09 Nov 2022 4 min read

Battery recycling: staying positive

By Peter Andrews

In the second half of our two-part series on the EV market, we investigate one aspect of the circular economy: EV battery recycling.


Global electric vehicle (EV) sales are forecast to drastically accelerate over the next 10 years. Given average battery lifetime is around 11 years, we expect a substantial uptick in end-of-life disposals, creating a large potential market for recyclers.

With lithium demand set to equal supply from mining by 2030, the necessity to close the loop on the battery supply chain is becoming evident; mining cannot be the overarching solution but rather needs to work in tandem with the recycling industry.

Alongside commercial potential, achieving circularity will be fundamental in supporting the UN Sustainable Development Goals (SDGs), particularly in relation to responsible consumption and production (SDG 12).


A draining period?

While recycling batteries can be lucrative, obtaining enough scale to generate a profitable business remains a challenge; in 2021 BloombergNEF estimated that only 52,000 tons of batteries were available for recycling, compared with a global capacity of 286,000 tons.

A struggle for sufficient scrap materials to recycle will remain the order of the day until an ample supply of end-of-life batteries emerges. In addition, recyclers face challenges from metal spot price volatility and its impact on their profits.


As a result, metal price hedging will become a necessity for battery recyclers, in our view. Conversely, this same volatility can increase the relative attractiveness of bringing recycling in-house for EV and battery original equipment manufacturers (OEMs) by providing a natural hedge against input costs.

How green is my battery?

The main processes for extracting elements from batteries are pyrometallurgy and hydrometallurgy; the latter has both higher environmental credentials and greater recovery rates. By using either process, emissions can be drastically reduced.

In addition to reducing the carbon impact of production, integrating recycling into the supply chain may help diminish the reliance on low-scoring ESG countries which preside over the downstream supply chain.


Nickel mining is dominated by Indonesia and Russia whereas the majority of cobalt is extracted in the Democratic Republic of the Congo. Elsewhere, China controls the supply of nearly all battery graphite and has supremacy in battery material processing. All have medium, high or severe country risk based on Sustainalytics data. By reusing materials, recyclers and automakers can work to reduce the dependence on these ESG country laggards.

Regulatory framework

This ESG component has been a contributing factor to the developing regulatory environment. China and the EU have introduced, or will soon introduce, mandates that require cells to be tracked throughout their life.

Furthermore, alongside implementing minimum recovery rates for recycling, the EU is also set to require OEMs to increase the percentage of recycled material in their batteries. The Inflation Reduction Act in the US has made recycling imperative to meeting supply. Tax credit qualifications within the Act stipulate that at least 40% of EV battery components must originate from the US or from a country with which the US has a free trade agreement.

Given most of the materials come from outside the US, recycling will likely sit at the forefront of meeting demand.

Investible opportunities?

While the sector is currently embryonic and unprofitable, it will likely soon produce investible opportunities, in our view. At its estimated scale, EV battery recycling remains attractive to companies across the value chain. Some upstream component suppliers in Europe have expanded into the recycling space to create a closed-loop supply chain. Automakers have also taken an interest with manufacturers opening pilot recycling plants; some have partnered with recycling firms to develop a process while others have teamed up with battery manufacturers to ensure a sustainable supply of batteries and component materials.

Across the pond, specialist recyclers have emerged. While the majority are loss-making, the significant future uptick in battery retirements should create the scale for leaders to emerge, reaching profitability toward the end of the decade.

Battery recycling is an immature sector, even less developed than EV charging, and likely to remain a private equity area for some years. The growth hinges on widespread EV adoption, which now has a clear upward trajectory, battery chemistry developments and commodity pricing.

However, opportunities for debt investors could emerge. As the regulation towards automakers expands, minimum recycling requirements will improve cash flow predictability for recyclers. Gate fee models may emerge where automakers enter long-term contracts with recyclers to off-take end-of-life cells in return for pre-agreed payments, potentially improving the relative attractiveness for infrastructure debt investors.

As the profitability and scale of the recycling industry improves, these gate fees will likely reduce in significance; however, the remaining predictability in end-of-life disposals will leave the industry open to private credit investors.

Peter Andrews

LGIM Graduate, Real Assets

Pete joined LGIM in 2021 as an Investment Graduate. Having previously managed interest rate and inflation risk within the LDI team, he now conducts private credit and real estate research for the Real Assets division. Pete holds a bachelor’s in economics from the University of Exeter and a master’s in finance from Nova School of Business and Economics.

Peter Andrews