Can Recycling Make EV Batteries Cheaper?

As electric vehicle (EV) manufacturers shift to LFP batteries, it is mainly because they’re cheaper than NCM/NCA batteries amid rising metal prices. But some have pinned hopes on large-scale battery recycling to achieve cost parity between LFP and NCM over their lifetime.  

On face value, recycling an NCM battery can be profitable because it contains valuable metals like nickel and cobalt that an LFP lacks (see Figure 1). In other words, what makes LFPs cheaper is also precisely what makes them less attractive for recycling. In fact, given current technology and scale, it is simply not economical to recycle LFPs.

Figure 1. Recycling Value Is Driven by Value of Specific Battery MetalsSource: Dunn, Kendall, and Slattery (2022); US Geological Survey.

Yet while there are a number of good reasons to recycle EV batteries, chief among them safety and sustainability, reducing the price of NCM batteries is not one of them. In this brief analysis, we look at how despite NCM recycling being profitable, the hope that it will materially close the price gap between NCMs and LFPs appears misplaced.

NCM Recycling Can Be Profitable in Theory…

A back-of-the-envelope estimate can illustrate the potential profitability of recycling NCM batteries. For simplicity’s sake, we compare a 60kWh NCM811 vs. a 60kWh LFP battery pack (see Table 1 and Box for breakdown).

Table 1. NCM Recycling Is Much More Valuable Than LFP
Note: “811” denotes the ratio of metals in the NCM battery, meaning it has eight parts nickel to one part cobalt and one part manganese; estimates are based on prevailing metal prices and are rounded to the nearest dollar.
Source: Dunn, Kendall, and Slattery (2022); US Geological Survey; Fastmarkets; author calculations.

As shown above, LFP recycling generates a net loss and therefore doesn’t make economic sense. But for NCM batteries, the healthy profit margin can be interpreted as cost savings for an EV maker on metals it would’ve otherwise had to source to manufacture the batteries. (This assumes a model similar to Tesla’s, whereby the EV maker retrieves an end-of-life battery pack from the owner and then recycles it to manufacture new batteries in-house.)

…But Won’t Affect Battery Prices in Reality

The reality of EV battery recycling, however, is full of uncertainties. First, given that the typical EV battery pack life cycle is 8-10 years, recycling that battery in a decade will have little effect on narrowing the cost differential today.

Over that time horizon, volatility in metal prices make any long-term projection of recycling value shaky at best. For instance, inflation and ethical concerns over mining have already encouraged EV and battery makers to shift away from cobalt, which might drive down prices in the future.

Second, under the current battery ownership model, EV owners may not necessarily return the battery pack to be recycled in the first place. Although the European Union and China have put the responsibility of collecting and recycling batteries onto producers, the reality is that EV and battery makers don’t own the end-of-life batteries, EV owners do. (That could change if the battery leasing model that Chinese EV maker NIO has adopted becomes more prevalent.)

Without sorting out the model of how to get back the batteries, that simply injects more uncertainty into the cost of recycling and the potential gains as a result. So even if recycling batteries can induce cost savings at some future date, it’s going to be tough to integrate it into any business plan today.

Absent policy mandates, battery recycling doesn’t appear to be the panacea that will reduce the cost of NCM batteries. As such, the shift to LFPs will likely endure so long as the cost gap remains.