A new windfall emerges as lithium batteries undergo recycling development with a strong backbone!

The lithium battery recycling market in China is a bright spot due to its high visibility, which is attributed to the fact that China has the largest lithium battery and scrap inventory in the world. We believe this theme will be further supported by strong factors such as rising demand for electric vehicles, national security considerations, favorable policy environment, long-term metal supply shortages, and favorable environmental and social impacts.

01 Gathering momentum, just waiting for this day

We believe lithium battery recycling is becoming an emerging investment theme in China due to strong structural benefits.

The key prerequisite for lithium battery recycling is the availability of recyclable raw materials from.

1) Battery companies' production and management process trimmings

2) Retired lithium batteries

Both are growing: China's lithium-ion batteries will grow at a compound annual growth rate (CAGR) of 17% by 2030, and we believe the country is poised to see the first major wave of EV retirements.

Over the next few years, we believe the recycling of lithium batteries in China will increase significantly, presenting a real investment opportunity in the short term, after which there could be a secondary impact on the supply and demand of key metals such as lithium, Lithium battery recycling nickel and cobalt.

02 Five drivers of lithium battery recycling in China

Driving electric vehicle growth:The total amount of recyclable raw materials will triple by 2025 due to the continued growth in the number and production of electric vehicles in China.

Good policies for ecosystem: The Chinese government has enacted a number of policies to form a mature recycling management system, and has built more than 10,000 technical service outlets for recycling used power batteries.

Raw material supply gap: While lithium battery recycling is growing, lithium and cobalt are expected to have a long-term supply gap.

Environmental and Social Factors: The hazardous nature of used lithium batteries makes recycling a preferred method compared to landfilling and producing batteries from mined minerals.

National resource security: Recycling is expected to reduce China's heavy reliance on imported upstream raw materials such as lithium, nickel and cobalt.

03 Assessing the market size of lithium battery recycling

The supply of waste in the production and management of batteries and cathode materials, battery production line economic growth patterns, and the retirement of electric new energy vehicle companies over the next few years should drive the construction of a lithium battery recycling market in China. In our baseline scenario, we expect the annual revenue pool to reach RMB95 billion by 2030, corresponding to a CAGR of 18.7%.

We believe this growth will be supported by the scaling up of recyclable materials. With lithium-ion battery production growing at a CAGR of 16.9% through 2030, the size of recyclable waste is projected to rise to 117/258 gigawatt-hours by 2025/30. This comes at a time when the first wave of electric vehicles is approaching retirement. Overall, our baseline scenario assumes that China's total recyclable feedstock will reach 211/853 GW by 2025/30.

04 Who is expected to benefit?

While there are many companies in China that specialize in lithium battery recycling, there are also many other companies (especially listed companies with large market capitalization) that have integrated lithium battery recycling with other business lines.

We believe that battery manufacturers and battery material companies will be the main beneficiaries,labeling machine as lithium battery recycling will help increase revenues and promote business diversification.

05 Secondary impacts on metal supply

Over time, waste recycling may affect the supply and demand dynamics of key battery materials, which in turn may affect prices. China is a net importer of upstream lithium, nickel and cobalt and is heavily dependent on overseas imports. We believe that the supply of metals from recycling operations will serve as an alternative source and increase supply in a market that has been tightly supplied to date.

In addition, lithium battery recycling may become a cheaper source of alternative data for lithium feedstock relative to initial mining. As a result, recycling companies will not only reduce import dependence in developing countries, but may also have a secondary environmental impact on metal material supply issues.

06 Is there a downside risk to lithium battery recycling?

The main potential downside risks are overcapacity and access to waste raw materials. As such, access to scrap raw materials at favorable prices (i.e., ensuring healthy margins) is important as companies strive to expand their market share. In this regard, we believe that vertically integrated battery manufacturers typically have an advantage.