Currently, pyrometallurgy is the most common recycling technique. Again, this proved particularly suited to batteries with a high cobalt content, when economic viability depends only on recovering cobalt. Now, with high-nickel chemistries becoming increasingly prevalent, recovering the value of other materials is increasingly important.
But pyrometallurgy is not challenge free. Among other drawbacks, the technique is highly capital- and energy-intensive, with critical temperatures achieved by burning fossil fuels. Growing pressure from consumers and regulators — notably the European Commission (EC) — to move away from such environmentally inefficient techniques is just one reason why European players are deploying significant capital into more sustainable hydrometallurgical leaching methods to extract and separate high-value metal salts, including lithium and nickel salts. This capital inflow is likely to accelerate as the EC introduces increasingly ambitious policy measures designed to encourage cradle-to-grave recycling.
Another factor driving investment into recycling high-value salts, such as lithium and nickel, is that these elements are vulnerable to supply pinches from primary or virgin sources. Overcoming these pinches means applying upward pricing pressure until it becomes cost-effective for miners to greenlight new projects. And even if a project gets the go-ahead, it can still take seven years or longer between discovering the initial deposit and mining the first batch. By contrast, new gigafactories are coming onstream with lead times as short two years. So, from a supply perspective, the timing challenge is very real.
Chapter 2
Create scale and network, prove new technologies and partner effectively to seize the market.
As the battery recycling industry in Europe begins to take shape, more and more players are joining the contest for relevance and market share. These players range from materials and cell manufacturers to Original Equipment Manufacturers (OEMs), independent recyclers and waste management companies. Among the strongest players, there is already a noticeable trend toward cross-sector partnerships, alliances and integrated business models rather than direct investments. Since 2017, the lithium-ion battery recycling space in Europe has seen 20 transactions and 24 alliances. Transactions and alliance activity is highly concentrated in the hydrometallurgy technology space, with 19 alliances and 13 investments.
China offers one possible view as to how the European market will ultimately pan out. After years of fragmentation, the country’s localized recycling market is now dominated by battery material suppliers, with the principal OEM taking up a smaller market share primarily focused on its own batteries. Europe is likely to follow the Chinese model, with players across the ecosystem participating in recycling.
Significantly, Asian and North American players are filing patents to establish their license to operate in Europe, keen not to squander another market opportunity after missing out on gigafactories. But it is still unclear who the winners will be in the European lithium-ion battery manufacturing sector. Apart from anything else, there is still no single model for an EV battery recycler in Europe. But it is clear that the players who master the following key capabilities will be able to establish a strong lead:
The minimum efficient scale for operations tends to be around the four kilo tonnes per annum (ktpa) capacity. Players capable of securing and aggregating this level of feedstock will be better positioned to achieve the required cost economics. However, notably this scale isn’t anticipated until feedstocks grow significantly until the mid to late 2020s as EV batteries start reaching the end of their useful first life in cars.
With transportation costs accounting for around 30% of overall recycling costs, players that effectively manage waste loops and logistics will be able to scale, particularly given the regional recycling dynamics. Several leading contenders currently operate a hub-and-spoke model, where primary dismantling takes place close to large supply hubs, while black mass processing is centralized to achieve cost efficiencies.
The players looking to gain most from recycling materials in their battery design will have a natural advantage given that original battery manufacturers are focusing increasingly on more and more complex cell designs and chemistries. Also, players such as cathode active material (CAM) companies can have the most to gain from reintegrating the materials back into their manufacturing as they know the chemistry best and can manage the warranties best.
Technology development is largely centered around how much can be recovered — both in number and volume of materials — and the commercial viability of operations at scale. While cell makers may not lead on in-house technology development themselves, with other independent recyclers currently taking the lead, having a secure pathway to accessing this technology – through ventures, alliances and other partnerships — will be crucial.
As technologies evolve rapidly and service delivery models become increasingly regionalized, players with strong technology ecosystems and waste management network partnerships will prevail.
The value case for battery recycling is based on recovering more materials. Accordingly, the partnerships are most likely to succeed will connect a broad range of commodity players through a well-thought-through series of loops and flows. Each player will be focused on a single commodity in the recycling chain, such as nickel, cobalt, lithium aluminum and so on.
