Steinbeis experts offer advice on investments in battery recycling
Since the early 1980s, environmental protection, the transition to alternative energy sources, and the circular economy have increasingly become the focus of socio-political developments in Europe. The signing of the Kyoto Protocol in 1997 marked the beginning of a global transformation in energy production. More recent developments, such as Industry 4.0 (connected manufacturing), big data, artificial intelligence, and electric vehicles are leading to increasingly intense use of electricity as an energy source – directly but also through battery storage. This often requires additional investment, however. The experts at Steinbeis Consulting Mergers & Acquisitions bring investors and capital seekers together.
Worldwide, around 37,000 megatons of CO2 were emitted in 2020, of which approximately 739 megatons were emitted in Germany. In addition to a rapid rise in renewable energy, hand in hand with the decarbonization of electricity production over the past two decades, for around the last five years much attention has been given to the transition to green transportation. With OEMs offering wider ranges of vehicles, combined with significant subsidies from the German government, there has been strong demand for electric vehicles (EVs) over the past two years. Last year, global EV sales hit 3.24 million, accounting for 4.2% of total turnover.[1] In Europe, approximately 1.4 million EVs or plug-in hybrid EVs (PHEVs) were sold in 2020, with similar numbers sold in China.
Sales in Germany accounted for roughly 400,000 vehicles in 2020, with battery capacities ranging from 35kWh to 95kWh, roughly corresponding to a total annual demand for storage capacity of around 25GWh. On a global level, at 50kWh per EV, average battery capacity is probably slightly lower, meaning that total battery demand stood at 162GWh in 2020. Depending on which scenario is taken for electric cars, taking 2020 as a base, the German Federal Ministry of Education and Research expects battery demand to grow sixfold by 2030 and 30-fold by 2050. Consequently, from 2030 onwards a steady rise can be expected to between 2.5 and 3 million EVs entering circulation each year.
Fab4LiB, a partnership project organized by the Federal Ministry of Education and Research: scenarios for the global development of electric vehicles (source: Fab4Lib 2019). The graph shows projected demand under two scenarios. Under the 2DS scenario, the aim is to limit global warming caused by greenhouse gases to 2°C by 2100. Under the B2DS scenario, the aim is to achieve climate neutrality in the energy sector by 2060 in order to limit future temperature rises to 1.75°C by 2100.
The ins and outs of battery recycling
Until now, the vast majority of battery production has been accounted for by non-rechargeable (primary) batteries, but there will soon be a shift to rechargeable (secondary) batteries. This will go hand in hand with major developments not just in battery technology, but also in components and associated raw materials. In addition to lithium and cobalt, there is particular interest in raw materials like copper, nickel, and aluminum for recycling. Before rechargeable batteries are sent for recycling, a secondary use (“second life”) should be found for them as stationary storage units for systems requiring electricity – for example in power plants, industrial settings, or private households. If the capacity of a battery in an EV drops below 80%, it is not really suitable for everyday use and has to be replaced. It is only recently that second-life projects have started being implemented, and empirical data is yet to provide an indication of how strong the demand will be for stationary storage, since batteries need to be processed and reconditioned before re-use. Recycling EV batteries is therefore more likely to cause some major problems in the short to medium term.
A battery lifetime model developed by P3 Energy and Storage (source: P3 Energy and Storage GmbH; University of Münster, Department of Information Systems)
On the one hand, lithium-ion batteries can be recycled using pyrometallurgical methods, which make it possible to use recovered components or raw materials again for the raw material refinement process. Alternatively, they can be subjected to hydrometallurgical processing, allowing components to be fed into material production. Directly recycled batteries can be used to produce new batteries or enter into second-life storage.
Source: L. Gaines, 2020: Profitable Recycling of Low-Cobalt Lithium-Ion Batteries Will Depend on New Process Developments
In primary automotive usage, it is possible to charge batteries up to 4,000 times or achieve a maximum service life of ten years. In subsequent second-life applications, up to 4,000 charging cycles or a maximum of ten further years of use can be expected. After that, batteries must be finally disassembled into their raw components and either reprocessed or recycled. The efficiency level of this recycling process is around 65%, depending on the different components (steel, copper, aluminum, cobalt, nickel, etc.) and the method used (mechanical or thermal recycling). As a result, commodity prices have a significant impact on the economics of EV battery recycling, and major players in the chemicals, raw materials, utilities, and recycling industries are actively involved in some parts of the value chain.
Large corporations realign themselves
One notable development reflecting the realignment large corporations are undergoing is the VW plan to start recycling its own EV batteries. The firm currently reprocesses around 1,200 tons of materials at its Salzgitter recycling plant every year. Its goal is to reuse 97% of all materials. Given massive production expansion at manufacturers of EVs and storage technology, the direction VW is moving in highlights the irreversible need to urgently build lithium-ion battery recycling capacities and expand the scale of processes. It will scarcely be possible to convey the right messages regarding the transition to alternative energy sources and the green transportation revolution, either on a political or on a societal level, without an expansion in recycling capacity, and OEMs will have a great deal of explaining to do in the medium and long term.
Source: authors. Data based on https://tradingeconomics.com/commodities, accessed June 15, 2021
Steinbeis experts bring investors and companies around the same table
There has been very little concentration in the battery recycling market, a segment that is highly fragmented. In addition to major corporations like VW, BASF, Veolia, Glencore, Fortum, and Umicore, there are five or so further mid-sized market stakeholders in Germany, as well as countless regional suppliers, operating within a variety of EV storage recycling systems. The latter parties are likely to be confronted by substantial investments due to the necessary economies of scale in operational terms to meet technical requirements (of a legal nature) sustainably. In the short to medium term, this will result in attractive growth strategies, not only in the most important parts of the EV battery recycling value chain, but also for companies involved in mechanical engineering and machine construction in this segment. The sharp rise in demand for EV and storage services, coupled with required developments in battery recycling (offering potential to medium-sized and regional suppliers to invest in other companies or merge), provide opportunities to engage in successful buy-and-build strategies, as well as market entry strategies.
Steinbeis M&A is working alongside 15 partners across the whole of Germany and is collaborating with strategic investors in plant construction and battery manufacturing with the aim of actively shaping the process of technological and economic consolidation and concentration. This is allowing investors to be brought around the same table as companies seeking capital. The Steinbeis experts provide support and advice from the beginning to ensure projects result in success – from the initial process of developing concepts to closure of the investment.
Contact
Christian von Staudt (author)
Partner
Steinbeis Consulting Mergers & Acquisitions GmbH (Frankfurt)
www.steinbeis-finance.de
Daniel Möhrke (author)
Partner’Steinbeis Consulting Mergers & Acquisitions GmbH (Frankfurt)
www.steinbeis-finance.de