Electric vehicles growth to set off another industry: the Lithium battery recycling market

There are two options when it comes to used electric vehicle batteries: throw them in the trash and deal with Recyclops, or recycle. With electric vehicles forecasted to make up 58% of total vehicle sales by 2040, we’re about to see a lot more batteries in the market.

EVs: Zero-ish emissions

The electric vehicle industry has a problem – EVs are zero-emission when driven, but the mining, manufacturing, and disposal of their batteries could cause an environmental disaster as they become mainstream. The room for improvement is clear:

• EV emissions can be reduced by over 50% if battery recycling becomes the norm.
• Battery recycling could account for 30% of the emission cuts needed to meet the Paris accord targets.

The global lithium battery recycling market is expected to grow from $1.5b today to over $18b by 2030, and the market is about to see a lot more used batteries hitting the market:

• Battery warranties from the first wave of EVs are just expiring.
• Bloomberg estimates junkyards will take in ~1.7m tons of scrapped batteries annually by 2030.

One Canadian startup is racing to recycle your batteries.

Dream big, but not too big

Li-Cycle, which claims to be the biggest lithium battery recycler in North America, is going public via SPAC at a valuation of $1.67b — trading under the ticker $LICY once the merger is complete. Like many other companies going public via SPAC, its forecasts were a little… optimistic:

• $12m in 2021 projected sales – which would mean an impressive 24x growth from its $500k sales in 2020.
• Even more optimistic is the $958m sales target projected for 2025 – which would require a 200% annual growth for the next 4 years.

While it doesn’t have much revenue to show investors, Li-Cycle has a partnership with Ultium (joint venture between General Motors/LG Chem) to recycle its batteries — but the deal hasn’t translated to the SPAC’s stock price, which is down 6% in 2021.

Investors: Risky innovation

EV battery recycling sounds like a natural beneficiary from the rise of EVs but the process is still unprofitable and highly labor intensive. And don’t forget the following risks:

• Technological changes: EV battery tech is rapidly changing (i.e. Toyota/Quantumscape trying to replace Lithium batteries with solid state batteries) and disruptions could impact Li-Cycle’s recycling process.
• Battery metal prices: Battery recyclers’ revenues are tied to volatile recycled metal prices.

The Joe’s take: Li-cycle is a high-risk, high-reward type of investment. Its valuation is based on overly-speculative growth that might not pan out and if it doesn’t, the stock could run out of charge before it gets anywhere.