Written by Zhang Jin

Edited by Wu Xianzhi

For the past ten years, Zhang Chao has been devoted to battery recycling. He started as a “lone ranger,” making calls on his own to different battery manufacturers and new energy companies to recycle batteries that were not valued due to low volume. Today, he has grown into the owner of a battery crushing factory in Shenzhen, with dozens of employees.

Over the past decade, China’s economy has seen rapid development, and electronic products such as mobile phones, laptops, and electric cars have greatly changed people’s lifestyles. The batteries that “deliver energy” to these products have also undergone technological advances.

From lead-acid batteries to lithium batteries, more environmentally friendly and practical batteries are constantly being researched and launched. Due to their advantages such as small size, light weight, high energy density, long service life, and safety, lithium batteries have replaced lead-acid batteries on a large scale and have become mainstream. This widespread use has enabled entrepreneurs such as Zhang Chao to see opportunities to tap into the battery recycling industry.

Many lithium batteries can be recycled for reuse. Starting in 2009, Zhang Chao began to enter the lithium battery recycling industry, focusing on recycling lithium batteries in Nokia phones. With the popularity of smartphones, the volume of battery recycling also increased, including power batteries used in electric trains and other transportation.

Since 2013, electric passenger cars such as Tesla have entered the domestic market, and the promotion of new energy vehicles has started to scale up. In that year, China’s sales of new energy cars reached 18,000 units for the whole year. Power batteries have also rapidly developed as a result, giving rise to power battery manufacturing giants such as CATL and BYD. The large number of scrapped batteries has created a new business opportunity, and downstream recycling leaders such as GEM and Brunp have emerged, along with a group of “small workshops” such as Zhang Chao’s with ambitious goals.

According to a research report from Dongfa Securities in November 2021, China’s monthly power battery installation volume has exceeded 20 GWh, reaching a historical high. It is expected that the penetration rate of new energy vehicles in the market will reach 35% by 2025. As power batteries approach their end-of-life, the total amount of power batteries that need to be scrapped and treated by 2030 may reach 2.37 million tons (1.53 million tons of lithium iron phosphate and 840,000 tons of ternary). The market space for dismantling and recycling will reach 107.4 billion yuan.

The main business of Chen Li’s start-up is cascading utilization, and the company’s future plan is to expand in the direction of raw materials. “Power battery recycling is a huge minefield.”

This field has a huge scale and profit potential, but retired power batteries pose high hazards, and their recycling is subject to strict regulation by relevant departments. Professor Li Yan from the School of Environment of Renmin University of China once pointed out that “if power batteries cannot be effectively recycled, they will pose great harm to the environment. If a lithium battery leak occurs, toxic and corrosive electrolyte will flow into the natural environment, and carbon and graphite in the negative electrode material will cause dust and air pollution.”Under the coexistence of opportunities and crises, a complete industrial chain for the recycled power battery has not yet been formed. Small and medium-sized recycling companies like Zhang Chao’s “small workshops” are flooding the entire industry. They not only have no formal procedures and do not comply with relevant requirements, but also have no technical content.

Non-standard recycling is even more than regular enterprises, not only disturbing the market order but also leaving hidden pollution hazards. As the first batch of domestic electric vehicles gradually reach the end of their service life, the recycling of retired batteries has become an issue that cannot be ignored by vehicle manufacturers and battery companies.

According to the latest data from Qichacha, there are currently more than 35,000 “power battery recycling” related enterprises in China. Among them, a large number are non-standard enterprises like Zhang Chao.

For example, Zhang Chao’s recycling factory told Guanzhixingqiu that his factory did not even have the bidding qualifications for battery manufacturers such as CATL and BYD, and could only recycle waste batteries from small and medium-sized battery manufacturers.

“Now that I have money, I have started renting factories and hiring workers to break and disassemble them.” At first, Zhang Chao could only go to repair shops and 4S stores with friends to recycle batteries, act as middlemen, and then resell them to large-scale battery recycling companies at high prices.

In order to recycle power batteries, Zhang Chao’s factory uses a group of workers to manually break it, and then sells the extracted raw materials to upstream battery manufacturers. However, their manual battery crushing and disassembly technology is not technically sound.

