Battery recycling in Europe – a reality check

2024 was not a great year for the European battery industry. Falling sales of electric vehicles on a market which by the end of November in EU had declined 5.4%, caused battery plants in Poland and Hungary to operate far below capacity. ACC postponed the construction of plants in Germany and Italy while PowerCo, Volkswagen’s battery company, has scaled down its initial planned capacity in Germany. On top of that comes Northvolt’s bankruptcy protection filing caused by the company’s challenges to ramp up production. The decline in the market had a direct impact on suppliers like Umicore which saw its cathode business suffering due to the slower demand.

Today’s sentiment in the market is a stark contrast to the euphoria we all experienced both before, under and shortly after the pandemic when plans to build battery plans, with or without any proprietary IP, were popping up on a monthly basis and the EV market looked like a hockey stick.

The year has been challenging also for the battery recycling industry in Europe. Material values in scrap cells declined by 11%-15% depending on chemistry. Although this was far from the free fall of 50%-60% in 2023 it continued to put pressure on recycler’s profits not least when older inventory, many times acquired at significantly higher price points, needed to be realised. The decline in battery production had a direct impact on the scrap generation from battery manufacturing plants while latest years’ rapid expansion of pre-processing capacity dampened both volumes and pricing power for most recyclers due to overcapacity. Real end-of-life volumes from electric vehicles are still close to undetectable.

Also the prospects of a future European battery recycling industry have changed dramatically during the year. We have witnessed several suspensions of planned recycling plants, led by large and important players such as Umicore and Eramet. In Circular Energy Storage’s reporting of announced and anticipated future material recovery capacity in Europe as much as 49% of previously assessed capacity in 2030 has been pushed back or completely withdrawn since December 2023. And of the remaining projects several are highly uncertain.

The question to ask is obviously if what we now are seeing is a bump on the road or a dramatic shift that may change the whole industrial landscape in Europe forever.

I am leaning more towards the latter. For the battery industry in general and for the battery recycling industry in particular.

In this article I am trying to take a big step back to give a broader view of the conditions for the battery recycling industry in Europe and give some background to why we at Circular Energy Storage believe it will be very challenging to grow a closed-loop battery industry in the coming decade.

What happened to the European EV industry?

With a few exceptions such as Morrow and LeClanché European battery production plants and projects are almost exclusively focused on the automotive segment. Segments like portable electronics, UPS, e-bikes and fork lifts are more or less left to Asian manufacturers while energy storage systems for some battery startups serve an entry segment as the whole validation process for car makers can take several years. However a long term expansion of European manufacturing capacity for cells used in price sensitive energy storage products seems not very likely. Thus, the European battery industry’s whole raison d’être is to guarantee products and the 3.5 million manufacturing jobs in the European automotive industry.

The critical question then for both the whole battery and the battery recycling industry is: How will the European automotive industry evolve over the next years?

That 2024 would be a slow year for the European EV market did not come as a surprise for many analysts. As the next threshold in EUs stricter CO2 emission performance standards, basically mandating 20%-25% of car makers deliveries to be electric, first enters into force this year, car makers were expected to maximise profits on other vehicles during 2024 while they optimised launch activities to boost sales of EVs in 2025 and forward.

What we now expect to see is EV sales in EU which only slightly passes through the eye of the needle in 2025 while the growth from there again settle due to lack of real incentives to significantly further drive sales of BEV and PHEV before 2030. This will put pressure on UK which today has a much more progressive path to a 2035 phase-out of ICE vehicles.

The message from automakers and their main lobbying organisation in Europe, ACEA, is that consumers simply aren’t prepared to switch their petrol or diesel cars to electrics. While the industry continues to refer to lack of charging points as the biggest obstacle, other surveys highlights the high price tag as a main objection for consumers to take the step. In our latest report on the European battery recycling market we compared the volume adjusted price of the 25 most popular vehicles in Europe in 2024 and the 25 most popular EVs. The cost for the most popular EVs is 88% higher than the most popular cars purchased today.

