Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / Chinas EV Battery Recycling Race Heats Up
Transcript
- Lucas: So you've got roughly 20 million electric cars on Chinese roads today. Each one of those packs contains maybe fifty to seventy kilograms of lithium, cobalt, nickel. And those packs don't last forever — typically eight to twelve years before they degrade below useful capacity for driving. Luna: Right, so the first wave of mass EV sales in China was around 2015, 2016. That means we're now entering the period where those cars start retiring their batteries. Lucas: Exactly. By 2030, analysts estimate China will generate over 500,000 tonnes of retired EV batteries annually. That's a waste problem — but it's also a resource opportunity. And Beijing is treating it as a strategic imperative. Luna: Because China imports most of its lithium and cobalt. So if you can recover those metals from old batteries, you reduce dependency on Chile, Australia, the DRC. Lucas: Precisely. The government has been rolling out a policy framework — it started with pilot programs in 2018, then expanded into a mandatory producer-responsibility scheme. Under those rules, automakers and battery makers have to set up collection and recycling channels. The latest push, from earlier this year, sets specific recovery targets: by 2027, at least 95 percent of lithium, nickel, and cobalt must be recovered from retired batteries. Luna: Ninety-five percent. That's an aggressive target. How realistic is it? Lucas: It depends on the technology and the economics. Current hydrometallurgical processes — basically chemical baths — can hit over 95 percent recovery for cobalt and nickel. Lithium is trickier, maybe 80 to 90 percent in commercial operations. But the bigger challenge is collecting the batteries in the first place. A lot of used packs end up in unregulated channels, or they're sitting in people's garages. Luna: So the policy is also trying to formalise that collection chain. Make it easier to trace and harder to bypass. Lucas: Yes. And the company best positioned here is CATL — the world's largest battery maker. They own a subsidiary called Brunp Recycling, which has been operating since 2015. Brunp now has processing capacity for 120,000 tonnes of used batteries per year, and they're building a new facility in Hunan that will double that. Total investment north of three billion dollars. Luna: Three billion is a lot. But if CATL can secure its own lithium supply through recycling, that hedges against price volatility and supply disruptions. And it gives them a cost advantage over rivals who have to buy virgin material. Lucas: Exactly. And they're not alone. GEM Co., a Chinese recycler, processed the equivalent of 150,000 tonnes of used batteries last year. Huayou Cobalt, which is normally a miner, has built recycling capacity too. Even automakers like BYD have started their own recycling programs. The race is on. Luna: Let's talk about the economics for a second. Battery recycling isn't free. The cost of collecting, transporting, and processing a pack can be significant. Especially if lithium prices are low. Lucas: That's the tension. When lithium carbonate prices were above 500,000 yuan per tonne in 2022, recycling was very profitable. But prices have come down sharply since then — they're around 100,000 now, roughly 14,000 dollars per tonne. That squeeze has hurt some smaller recyclers. But the big players like Brunp have diversified revenue streams: they sell recovered cobalt and nickel, and they also get paid a processing fee by automakers who are themselves under regulatory pressure to recycle. Luna: So it's not purely market-driven. Regulation creates a floor for demand. Lucas: Right. And Beijing is also using subsidies and tax breaks to support the industry. For example, recyclers get a VAT exemption on the sale of recovered metals. That helps margins. The government has also funded R&D into more efficient recycling technologies, like direct cathode to cathode recycling, which skips the step of breaking the material down to individual elements and then rebuilding it. That could cut costs significantly. Luna: That would be a game-changer. Because right now, even with high recovery rates, the process is energy-intensive and uses chemicals. Lucas: Exactly. If you can recover the cathode material in a form that's ready to be reused in a new battery, you save maybe 30 to 40 percent of the cost compared to conventional recycling. And that's what labs at Tsinghua and companies like Brunp are working on. The first commercial-scale direct recycling lines could come online by 2028. Luna: So China is not just building recycling capacity — it's aiming to own the technology too. Lucas: That's the pattern. And it's worth noting how this fits into the broader geopolitical picture. The U.S. and Europe are also trying to build domestic battery supply chains, including recycling. The Inflation Reduction Act includes incentives for recycling. But China has a head start: it already has the collection network, the processing infrastructure, and the policy momentum. If you look at patent filings for battery recycling technology since 2020, China accounts for over 60 percent of the global total. Luna: And that advantage could compound. Because the more batteries China cycles through its recycling system, the more data and process improvements it accumulates, making its technology better and cheaper. Lucas: Yes. And this is one of those areas where the circular economy argument meets