Many monks, little porridge
How battery recycling in Europe and North America will suffer from overcapacity and material shortage
In our latest CES Online update of lithium-ion battery pre-processing capacity in Europe and North America a clear pattern emerged in both of the markets: Compared to our previous update short term cumulative capacity declined while long term, it increased.
The short term decline can be explained by postponements and delays for both incumbent and new players but also by some too aggressive estimates in our previous assessment. Setting up plants for treatment of hazardous materials takes time, not least when it comes to permitting, but several players have also experienced a longer commissioning phase than originally anticipated. It’s therefore not unlikely that this pattern will continue with commissioning of announced capacity being pushed back when the plans meet reality.
Still, the most significant change, especially in Europe, is the increase of added capacity between 2024 and 2030. Only six months after our latest update the number of announcements and new evidence of intent to establish new recycling capacity has been staggering. New startups, an increased activity among established players, as well as Asian companies taking concrete steps to enter western markets have contributed to a 32% larger capacity in Europe in 2025 and 17% larger in North America compared to our previous update.
This happens as Circular Energy Storage’s forecast for battery scrap available for recycling has decreased, primarily due to a lower estimate for available production scrap volumes. Shortages and higher material prices has made production yield and low reject rates to a top priority for battery producers effectively raising the barriers to entry for new entrants as improvements in efficiency are realised. This does not only push down scrap rates but may also cement a market structure with a handful players from China and South Korea dominating the industry.
Meanwhile the semi conductors shortages, which has caused long delays in deliveries of new vehicles, has lead to a jump in prices for used vehicles. This causes effects on the recycling markets in several ways. First of all fewer vehicles are deemed end of life as both damaged and old vehicles are kept longer, not least due to higher values. As a consequence the supply of used EV batteries from EOL vehicles have decreased, pushing prices for all kinds of used batteries upwards, keeping the batteries away from recyclers.
On top of this come unwelcome signals that the growth of EVs in both Europe and the US might have to be adjusted downwards. Shortages of components, disruptions due to Russia’s war on Ukraine – and a looming shortage of battery components have made it harder for EV makers to deliver according to their plans. Even if especially the BEV segment is growing in both US and Europe the growth rate has slowed significantly the last six months. If Circular Energy Storage’s forecasts for light EVs in Europe should be met the European output in the second half of 2022 must increase with 98% compared to the sales in January to June. In the US it has to increase with 15%. This has not a huge impact on the end-of-life market but has a direct effect on the battery production and therefore also on the scrap generation.
Another blow to scrap materials in Europe and the US is the risk that the majority of the world’s EVs will not be produced in these regions. Out of the 20 top selling models in the world the first half of 2022 only two models use batteries produced in the US (Tesla Model 3 and Tesla Model Y) while as many have batteries produced in Europe (Volkswagen ID4 and Ford Mustang Mach-E). The rest, and a large part of the batteries to Tesla as well, are produced in China or South Korea. In a time when material shortages are on the horizon this may have a severe impact for the growth plans in the western markets.
Taken together this means a bigger gap between the available volumes for recycling and available pre-processing capacity. If all announced plans of recycling companies in Europe and North America will materialise there can be an overcapacity of 159% in Europe and 183% in North America.
Which consequences will this have on the market? This depends a lot on what actually will happen as a first likely consequence is that some of the plants will not be built due to the very same over capacity, creating a first ease on the market. On the other hand there are large amounts of both private equity and venture capital money invested as well as government funding that already has pushed many of the projects to the point of no return.
Compared to the next step in the recycling process, material recovery, pre-processing is not extremely capital intensive. Investments range from a few $100,000 for used Chinese shredders and screeners that at least can perform some basic size reduction of dry electrodes and sort out copper and aluminium, to sophisticated plants with electrolyte recovery, state-of-the art automation and off gas treatment for over $10M but usually less than $20M. The rest is mainly labour costs which can adapted to available volumes. There are also geographical barriers to entry both due to country borders and transportation costs which can ensure that certain players can consolidate enough volumes even if the capacity at large would indicate tougher competition.
Still, a sustained over capacity in the market will inevitably lead to higher prices for scrap batteries. And there is a possibility that discounts on materials even might turn positive (acquisition prices are higher than the value of the payables), especially if companies are desperate to show a positive growth trajectory or are poised to take market share. This is exactly what has happened in China where recycling capacity continues to increase despite the fact that small pre-processors have been capturing the larger volumes for years. Chinese discounts for nickel and cobalt containing battery cells have since last autumn been over 100% which adds significant risks to deals when material prices have been at all time high but now are in decline.
Another risk with too many players in the market is that the build out of material recovery capacity might slow down. While we foresee an over capacity also for this step in both Europe and North America the capital intensiveness and the relatively high capacity increments may cause earlier market exits than what we expect in the pre-processing market. As the global market has a strong appetite for scrap materials there will always be attractive export options for many pre-processing players. In the same time, players which actually succeed in building material recovery capacity will have an advantage already in the pre-processing step as they can capture a higher value of the end product and thus accept higher prices up front.
The updates for both volumes and recycling capacity is now available for CES Online subscribers. Not a subscriber? Learn more and check out the our options here.