The difference is obviously strongly affected by OEMs strategies to offer electric variants in higher priced segments where the increased cost of the electric driveline is proportionally smaller than for more affordable cars, just like Tesla did more than 10 years ago. This is also segments in which Tesla today have strong positions. In Germany, a market where the EV sales this year has declined due to the removal of subsidies, EVs had actually quite impressive market shares in most premium segments in 2024. In the luxury and SUV segments (D, E, F and lower J segment) EVs’ market share ranges from 25% to 44% and reach as high as 62% if PHEV are included. This should be compared with the B, C and D segments (super mini, small and large family cars) where only 4%, 11% and 9% of the sales were electric (4%, 14%, 19% BEV/PHEV combined).

What the average price of the most popular cars indicate though is where OEMs eventually need to go to meet the mass market. It also tells us where prices need to go for EVs to boost the market share in markets like Italy, Spain and France. This is now starting to happen. For 2025 several car makers are lining up electric vehicles in cheaper segments which by themselves are more affordable. Still it’s rare to pay less than €25,000 for an electric car.

The situation in Europe is an enormous contrast to the Chinese market. Here the 25 most popular electric cars are 19% less expensive than the most popular cars in Europe regardless of driveline. Years of investment in EV and battery technology has made Chinese vehicles less expensive than domestic ICE vehicles which has helped to push the penetration rate to close to 50% of the sales in 2024. This puts manufacturers like BYD, Li Auto, Geely and SAIC in very favourable positions on a global market, offering electric cars that consumers in Europe and many other markets could afford.

This has so far not really been the case though. Instead of using their low cost advantages to capture market share, Chinese car makers have instead used the European market to increase profits by selling their cars for just slightly less than other EVs on the European market enabling much higher gross profits than in their domestic market. Something that is very different from dumping which is a narrative pushed by both policy makers and lobby organisations.

Basically European, Korean and Japanese car makers have used the same price gap from the other end to launch full or mild hybrids which gives a slightly better fuel economy for a 15%-30% higher price, still less than the price for full electric vehicles. With EU’s new tariffs on Chinese vehicles the price level of EVs is now more or less cemented making it difficult for Chinese producers, or other companies producing cars in China, to use price to drive growth. This make hybrids, which 2024 was the success story in the EU with 20% growth on an otherwise declining market, to a great offer for consumers who at least slightly want to step up their green ambitions in exactly the same way Toyota Prius-buyers did 20 years ago when the sales of the iconic hybrid took off. For car makers hybrids come with higher gross profits in segments which economically have been difficult to electrify while the vehicle type also contribute to lower CO2 emissions.

When the EU targets for 2025 are achieved there is no next stepping stone until 2030 when the EV sales ratio likely must be around 50% for most car makers. In my view it is this level the European car makers are concerned about when they now are trying to anchor their outlooks as low as possible – “If it took 15 years to get 20% of the European car buyers to choose electric, how on earth should we get another 30% to do the same in only five years?”.

It’s hard to disagree. The nowadays widespread narrative that people simply don’t want to buy EVs could very well become a self-fulfilling prophecy. If you are only a bit hesitant on buying an EV and look for arguments to not do it, the media is now filled with stories saying that you are not alone. And while a cut-off date for ICE vehicles in 2035 might feel very near for the automotive industry it is a very long time in a car consumer’s mind. For a lot of people it likely means that ICE vehicles are here to stay for another 10 years just as the incandescent light bulbs were until people could just no buy them anymore.

Add to this the struggles many European car makers have on a home market which in 2024 took deliveries of less than 75% of the number of cars sold in 2019. And which, ironically, have been weakened by lower sales in China as the EV penetration rate in China has almost reached 50% and Chinese consumers have shifted to domestic EV brands.

This makes it very likely that the outcome of EU’s “Strategic Dialogue on the Future of the European Automotive Industry” in January will be some kind of relaxation either of the fines for not reaching EU’s new EV sales targets or of the targets themselves. It may of course also be combined with more support to the industry. If it doesn’t it’s difficult to see how the EV market will come back to the same growth it had in the beginning of the decade.

For the battery industry the next five years suddenly seem much more uncertain than what the last five years did, five years ago. There is a big difference in making 1 kWh batteries for full hybrids compared to 75 kWh batteries for EVs. Full speed a head first in 2028 or 2029 instead of 2026 can easily kill producers if there is no other demand to address.

However the biggest problem for a European battery industry is that it in itself is not the solution to automotive industry’s problem – the declining profitability. In fact it looks more like it will make it worse.

