Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / How Chinas EV Battery Recycling Race Is Heating Up
Transcript
- Lucas: So China makes something like 70 percent of the world's lithium-ion batteries. But here's the thing — a huge wave of those batteries is about to reach end of life, and Beijing is suddenly scrambling to figure out what to do with them. Luna: Right, because the first big batch of EVs sold in China — from around 2016, 2017 — their batteries are now hitting that eight-to-ten-year replacement window. Lucas: Exactly. And that creates a massive recycling challenge — but also a massive opportunity. I mean, we're talking about potentially hundreds of thousands of tons of battery waste per year within the next few years. And the materials inside — lithium, cobalt, nickel — they're both valuable and geopolitically sensitive. Lucas: Before we dig into this — and this ties directly into the economics of it — a quick honest thing. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making a show like this possible. No ads, no sponsors, just listeners who find value here. If walking through China's economy with us has made something click for you, that's where it's at. Anyway — back to the battery pile. Luna: Yeah, and it's a good reminder that this kind of independent coverage relies on that support. So, Lucas — how big is this battery waste problem actually going to be? Lucas: So according to estimates from China's Ministry of Industry and Information Technology, by 2030 China could be retiring something like 3 to 4 million tons of EV batteries annually. That's up from maybe 200,000 tons this year. And the government has been putting regulations in place since 2018 — extended producer responsibility rules, mandatory recycling codes — but enforcement has been uneven. Luna: And the economics are still tricky, right? Recycling a battery costs money — you have to disassemble, shred, separate materials. At current lithium and cobalt prices, some recyclers are barely breaking even. Lucas: That's the crux of it. Lithium prices have come down a lot from the 2022 highs — they're down about 70 percent from the peak. So the revenue from recovered lithium is much lower. But here's the strategic angle: China imports most of its lithium — from Australia, Chile, Argentina — and nearly all of its cobalt from the DRC. So from a resource security standpoint, Beijing wants a domestic loop. Luna: Which is why they've been pushing policies like the 'New Energy Vehicle Industry Development Plan' that sets recycling targets and offers subsidies for recyclers who hit recovery rates above 95 percent for cobalt and nickel. Lucas: Right. And some big players are getting into it. CATL, the world's largest battery maker — they own a recycling subsidiary called Brunp. They claim they can recover 99 percent of nickel and cobalt and 90 percent of lithium. And then you have companies like GEM Co., which is one of the largest recyclers in China, and they've been expanding capacity. Luna: But there's a tension here. Because if you make recycling too profitable — say through subsidies or mandates — you might distort the market for virgin materials. And if you don't make it profitable enough, the recyclers just stockpile batteries waiting for better prices. Lucas: Yeah, and that's actually been happening. A lot of retired batteries are sitting in warehouses because the economics don't work yet. There's also the issue of battery chemistry diversity — LFP batteries, which are cheaper and more common now, have almost no cobalt or nickel, so the recycling value is much lower. Recyclers prefer the older NMC batteries. Luna: So is there a model that works? I mean, in Europe and the US, they're also building recycling capacity, but China is way ahead in volume. Lucas: China is ahead, but the model that seems to work best is vertical integration — where the battery maker also recycles. CATL's Brunp is the poster child. They collect used batteries from automakers, extract materials, and feed them back into CATL's new battery production. That closed loop reduces raw material cost volatility and secures supply. Lucas: There's also a second-life market. Batteries that aren't completely dead — still at 70 or 80 percent capacity — can be repurposed for stationary storage, like grid backup or solar storage. That's a growing segment, but regulations on certification and safety are still being figured out. Luna: And that second-life market is actually quite big in China because of the scale of solar and wind deployment. They need storage, and cheap repurposed batteries could fill that gap. Lucas: Exactly. So we're seeing three parallel tracks: recycling for material recovery, second-life for storage, and then eventually — for batteries that can't be reused — proper disposal. The government is trying to create a unified tracking system — a kind of battery passport — to make sure batteries don't end up in informal recycling, which is a huge problem in China. Luna: Informal recycling — that's the small, unregulated workshops that just smash batteries open and extract what they can, often causing pollution and safety hazards. Lucas: Right, and they're still a big part of the picture. The official recycling network is growing, but the informal sector handles maybe 30 to 40 percent of retired batteries. That's a lot of environmental and human risk. The new regulations aim to push more volume into formal channels, but enforcement is tough. Luna: So what does this mean for investors or anyone watching China's supply chain? Is there a clear winner emerging? Lucas: I think the winners will be the vertically integrated players — CATL and BYD, which also does its own recycling. And possibly some of the pure-play recyclers like GEM if they can secure long-term supply agreements with automakers. But it's still early. The recycling industry in China is projected to grow from maybe 2 billion dollars today to over 15 billion by 2030. But that assumes policy consistency and technology improvements in recovery rates. Luna: And one wild card is trade policy. If the US and Europe impose tariffs on Chinese EVs — which they're already doing — that could slow EV adoption in China's export markets and change the timing of battery retirements. Lucas: That's a great point. The EU's tariff escalation on Chinese EVs — which we covered a few episodes ago — could reduce production growth, which would push back the retirement wave. But domestic Chinese EV sales are still strong, so the wave is coming regardless. Tesla's Shanghai factory alone has produced over 2 million cars since 2020 — those batteries will need recycling eventually. Luna: And from a resource security angle, the less China depends on Australian lithium and Congolese cobalt, the more leverage it has in trade negotiations. Lucas: Exactly. So this isn't just an environmental story — it's a strategic industrial policy story. Beijing wants to control the entire battery lifecycle, from mine to recycling. And if they succeed, they'll reduce vulnerability to supply disruptions and price swings. But the next few years will tell us whether the economics can actually work at scale. Luna: It's one of those areas where China has a clear lead in policy ambition and installed capacity, but the profitability question is still open. Definitely worth watching. Lucas: Absolutely. And as always, we'll track how the numbers evolve — especially lithium prices and recycling capacity announcements. For now, that's the picture on China's battery recycling race.