economic security. It's not just about being green — it's about reducing reliance on a handful of countries for critical minerals. For China, that's a direct national security concern. Luna: It's interesting you mention that — I was reading a report from the China Academy of Sciences that said recycled lithium could meet 30 percent of domestic demand by 2035. That's not trivial. Lucas: And if you add cobalt and nickel, the share goes even higher. Now, the challenge is scaling fast enough. But the direction is clear. And for investors, the question is which companies will capture the value: the battery makers like CATL, the dedicated recyclers like GEM, or the automakers themselves. Luna: Before we wrap, Lucas, I want to touch on something you said earlier about the economics of this. You know, we talk a lot on this show about complex supply chains and policy incentives, and I think one reason listeners keep coming back is that we don't bury it behind jargon or a paywall. We keep these conversations open and free. Lucas: That's intentional. We deliberately don't run ads on these episodes — no sponsors, no mid-roll interruptions. If walking through the economy with us has made something click for you, and you want to support that choice, the link is buy me a coffee dot com slash fexingo. It's a simple way to keep the show independent and ad-free. Luna: Yeah, that's exactly it. No pressure, just if you find value here, that's the place. Now back to the battery race — what about the second-life market? Before a battery is recycled, it can be repurposed for stationary storage. Lucas: Good point. For batteries that still have 70 to 80 percent capacity, they can be used in grid storage, backup power, or even low-speed vehicles. China is already experimenting with that. The city of Shenzhen, for example, has deployed retired bus batteries in commercial buildings for peak shaving. That extends the useful life of the pack by another five to ten years, which improves the overall economics of recycling. Luna: So you get value from the battery twice over — first in the car, then in storage, then finally the materials are recovered. Lucas: Yes. And that cascading model is exactly what the policy framework encourages. The government released national standards for battery grading and repurposing in 2023, which made it easier for second-life batteries to be certified and sold. That creates a market. Luna: It also means the recycling timeline extends. A battery might not be recycled until 15 or 20 years after it's manufactured. So the pressure to build recycling capacity today is really about preparing for the wave that's coming, not the one that's here. Lucas: Exactly. And that's why the big players are investing now, even if current volumes are still manageable. They're building the infrastructure for a future where hundreds of thousands of tonnes of batteries flow back every year. And they want to be ready. Luna: One thing that often gets overlooked is the safety aspect. Transporting and storing used lithium-ion batteries is hazardous. They can catch fire if damaged or short-circuited. Lucas: That's a real operational risk. There have been warehouse fires in China and elsewhere linked to stored batteries. So part of the recycling challenge is logistics: designing safe packaging, using fire-resistant containers, and establishing collection points that handle the material properly. The companies that do this well will have a competitive edge, because they can scale without accidents. Luna: And regulators are watching. A major fire could prompt stricter rules, which might raise costs for smaller operators. Lucas: Right. So the industry is consolidating around players who can manage the full chain — collection, transport, disassembly, recycling. That plays into the hands of large companies like CATL and BYD, which already have logistics networks and safety expertise. Luna: Let's zoom out for a second. If China succeeds in building a closed-loop battery supply chain, what does that mean for the global market? Lucas: It means Chinese battery makers become even more cost-competitive, because they're less exposed to commodity price swings. It also means China could become a net exporter of recycled battery materials, potentially undercutting miners in other countries. For the rest of the world, it creates a challenge — how do you build your own recycling industry when China has already achieved scale and lower costs? Luna: We're already seeing that play out. The EU's new battery regulation requires recycled content in new batteries from 2030. But if Chinese companies can sell cheap recycled materials, European battery makers might import them instead of using local recyclers. Lucas: Exactly. That's a looming policy tension. And it's one more reason why battery recycling is quickly moving from a niche environmental topic to a core economic and geopolitical issue. It's not just about waste — it's about who controls the material flow of the energy transition. Luna: Great way to frame it. So for our listeners who want to track this space, what should they watch next? Lucas: Watch the lithium price. If it stays low, smaller recyclers will struggle, and consolidation will accelerate. Watch policy in the EU and U.S. around recycled content mandates — those will determine demand. And watch the next round of Chinese five-year-plan details, which should come out later this year, for specific recycling capacity targets. That will tell you how fast Beijing expects this industry to grow.