European batteries – special (high) price for you!

While EU has set out an ambitious plan to shift from ICE vehicles to EVs it has also through the Critical Raw Material Act launched as bold targets for how much of the materials in these vehicles that need to be domestically sourced and produced. At least if the products are made in the EU. By 2030 EU should have capacity to process 40% of the so called strategic materials which include most of the active materials in EV batteries. Not only that. The EU should also have the capacity to supply 25% of the strategic materials by recycling of waste materials, which for the battery industry is much more capacity than what there will be feedstock to recycle. The act was designed after large investments in the European battery supply chain already were made, not least through the European Battery Alliances which was founded in 2017 with the objective to build a strong and competitive European battery industry.

That an electric car industry needs local production of batteries can be motivated by both logistical and supply security reasons. What is not as obvious is that the actual materials must be produced in the same place. These materials are today primarily produced in China and South Korea and imported by battery producers in Europe. The dominance by China is however one reason why policy makers in Europe would prefer to also produce the materials in EU, something that also is key if recycled materials from Europe should be used in European batteries.

What is not so much discussed is the actual profitability of the battery industry and its capability to compete on a global level when located in Europe.

That China can produce EVs at so much lower cost levels than European producers go back to several factors. One very important factor is the dedication to EVs from both the government and companies, something that clearly shows when looking back at the development between 2014 and 2019, compared to Europe and the United States, but then of cource in terms of sales, also after the pandemic. The rapid but also steady growth of EVs in the domestic market give strong benefits such as a large pool of expertise, specialised suppliers and increased capabilities to automate manufacturing processes due to both skills and volume.

However, arguably the most important factor is the underlying costs. Employees in China make about 50%-80% less than their European colleagues in same positions depending on where in Europe or China. Also energy costs in China are about half of the average rate in Europe. What’s important is that these lower costs not only apply to the automotive industry. Lower cost for labour and energy go through every step in the entire supply chain: components, materials, construction and machinery. With low costs and by dominating manufacturing in so different markets such as shipbuilding and construction equipment the total bill for making complex products can be lower in China than in any other market. This is especially true in companies that themselves are vertically integrated.

This also means that anyone who buy components or whole products from China benefit from these lower costs. A battery purchased in China come with the low cost advantage of every step that led up to its assembly.

Conversely, a battery produced in Europe made from European chemicals would come with all cost disadvantages compounded in every step of the value chain. So in 2030 when the share of EVs sold on the European market should reach at least 50%, requiring an annual growth of 25%, the same EVs should also absorb cost increases of making cells, cathode material, precursors and other components in Europe. This might work in premium segments where brand value and higher quality help car makers to boost gross profits to over €10,000 per vehicle. But how to make it in volume segments where gross profits of €1,000 or even €500 per vehicle are not uncommon?

It’s very easy to see the dilemma the European car makers face. Every day they can sell hybrids instead of EVs will bring in more profits. But doing so makes the future supply chain less competitive and more uncertain. This could of course work if it wasn’t for the fact that Chinese car makers together with Tesla grow in a much faster pace which also lead to lower costs, benefiting from continuously improved economies of scale and a positive learning curve. Most probably the biggest threat to European car makers are not the 500,000-ish China-produced cars that were imported to Europe as much as the 13 million BEV/PHEVs that were sold in China this year, leading to an annual growth of more than 40%. Serving this market makes cell makers, CAM and pCAM producers more efficient and drives innovation.

For European battery companies with the automotive industry as end customer the lag in EV adoption is however not a dilemma. It’s pure risk. And it does almost not matter how the car makers act.

If car makers should increase their efforts in the volume segments they need to drive down costs. Currently this is done by using smaller batteries and replacing batteries with NMC cathode with LFP, a cathode chemistry that until recently have not even been produced in Europe. Establishing that industry in Europe, first to make cells and then active materials, will in worst case reverse that cost saving through higher costs for materials and cells and most likely lead to lower yield than if it would have been produced in China. Neither does it help battery material producers in Europe which predominately are specialised on NMC materials.