After years of accumulation, Zhang Chao’s factory has many battery materials, including lithium iron phosphate, pure manganese, pure cobalt, and pure ternary. In 2017, when the prices of raw materials skyrocketed, his factory hoarded a large amount of pure cobalt raw materials, which were purchased for 45,000-50,000 per ton, and finally sold at a high price of 250,000, earning millions of dollars in one year.

To save costs, small workshops use primitive manual methods to crush and disassemble batteries, and then either process them into new batteries or extract raw materials based on the specific conditions of the batteries, or resell them to vehicle manufacturers or battery manufacturers.

Skipping issues such as low recycling utilization rate and pollution, unqualified players are making a lot of money. They are making the entire industry chaotic, and there are far fewer “standard players” than “non-standard players”.

“Standard players” refer to professional enterprises that have the qualification for power battery recycling. So far, the relevant authorities have issued three batches of “Industry Standards for the Comprehensive Utilization of Waste Power Batteries for New Energy Vehicles” enterprise white lists, and currently only 47 enterprises that have entered the white list meet China’s battery recycling industry entry standards, accounting for a very small proportion.

Among them, third-party recycling enterprises represented by Hunan Bangpu, Green Power, Guanghua Technology, and Haopeng Technology under CATL already have a certain scale in the field of power battery recycling. However, due to the industry’s failure to overcome technical difficulties and unify management standards, the war between standard players and non-standard players has continued for many years.”If I had the qualification to bid and could win the contracts of these big companies, I would have already had a net worth of billions,” said Zhang Chao. However, the big companies have requirements for battery recycling companies during the bidding process. For example, the process of crushing batteries is prone to fire and requires a hazardous waste qualification certificate which Zhang Chao’s factory does not have.

“We can only recycle from small and medium-sized battery companies which do not have as many requirements, as long as the price is high enough,” Zhang Chao added.

In contrast, most formal power battery recycling companies are struggling to make a profit and even lack raw materials. This is because following the dismantling requirements, large costs are required for equipment, environmental processing and technology, and the recycling price naturally cannot compete with those of non-formal competitors. As a result, the phenomenon of inferior products driving out good products has formed.

This phenomenon exists throughout the entire industry chain.

In the battery recycling industry chain, upstream are various battery manufacturers, midstream are third-party recycling companies, which are also where small factories and non-formal competitors are located. Downstream are battery regeneration and reuse companies, such as those in the energy storage field.

A person in the industry who specializes in the secondary use of electric two-wheeled vehicles told The Photon Planet that currently, most midstream companies do not have recycling technology. They purchase batteries from battery manufacturers and large pack factories and sell them to “third parties” at a higher price. They act as second-hand dealers and earn the price difference.

When midstream third-party recycling companies hold onto the recycling supply chain, some downstream reincorporation companies that want to make technological innovations can only choose to recycle power batteries at higher prices.

Three years ago, Chen Li noticed the hot trend of power batteries and switched from the furniture manufacturing industry to the secondary use of power batteries. However, due to the limited specifications and quantity of recycled batteries, no upstream supplier was willing to supply, so they had to order from “third-party recycling organizations.”

However, after several turnovers, the price from this third party was several times higher than the original price. They used their relationships and higher prices to recover the batteries themselves, and then sold them to downstream battery regeneration and reuse companies at 2-3 times the price.

Those who have batteries only want to be traders and earn multiple price differences, but those companies that want to invest in real technological research and development also need to buy batteries at several times the price, thereby adding pressure to their already insufficient funding.

However, more seriously, the technology of downstream battery regeneration and reuse is not yet mature, nor is there a unified management standard. “Even if some companies can produce high-quality products, without authoritative recognition from relevant departments, they will naturally not be recognized by the market,” said one industry practitioner.

To acquire the desired batteries, Chen Li’s company can only cooperate with local battery recycling dealers. But what makes him more uncomfortable is that many shoddy power battery regeneration and reuse products have disrupted the market order. “When good and bad products are put on the market together, consumers cannot distinguish and can only choose the lower-priced products first.”

