Picture Credit: Dall.E.2

‍The expression goes “possession is nine-tenths of the law”. Understanding the possession, and resulting control, of used Electric Vehicle (EV) batteries is an essential part of the efforts to enable circularity in the battery industry. It remains a topic with minimal airtime. The reason is the notion that Original Equipment Manufacturers (OEMs), i.e., car and battery producers, intend to close their own respective loops. The question lingers, do they intend to do so?  In their lifetime EV batteries are in the possession of numerous players: from cell producers to module and pack assemblers, OEMs, financial institutions, fleet owners and commodity traders. All of which are strong contestants in the game of access to raw material supply.

Underpinned by the strong position of OEMs, as well as the influx of billions into recycling, the owners of end-of-life EV batteries have been overlooked. Counting that more than 90% of batteries will be in electric mobility, there is a well-established, but often under-estimated, collection network readying itself for the new circular battery market – car dismantlers.

A fair assumption is that automotive OEMs have granular insights on where their products go, but over one third of the cars in Europe are in fact eventually lost. One reason is that tracking individual vehicles teeters on the edge of privacy laws. OEMs mitigate this by sometimes observing the demand for spare parts to determine vehicle migration, a person with knowledge of the matter told us.

Battery leasing and swapping is another advocated solution to retain ownership and traceability. With the users not owning their car, the OEMs or selected financial institutions do. One notable example is NIO, with more than 10m swaps for their first users (yes, users not owners). On the other hand, Renault paused their leasing programme as the total cost of EV ownership rendered it redundant.

To understand the incentives in play, let us examine why OEMs would intend to close their own loops in the first place:

• Regulatory compliance– The new EU regulatory framework for batteries (replacing the directive from 2006) will likely have profound impact. Any ‘battery passport’, a centrepiece of the new framework, will require producers to increase control. Other provisions indicate minimum percentages of recycled content in new and imported batteries and extended producer responsibilities.
• Environmental and social efforts – OEM employees have equal concerns for our planet and its inhabitants and understand their market power to make a positive impact. Furthermore, OEMs do not wish to be liable for any harm or negative press resulting from hazardous second life systems.
• Access to critical raw materials – the control of battery supply chains is concentrated among a select few. To remain competitive, the OEMs must secure long-term supply of critical raw materials.

In contrast, there are various examples of why OEMs would rather have a “laissez faire” approach to closing the loop:

• Possession comes at a cost – retaining ownership of the batteries via leasing programs or any other innovative service comes with significant costs. Not only is there increased OPEX and cost of capital. With ownership, the OEMs would also need to keep battery production lines operational and spare parts available through the battery life, much longer than the 7-10 years otherwise required.
• OEMs are not recyclers – Even if OEMs would secure closed-loop systems, they will still need recyclers to recover the raw materials. Converting recycling into a pure service business through bilateral supply/offtake agreements with OEMs undermines the lucrative position for recyclers to sell to the highest bidder.
• OEMs are not alone – All players spanning the value chains are investing heavily in circular activities, including miners, refiners, battery producers, recyclers, and commodity traders. Our readers may ask, if there is a free market of recycled raw material to source from, why cover the costs of retaining the ownership of batteries that regardless will go to recyclers, or redevelop already established collection network of car dismantlers?
• Evolving standards – as with the wider battery market, the technology is evolving exponentially. A battery lifetime stretches over a decade or two of innovation. Batteries put on the market today may not contain the critical material for batteries being produced beyond 2030.

The above tells us that batteries will become circular principally through trading. Reasons include:

• Entropy is real – Used batteries geographically disperse during their lifetime and end up in a fragmented ecosystem. Bringing them back will take the efforts of many, each with their own incentive.
• Waste is value – Used batteries are treasured assets in the circular economy. Car dismantlers should not be expected to give away their batteries below market price. Market price will be established by supply and demand and driven by the most efficient and innovative players.
• Financial incentives matter – Used batteries will be circular at scale when it benefits the ones in possession. Non-profit collection systems based on companies voluntarily giving away their waste for free (like when you put your AA batteries in that bucket in the supermarket), do not provide effective incentives.

Discussions about battery circularity are often limited to the points above. This distracts the wider industry from debating concrete enablers for circularity and adopting fundamentals. Examples include:

• Removal should not equal waste – In the name of the 4Rs (reduce, reuse, repair and recycle), batteries must not be disqualified from the first three Rs by automatically being labelled waste when unfit for the initial application and removed from it.
• Non-proprietary data should be easily accessible – There is lots of sensitive data in and around batteries that should be keep proprietary. From detailed cathode chemistry mixes to Battery Management System (BMS) protocols. Nevertheless, non-sensitive data must be made available immediately to lower the market frictions and logistic costs, such as weights, dimensions, State of Charge, and State of Health.
• Open-source safety procedures – Regardless of market strategy and raw material supply, the highest priority must be to keep the people throughout the industry safe. Material Safety Data Sheets (MSDS), dismantling guides must be easily attainable for everyone across the supply chain. High voltage training programmes should be harmonised to cover all brands. Car dismantlers should not be required to have multiple identical safety certifications issued by different OEMs.
• More pilots – To accelerate the circular market development, the industry must invest into failing, i.e., learning. Testing, failing, and learning together with quick-footed and innovative start-ups will remove many barriers of progress. Pilot projects for the win.

Increased transparency leads to more competition and enables used batteries go to where most value is captured, whether that is to second life or recycling. More participation will also bring more clarity on warranty, liability, and accurate pricing. Transparency is the tide that lifts all boats.The prospect of Asian players vacuuming downstream supply is occupying boardroom attention from European incumbents. The industry is starting to realise the fact that the access to supply is everything.And remember, possession is nine tenths of the law.

‍Notes: A big thank you to Nicholas Yiu from Intercalation Station/About.Energy and Jaan Juurikas of the EV Universe for their comments and suggestions on this piece.