The Inflation Reduction Act, signed into law by President Joe Biden earlier this month, puts the U.S. on the path toward realizing its carbon reduction goals, in part by spurring its EV market. It has also plunged that same market into short-term chaos by requiring entire supply chains to be restructured in just a few years.
The catalyst is the IRA’s steep requirements around where automakers can shop for critical battery materials if they want to be eligible for the $7,500 Clean Vehicle tax credit. China, the world’s largest producer of such supplies, is not on the list.
As a result, many in the industry are swiveling their heads toward battery recycling companies that promise to supply automakers with at least some of the materials they’ll need in the coming years to produce the wave of EVs coming to market. This space has already seen substantial recent VC investment, particularly as millions of tons of lithium-ion batteries are expected to retire by 2030.
The new legislation has sent a signal to recyclers, battery producers, and automakers that 2030 is not soon enough.
Ending reliance on China
China has long been the leader in battery supply and manufacturing. The IRA seeks to end reliance on the East Asian country and turn the U.S. into a battery powerhouse.
Today, China’s global dominance in cathode, anode, and lithium-ion manufacturing is immense, and no other country compares — certainly not the U.S.
Experts say it will be difficult for automakers to source enough materials from within North America or any of the accepted free-trade agreement countries fast enough to supply all of the EVs coming to market in the next few years, let alone the next decade.
“If you told me this is a 10-year play, I would say, yeah, that makes total sense,” Chip Breitenkamp, president of battery materials company NanoGraf, told TechCrunch. “I think 2024, 2025 is really aggressive for what they’re trying to do and the stipulations they put on the tax credit.”
Recycling electric car batteries are the next big space to watch as the first wave of electric and hybrid vehicles begins to retire from the streets.
“I’m a huge bull on recycling,” Breitenkamp said.
The IRA makes companies like Redwood Materials and Li-Cycle, which already have partnerships with battery producers in North America, eligible for production credits and Advanced Energy Project tax credits to help support the building of new facilities to produce more materials through recycling.
“As the EV supply chain continues to ramp up, the amount of battery manufacturing scrap – and eventually end-of-life batteries – that will require recycling will be substantial,” Kunal Phalpher, Li-Cycle’s chief strategy officer, told TechCrunch. “We can recirculate this material into the EV supply chain through recycling. By 2025, we expect there will be more than 400,000 tons of battery material (close to a million EVs worth of material) available for recycling in North America. We believe the Inflation Reduction Act is an accelerator of battery recycling and will positively impact our business both directly and indirectly.”
What’s the deal with the tax incentives?
The pandemic created myriad supply-chain headaches, leading companies, and governments to question their reliance on China for many goods, including batteries. Even before Biden signed the IRA, automakers and battery suppliers began investing upward of $94 billion to build their own regional battery factories.
However, many of the big battery factories that are being built in the U.S. today still rely on components that are manufactured predominantly in Asia, according to several sources familiar with the industry. This legislation aims to onshore as much of that process as possible so that we don’t continue to bring cell manufacturing online with factories that are fed from Asia.
“Most people don’t really understand how critical processing is,” Breitenkamp said.
The IRA offers consumers the chance to earn up to a $7,500 tax credit for electric vehicles purchased, but there are significant stipulations. By 2024, to earn $3,750 in rebates, 40% of critical battery materials must be sourced or processed in North America or in free-trade countries, or they must be recycled in North America. That percentage will steadily increase to 100% by 2030.
A few countries, including Chile, Canada, and Australia, could help fill the gap for minerals like lithium, cobalt, and manganese. However, those countries don’t produce nearly enough to replace Chinese supplies by next year, according to Benchmark Minerals, a price reporting agency and specialist in lithium-ion batteries to the EV supply chain.
Benchmark’s data shows that China makes 81% of the world’s cathodes, 91% of the world’s anodes, and 79% of the world’s lithium-ion battery production capacity. For comparison, the U.S. has just 0.16%, 0.27%, and 5.5% market share, respectively.
Canada and the U.S. process and refine a mere 3% and 3.5% of the world’s lithium and cobalt, compared with 59% and 75% for China, according to Benchmark. While there are new lithium mines being developed in the U.S., there is simply not enough supply to produce all of the new electric vehicles coming to market in the next decade.
Aside from requirements around sourcing critical materials, the IRA also includes a potential $3,750 tax credit if, by 2024, 50% of the value of battery components are manufactured or assembled in North America. That percentage increases to 100% by 2030. The intention there, it seems, is to ensure metals that are produced in the country stay in the country and go into component manufacturing locally.
“The greatest vulnerability to the EV industry is a supply chain dependent on Asia for the most costly and important materials,” Alexis Georgeson, VP of communications and government relations at Redwood, told TechCrunch. “One of the challenges right now is that even if we’re sourcing nickel and lithium in North America, the middle part of the supply chain — refining those metals and then building them into battery anode and cathode components — doesn’t yet exist in the country. Today we would have to ship domestically sourced raw materials to Asia to be made into components and then back to the U.S. for battery cell manufacturing. Companies like Redwood are working to solve this supply chain gap already, but IRA will accelerate the shift to stand up a domestic end-to-end supply chain.”