If car makers continue their strategy to push back electric vehicles in volume segments the demand for material will obviously continue to be low. As long as cheaper vehicles from China are penalised with tariffs it will not only be pack, cell and material makers that suffer but also EV charging operators and equipment manufacturers which won’t see their market expand in the pace they hope for. As car makers continuously keep reminding the market of how bad this buildout already is there is a big risk it won’t be much better. Especially not for customers who now are looking at affordable EVs with slightly smaller batteries. The future demand will basically be killed by low current demand.

For battery makers this means that plants with high capital and fixed costs will work far below capacity, something that this year already has been the case in Poland and Hungary for LG Energy Solutions, SK On and Samsung SDI. The way to de-risk this is to work in partnerships with car makers or even that car makers themselves are making the batteries, like in the case of ACC and PowerCo. That can take away some of the risk for under utilisation but the high costs for labour and energy remains.

If it’s a risk for battery producers it is even worse for battery material companies which are not only reliant on the demand from the automotive sector but also on the success of and subsequent demand from the battery makers.

Until last year there were no cathode production at all in Europe. Now both BASF and Umicore are producing cathode materials in Germany and Poland. In Hungary Korean cathode specialist Ecopro is building a plant and a handful of Chinese companies have ongoing projects which may lead to plants in the next years.

At the same time there are no cathode producer in Europe that is not present in China or South Korea, markets with significantly more mature supply chains and a more certain demand not only from battery makers in Europe but from the whole world. And with lower labour and energy costs. Even with firm and long term take-or-pay contracts the European market looks much less attractive with less competition as only real advantage. If that is enough to direct investments to Europe is however very uncertain just like if it even lead to more investments in the cathode business for companies that have a choice to allocate their capital elsewhere.

Recycling companies – the last to hear the bad news

If CAM manufacturers can’t see a decently risk free investment environment in Europe it is obviously even worse for precursor or pCAM manufacturers. This part of the value chain where either nickel, manganese and cobalt sulphate or iron and phosphate are used to produce the precursors to cathodes are even more capital intensive than cathode production and also come with a complicated permitting process. The fact that BASF which has struggled with permitting in Finland for its already erected pCAM plant now, even after positive messages from the authorities, hesitate to open and are evaluating the market conditions says a lot about the current attractiveness.

This is where battery recycling finally comes in.

The value creation in battery recycling is dependant of both upstream and downstream markets. For many recyclers the main feedstock upstream is not necessarily real end-of-life batteries but rather auxiliary volumes that is generated through increased activity in the market: production scrap, recalls, R&D batteries, overstock and return-to-vendor volumes. This means that battery recycling is driven by the growth of local or regional EV and battery production. The more activity in the local market, the more feedstock.

Recyclers also need downstream buyers which ideally have the capabilities to produce products that go back into the battery value chain. Unless a recycler has capabilities to produce pCAM, something that still is very rare outside of China, it is pCAM producers which are the natural buyer of recycled materials.

The question then is if there are no pCAM producers in Europe, to whom will European recyclers sell their end-products?

Today the expansion of European recycling capacity has primarily been dominated by pre-processors which use mechanical treatment methods to produce what is usually called black mass. Black mass is not an end-product and is still classified as waste. According to the new European List of Waste it will most likely be classified as hazardous waste throughout the whole EU. This means it can only be exported to countries which are members of the OECD which includes South Korea, USA, Japan and Canada but excludes China and India, all countries where black mass from Europe end up today.

Black mass becomes more profitable if its refined into real end-of-waste products such as metals, sulphates or in the case of lithium to carbonates or hydroxides. However, again, the capital costs as well as the costs to operate these plants are significantly higher in Europe than in other countries. Additionally, the pricing power of a recycler in Europe with a limited number of direct buyers may also affect the price a recycler in Europe can sell the material for. On top of that we have well funded companies in the US and well integrated recyclers in South Korea which have strong incentives to pay well for black mass which makes them strong competitors to any player that set up material processing in Europe. This means that material recovery players in Europe will feel a pressure both upstream and downstream while already struggling with higher operative costs than its competitors.

Challenging the idea of closed-loop recycling in Europe

As the head of Circular Energy Storage, which has covered the lithium-ion battery end-of-life market for more than 8 years, my job is not to spread doom and gloom in the industry. My job is to make as correct assessments as possible of the future volumes of battery and battery materials that will be available for reuse companies and recyclers in various markets. It is to describe how the competition looks like and how that will affect prices or batteries and battery materials. My job is to provide a well-informed view of the service level OEMs and compliance schemes can expect in the future for their end-of-life volumes. And in the case we are working for authorities and governments, to point out where support or legislation is needed.