Waste resources or conserve resources?As the “heart” that provides energy for new energy vehicles, the performance of the power battery will decline with the increase of charging cycles. According to the national regulations, the service life is generally 5-8 years. The retired power battery from electric vehicles usually has a remaining capacity of 60%-80% of the initial capacity, which can be recycled.

There are currently two feasible methods for recycling retired batteries in the market: cascade utilization and disassembly and recycling.

Cascade utilization is to use retired power batteries in other fields, such as energy storage, as carriers of electric energy, so as to fully realize their residual value. Disassembly and recycling is to discharge and disassemble retired batteries, extract raw materials, and achieve recycling.

Automotive power batteries mainly include lithium iron phosphate batteries and ternary lithium batteries. According to industry insiders, there are fewer heavy metals in lithium iron phosphate batteries than in ternary lithium batteries, and direct disassembly may not have resource-scaling benefits, so entering the level-by-level utilization is an important direction; while the positive electrode material of ternary lithium batteries contains rich metal resources such as nickel, cobalt, and manganese, and direct disassembly and recycling is more effective.

With the explosion of downstream automotive demand in the new energy industry, the cost of upstream raw materials has been rising year by year. Conversely, many car companies, including XPeng and NIO, suffered from the shortage of batteries last year, which may be related to the shortage of battery raw materials.

As of January 13, 2022, according to data from SCI99, the quotation of battery-grade lithium carbonate in China has reached a high of 360,000 yuan per ton, and electrolytic nickel has also reached 167,700 yuan per ton, both of which have increased significantly compared with the same period last year.

“The economic benefits of recycling (disassembly) are not good, and the extraction cost is high. Compared with the cost of primary ore, it is much higher, but as the price of primary ore continues to rise, the market will increasingly turn to recycling resources.” An industry insider said.

In addition to mining, recycling metal resources from power batteries will also be beneficial to the upstream supply of raw materials.

An industry insider told Photon Planet that because of the high cost of investment in equipment, only large companies such as CATL will do raw material extraction. Therefore, there are more levels-by-level utilization of lithium iron phosphate batteries on the market, but the effect is not optimistic.

“There are not many companies that can do well in the level-by-level utilization, and it is still a blue ocean in the true sense.” Chen Li, the person in charge of a level-by-level utilization enterprise, believes.

According to several battery recycling companies contacted by Photon Planet, many of them are doing cascade utilization.

“The investment threshold for level-by-level utilization is low, and the returns are high, so it is overcrowded, and individuals and small workshops can do it.” A level-by-level utilization practitioner told Photon Planet.On the Xianyu platform, there are many lithium battery recycling merchants. Many of them are individuals who perform cascading utilization. One individual who recycles batteries said that he uses them to make solar lights without needing any technical expertise, and he can start a business on his own.

GRIMM is the absolute leader in domestic battery recycling and mainly focuses on the cyclical utilization of cobalt, nickel, tungsten resources, and electronic waste. The company started its waste battery recycling business in 2003 and has grown into a listed enterprise in the battery recycling field.

A source close to GRIMM told Photon Planet that GRIMM has two production lines for cascading utilization. One line costs over 20 million and is mainly used to assemble products with 18650 cell specifications. The other is a semi-manual assembly line that can use various cell types and is mainly used for cascading applications in two-wheeled electric vehicles.

According to the source, there is no effective technology in the cascading utilization field.

The underdevelopment of cascading utilization technology, the lack of mandatory market supervision and management mechanisms, and the imperfect certification system are all industry challenges. Fierce competition in the industry results in varying battery quality among different cascading utilization companies.

“Many cannot guarantee the lifespan of batteries after cascading utilization,” said Chen Li.

In his view, the hardest part of the industry is producing long-lasting, cascaded batteries. Increasing consistency is the most important issue in cascading utilization because it directly affects battery lifespan and safety. Cell consistency comes from the cell composition process, whereby cells with similar capacities are grouped together to increase battery lifespan and safety.

A GRIMM recycling manager told Photon Planet that the quality guarantee for a cascaded battery pack is generally 1-2 years, while GRIMM’s new energy department cannot ensure cell consistency after grouping by capacity.

