Battery recycling is necessary for both environmental protection and ensuring metal resource supply. According to GGII data, due to the typical lifespan of power batteries being 6-8 years, the explosive growth of the power battery recycling industry usually lags behind the development of the new energy vehicle industry, making it a classic late-cycle sector of the new energy industry. We expect the first significant wave of retired new energy vehicle power batteries to occur in 2024-2025, potentially reaching a scale of one million retired vehicles, with a peak in power battery retirements around 2027. On the policy side, the release of the "Plan to Promote Large-Scale Equipment Renewal and Consumption Goods Recycling" and the "Detailed Implementation Rules for the Subsidy for Old Car Recycling" is expected to accelerate the inflection point of large-scale retired battery volume. We estimate that by 2030, the global volume of retired batteries will reach approximately 831 GWh, corresponding to a recycling market space of 189.5 billion yuan, with a market space CAGR of 33% from 2023 to 2030.

Two Main Modes: Currently Focused on Dismantling and Recycling, with Technology and Channels as Core Influencing Factors

After batteries are retired, there are two main processing methods: cascade utilization and dismantling recycling. Currently, cascade utilization processes are highly complex, and their economic viability urgently requires technological advancements and new application scenarios. Dismantling and recycling primarily earn processing profits, with technology and channels being the core influencing factors. Lithium battery dismantling and recycling companies purchase waste batteries mainly based on the spot prices of related metals with appropriate discount coefficients, and sales prices are negotiated based on market conditions. Profits primarily come from the price difference between sales and purchases, essentially earning processing profits. By analyzing the profitability formula for recycling, we believe that the core influencing factors for battery recycling profitability are technology and channel layout in two main aspects:

1. Technology impacts the metal recovery rate, thereby affecting the metal value generated per unit of waste material; the higher the recovery rate, the higher the metal value generated per unit of waste material.

2. Channel layout affects whether recycling companies can stably and cost-effectively obtain waste battery raw materials and the procurement cost.

3. Technology influences the production efficiency of recycling lines, while channel layout impacts the scale effect of recycling, thereby affecting the manufacturing cost per unit of recycling.

Recycling Economic Analysis: Lithium Recovery Rate as the Core Variable in the Context of Stable Lithium Prices

Through a cost-benefit model, we estimate the impact of factors such as lithium recovery rate, discount coefficient, and lithium prices on the economics of battery recycling. We conclude that under conditions where companies cannot influence lithium prices and discount coefficients, the higher the lithium recovery rate, the stronger the recycling economics. According to the estimation model, with lithium carbonate prices at 86,400 yuan/ton (SMM data from July 22) and the discount coefficient remaining at 70%, increasing the lithium recovery rate from 90% to 95% increases the unit recycling gross profit from 700 yuan/ton to 2,300 yuan/ton, with an average gross profit increase of approximately 322 yuan for every 1% increase in recovery rate. However, due to the time lag between the procurement of waste batteries and the sale of recycled products, fluctuations in lithium prices and market expectations for lithium prices, leading to changes in the discount coefficient, also significantly impact recycling profits. Therefore, stable expectations for lithium prices are crucial for stabilizing the discount coefficient, and battery recycling companies with higher lithium recovery rates will benefit more.

At the Current Point, We See Positive Changes in the Battery Recycling Industry

Previously, the main pain points in the battery recycling industry were companies' difficulty in achieving stable profitability, mainly due to:

1. The prevalence of "small workshops," leading to low capacity utilization rates for regular recycling companies.

2. A chaotic pricing system for battery recycling amid significant raw material price fluctuations.

At the current point, the industry is undergoing the following positive changes:

1. Supply Side: The Ministry of Industry and Information Technology has suspended the acceptance of applications from "white list" companies for battery recycling, and non-compliant companies will subsequently have their white list qualifications revoked according to relevant procedures. We believe that the number of "regular army" players will be difficult to expand in the short term, and the battery recycling capacity in gray areas will gradually be cleared under regulatory pressure, optimizing the supply structure of battery recycling.

2. Price Side: Stabilized lithium carbonate prices and the narrowing gap between futures and spot prices help stabilize the pricing system for battery recycling, boosting industry operating rates. According to Furbao Lithium Battery Network data, since March this year, the operating rate of wet process companies has approached 70%, and the operating rate of crushing companies has recovered to 50%. Additionally, leading companies like GEM and Huayou Recycling are exploring new business models of "waste for raw materials," which are expected to ensure stable raw material supply, hedge against metal price fluctuations, and earn stable processing profits.

The author believes that the lithium battery recycling industry is currently experiencing positive changes, with lithium recovery rates gradually increasing, leading to greater growth opportunities. Now is the golden time to enter the industry