However to do that we need to be able to tell where industry as a whole is going and draw conclusions from that.

Based on that I find that the conditions for battery recycling in Europe are difficult and that they require a more narrow analysis than to just conclude that battery recycling is the new gold mining.

My view is that the idea of a European closed-loop battery recycling industry must be challenged.

More than anything else I think we need to challenge the concept of “we”. “We” as in “we want to keep our material in Europe” or “We want recycle our batteries and make new batteries”.

I still struggle to understand who that “we” is. Because just like the fabulous Finnish comedian Ismo makes clear that “they who can put a man on the moon” and “they who can’t make quiet leaf blowers” are not the same “they”, these “we” should be attributed to different companies with different interests, different goals and different capabilities.

“We” don’t own batteries – Batteries are owned, processed and sold by “somebody”. If “somebody”, for instance a pre-processor, wants to capture more value by exporting black mass to refineries in South Korea instead of selling it in Germany, the wider EU or to companies in “the West”, the pre-processor will most probably do so. And that’s great because it essentially means that there will be more value to distribute upstream through higher prices paid for batteries or less service fees charged. In fact it is through making sure that there is as much value as possible in the whole value chain, no matter where the parts of the chain are located, we make sure no batteries will be dumped where they shouldn’t.

What makes European visions of using recycling as way to material independance unrealistic is partly the simple fact that companies in a market economy are primarily working for themselves and not for a nation or a group of nation's wider goals. It requires enormous political effort to work against a system's strive towards highest value in the short term, something the automotive industry has demonstrated perfectly well over the last 20 years.

That fact is also what leads to the second reason why recycling is of little help to build independance: Europe is awfully late to the party. By constantly falling behind China not only in electrification of transport but in everything that uses batteries Europe has completely lost out on building the value chain that supports both the battery and wider electric vehicle industry. That means that every realistic step that is taken to catch up only increases EU's dependance on Chinese machinery, raw materials, battery chemicals and assembled products, just like Chinese companies once were depending on European, American, Korean and Japanese companies to do the same.

The good way to illustrate this is to look at Europe's capability as a region to use its own recycling feedstock to satisfy its demand for battery materials according to Circular Energy Storage's forecast for battery demand and battery production. While 84.6% of Europe's battery demand in 2035 could be met by using recycled materials only 10.4% could be met by using material available in Europe. Of this material 25.7% is coming from production scrap which means it is zeroing out itself and, at least as of today, is owned by overseas producers.

What is important to understand is that efficient recycling doesn't start with waste. It starts with manufacturing and a need to source materials. The more efficent manufacturing the more demand for recycled materials.

Now, let's be realists here. To work against the efficency, pace of innovation and supply chain resiliance Chinese and Korean companies have built up is practially impossible for European companies. Instead we need to use the opportunities the various technologies provide and drive growth based on that. If Europe wants to develop in a pace even close to the best regions in China we need to get on that same global train. Not trying to drive our own.

In such a perspective I see huge opportunities in recycling just like I see huge opportunities in reuse and repurposing or in the use of batteries during their lifetime, like in vehicle-to-grid applications. I see opportunities in logistics, in servicing an increasingly battery dependant manufacturing and service industry, in the efficient recycling of unwanted and unattractrive waste volumes and optimising the value of waste materials and their intermediaries.

It is only important that the opportunities are addressed with an understanding that we all are working on a global market. It's also important to understand that recycling is in fact always dependant on both upstream and downstream markets. A solid analysis on both feedstock availability and demand is key. Hope is not enough. At least not after commissioning.

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This analysis is the basis for our work going forward when we are analysing not only the European recycling market but also global volumes of lithium-ion batteries and of course the other important markets: South Korea, China and USA.

For those interested to learn more about our data services for the battery end-of-life industry or to participate in our next webinar about the European battery recycling industry If you are interested in our data and analysis, please learn more about our work here.

Hans Eric Melin is the managing director of Circular Energy Storage Research & Consulting in London. He has more than 15 years of experience from the battery reuse and recycling industry and has been analysing the market in detail since 2017.