Chapter 3
Battery recycling helps drive improved commercial proposition in a challenged materials supply market.
The economic case for recycling lithium-ion batteries will continue to strengthen through scale plays.
According to EY estimates, revenues of up to US$22/kwh could potentially be secured for high-cobalt batteries and up to US$18/kwh for the most advanced nickel-heavy batteries. These revenues can be captured through recycling service fees and sales of recovered materials. Alternatively, they could be captured using more sophisticated business models that integrate the economics through joint ventures between battery feed suppliers, OEMs and waste management companies. Some recyclers are also looking to secure further revenue through technology licensing.
Scale is going to be critical to convert these revenues into profit, with opex costs per kilogram of converted material beginning to reach minimum efficient scale at around 10 ktpa–20 ktpa throughput. At US$1.60/kg opex at 20 ktpa, which some of the larger hydrometallurgical plants are targeting at feasibility stage, this can unlock up to US$11.8/kwh net profit for a NMC811 cell. This is significant considering today’s high-nickel cells cost upwards of US$130/kwh to make.
Chapter 4
Lithium-ion players and policymakers play key roles to build a circular battery recycling economy.
The lithium-ion battery recycling industry is still young and has much to learn from the more established lead-acid battery recycling industry. That said, there are immediate steps that the key lithium-ion players — including recyclers, battery and component manufacturers, as well as policymakers — can take to lay the foundations for a thriving and sustainable circular battery recycling economy in Europe. With this prize in mind, we have drawn up a 10-point action plan for the industry’s future.
Build out facilities that are distributed across key feedstock supply and demand nodes in the short term, leveraging hub and spoke models that efficiently aggregate volumes and reduce logistic drags and the associated environmental and emissions impacts.
Invest intensively in technological innovation to overcome cost and sustainability challenges as Europe comes under pressures associated with environmental, sustainability and governance (ESG) factors, bill of materials (BOM) costs and supply security much quicker than regions such as Asia.
Cluster and sequence recycling plant builds in lockstep with gigafactory rollout to create short scrap loops. De-risk recycling project sanctions by securing short-term scrap demand and long-term end-of-life offtakes.
Recyclers and lithium-ion battery manufacturers can go further by exploring shared operational and commercial integration value options.
Accelerate the industrialization of recycling processes as labor use becomes a factor that limits capacity alongside expanding feedstock volumes.
Innovate digital and process technologies and measures that enable automation.
One of the key challenges in securing the business case for developing recycling projects is the uncertainty around future battery technologies. As battery technologies expand and chemistries and formats multiply, recyclers must remain flexible when introducing various technologies into their preferred processes and business models.
Industry players will need to collaborate to bridge capability gaps spanning technological innovation and battery value chain reintegration to distributed waste management and collection.
Incentivize local capacity building through financial benefits such as tax breaks, capital grants and favorable planning to support the industry while volumes are still moving toward the self-sustaining point.
Establish universal standards and “track and trace” disclosures for battery materials, footprint and performance.
OEMs and recyclers must work together and define battery passport standards to disclose and clearly report information with recyclers and independent third-party assurers.
While European legislation has now extended to mandate 100% collection, policymakers must continue to monitor and make the case for recycling content thresholds. Consider models implemented by other industries.
Create certainty for the second-life applications market at the point of original manufacture through coordinated government programs that provide clearer visibility across the full value chain of future market needs in the recycling and repurposing segments.
The growth of Europe’s lithium-ion battery manufacturing sector continues to accelerate. Building a battery recycling industry ecosystem in Europe is more than a sustainability imperative, and requires urgent actions and investment. It creates opportunities by driving an improved commercial proposition in a challenging materials supply market. Lithium-ion players and policymakers play key roles to realize the promise of delivering a truly sustainable and circular battery economy.
Why the race is on to secure a sustainable EV battery supply
Shifting business models and accelerated EV productions forecasts have OEMs looking to lock in an affordable and sustainable battery supply. Learn more.
How EY-Parthenon can help
EY-Parthenon professionals recognize that CEOs and business leaders are tasked with achieving maximum value for their organizations’ stakeholders in this transformative age. We challenge assumptions to design and deliver strategies that help improve profitability and long-term value.
Read moreOur EY-Parthenon industry strategy consulting teams can help your business challenge the status quo. Learn more.
Read more