Retired batteries can be cascaded to multiple fields, such as communication base stations, energy storage, low-speed vehicles, street lamps, and more. At present, the China Tower is the only application with a substantial scale because of safety and cost factors. The industry lacks mature cascading utilization technology, resulting in many batteries only being used in small-scale applications, such as street lamps.

“If all the produced batteries are short-lived, cascading utilization is a waste of resources rather than a resource-saving method,” said Chen Li.

Due to incongruous battery standards, the cost of technology, and the trade-off between recovery and revenue, the economic feasibility of cascading utilization remains a question.

Mining by Giants

In 2018, China’s retired power battery totalled 74,000 tons, but the amount of recycled power batteries was only 5,472 tons, accounting for only 7.4% of the total scrapped power batteries.

The lower recovery rate is due to the fact that battery recycling appears to have many dividends, but it is difficult to profit from, with the biggest problem being technical difficulties. Small workshops operate without regulation, creating a chaotic industry that urgently needs formal military forces to bring about change.

Multiple individuals who work at Tesla and NIO have informed Photon Planet that, apart from battery damage caused by traffic accidents, which requires replacement of the battery, NIO, Tesla and other domestic new energy vehicle manufacturers have yet to see a large-scale retirement of vehicle owner batteries. As a result, more battery recycling resources are currently flowing out of upstream manufacturers such as battery manufacturers and PACK manufacturers.

In 2018, the country implemented the “Extended Producer Responsibility for Power Battery Recycling” policy. In addition, due to the shortage of raw materials for batteries, Volkswagen, BYD, CATL and other vehicle and battery manufacturers began to participate in battery recycling by cooperating with third-party recycling institutions, through investment, self-built power battery recycling systems, and other ways of participation.

As early as 2015, CATL purchased Guangdong Pan-Pu, a third-party recycling enterprise. Currently, Pan-Pu has formed three major industrial sectors: battery recycling, carrier recycling, and recycling services, focusing on digital and power battery recycling and utilization of gradient energy storage.

On October 12th last year, CATL announced an investment of 32 billion yuan in an industrial park project related to the recycling of waste batteries, with the main construction of a production base equipped with waste battery material recycling, to be implemented by its subsidiary Guangdong Pan-Pu and its controlling subsidiary Ningbo Pan-Pu.

BYD has now established more than 40 power battery recycling sites across the country, adopting the steps of precision disassembly, material recycling, and activation regeneration comprehensive utilization. In addition, BYD has also reached a strategic cooperation with China Tower, a major user of power battery recycling and utilization, to build and share a recycling network, achieving the scale utilization of retired batteries.

For battery manufacturers, entering the power battery recycling business is conducive to improving their bargaining power with upstream raw material companies and reducing the production cost of batteries.

At the same time, as the popularity of new energy electric vehicles gradually increases, battery disposal issues also affect vehicle manufacturers.

There were previously reports that Tesla will launch battery recycling services in China. A Tesla employee told Photon Planet that they have their own set of battery recycling systems overseas, but they are unsure how to proceed with the high peak of battery exchanges in China.

However, many domestic new energy vehicle companies have entered the battery swapping market in order to extend the life of batteries, reduce consumer car purchase costs, and facilitate battery recycling.

On August 20, 2020, NIO officially released its battery rental service BaaS (Battery as a Service). Just two days before the launch of the BaaS model, on August 18th, 2020, WeiNeng Battery Asset Co., Ltd. was also officially established, initiated by CATL, NIO and other companies.Despite the participation of many battery manufacturers and automakers, the sharing of data and information regarding power batteries has not been achieved to date, and problems such as inconsistent standards for measuring battery residual value have yet to be resolved. This requires joint efforts from upstream manufacturers to downstream recycling and reuse enterprises.

Enterprises such as Zhang Chao’s “small workshops” and traders are taking advantage of this situation, and the main players in battery recycling have yet to form economies of scale, with some battery technology still not fully developed, and the efficiency of resource reuse still to be improved.

Looking ahead, under the squeeze of the gradually growing regular army, traditional small-scale workshops will inevitably be merged or eliminated. However, the power battery recycling market is still in the dark before the dawn. Zhang Chao believes that his factory will definitely be squeezed in the future, but this chaos will continue for some time.

This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.