Automakers and battery producers, including battery recyclers, are also eligible for a 10% credit for the costs incurred in producing electrode active materials. The funds will be available in the form of direct payments for the first five years of a facility’s operation.
Battery Recycling Status Check
The cathode of a battery is the single most expensive component in an electric vehicle, made with critical materials like lithium, nickel, and cobalt. Currently, the U.S. has no large-scale cathode manufacturing.
This is where companies like Redwood Materials come in. The startup, founded by former Tesla co-founder JB Straubel, aims to start producing both the cathode and anode copper foil, which combined equal about 80% of the bill of materials in a lithium-ion battery cell.
Redwood expects to produce 100 GWh per year of cathode active materials and anode foil, which will power 1 million EVs by 2025, the company said. Production output will then scale to 500 GWh per year by 2030, which would create enough batteries to power 5 million EVs — about half of the U.S.’s annual vehicle production.
The startup is currently in the process of building out its 175-acre facility in Sparks, Nevada, a $3.5 billion commitment where Redwood will do everything from recycling and refining to remanufacturing both the cathode and the anode copper foil. Going from just recycling and refining to actually producing the copper foil means Redwood can help create a more closed-loop supply chain in the U.S. Today, the U.S. usually exports several hundred thousand tons of copper a year to Asia, which is both environmentally unfriendly and leads to critical copper supplies leaving the U.S.
By the end of 2023, Redwood expects to have copper foil production up and running. Panasonic, which will supply Tesla’s Nevada gigafactory with batteries, will be Redwood’s first foil customer as part of an existing partnership. Redwood began recycling Panasonic’s manufacturing scrap from the Tesla gigafactory in 2019.
Redwood also has deals in place with Volkswagen of America and Audi to recover and recycle end-of-life EV battery packs for VW Group’s dealership network in the U.S.
Canadian lithium-ion battery recycler Li-Cycle is also working to help fill in supply chain gaps. The company said it currently produces a substance called “black mass,” which contains highly valuable metals like lithium, nickel, and cobalt, at its Spoke facilities in Kingston, Ontario; Rochester, New York; and Gilbert, Arizona.
Spoke facilities process battery materials through the company’s patented submerged shredding process, as opposed to a high-temperature smelting method. Li-Cycle also has Spoke facilities under development in Alabama, Ohio, Germany, and Norway.
Its current recycling capacity is up to 20,000 tons of battery material per year across the three facilities, Phalpher said.
The majority of Li-Cycle’s feedstock comes from transportation OEMs, including recalls. About 27% come from manufacturing scrap, 16% from consumer electronics, and 3% from energy storage systems, according to the company’s second-quarter investor deck.
In the future, the black mass-produced at the Spoke facilities will be taken to Li-Cycle’s Hub facility, where the company’s wet chemistry process, or hydrometallurgical process, can produce all of the critical battery-grade materials needed for new batteries.
“We are on target for commissioning our first commercial Hub facility in Rochester, New York, in 2023,” Phalpher told TechCrunch. “Once completed, we will be able to produce battery-grade nickel, cobalt, lithium, and more that can be used in new EV batteries.”
LG Energy Solution, which has partnerships to produce batteries with General Motors and Stellantis in North America, will be one of Li-Cycle’s first customers for its new hub. The startup expects the facility to be able to process up to 35,000 tons of black mass per year, which is equivalent to about 225,000 EVs per year.
Aqua Metals, a Kentucky-based recycling firm, told TechCrunch it has recycled black mass produced from used lithium-ion batteries into cobalt, nickel, manganese dioxide, copper, and lithium hydroxide, and is currently building a pilot system that can process that black mass by late October or early November. Aqua expects to be able to produce quantities of six to 10 tons per month through the end of the year. The pilot will hopefully attract potential feedstock partnerships so that the company can scale to 1,100 tons annually for a demonstration phase.
“We will be producing high-purity metals by 2023,” David Regan, VP of commercial at Aqua, told TechCrunch. “We will be selling these products within the U.S. and therefore retaining strategically critical minerals in the U.S.”
Once Aqua is able to scale to its demonstration phase, the company hopes to then build an 11,000-ton commercial facility, which would make enough critical minerals to produce 4 GWh of batteries, which is roughly enough to power 56,000 Tesla Model 3s.
The problem Aqua and other recyclers face are one of supply.
EV battery production is still ramping up, and those that are on the road today have lasted far longer than initial expectations. Recycling, Breitenkamp said, “maybe that’s a 2035 play as this becomes a huge industry, and it becomes a really important part of the circular economy. For now, I think we’re probably too early just because we haven’t made enough batteries yet.”
“We’re doubling cell capacity on what’s already a pretty big number — we’re doubling that every year. So it’s just a matter of production catching up, the cells reaching the end of life, and us being able to put those minerals back into the circular economy,” he added.
Article Source: TechCrunch