by Nick Carey, Paul Leinert and Victoria Waldersee

POOLEE, England (Reuters) – A little-publicized clause in the US Inflation Reduction Act has forced companies to scramble to recycle electric vehicle batteries in North America, putting the region at the forefront of a global race to undermine China’s dominance in the sector.

The IRA includes a clause that automatically qualifies EV battery materials recycled in the US as US-made for subsidies, regardless of their origin. This is significant because it qualifies automakers that use US-recycled battery material for EV production incentives.

Reuters interviewed more than a dozen industry executives and experts who say it is speeding up US factory construction, encouraging automakers to research more recyclable batteries, and could eventually make it harder for buyers in developing countries to buy older used EVs.

According to research firm EMR, China handles nearly all EV battery recycling in the global market, which is forecast to grow from $11 billion in 2022 to $18 billion by 2028. As more EVs are introduced and the vehicles roll out of the fleet, the business will grow.

BMW sustainability chief Thomas Becker told Reuters the minerals in those batteries – mainly lithium, cobalt and nickel – cost an average of between 1,000 euros ($1,123) and 2,000 euros per car.

Those materials may be in short supply within a few years as automakers ramp up EV production, but “can be recycled an infinite number of times and don’t lose their power,” said Louie Diaz, vice president of Canadian battery recycling firm Li-Cycle, which received a $375 million US government loan for a New York plant set to open later this year. That funding helped advance the investment decision for the plant, Diaz said.

JB Straubel, CEO of Redwood (NYSE:) Materials, which was granted a $2 billion U.S. government loan in February to build a battery materials recycling and remanufacturing complex in Nevada, said the IRA considers recycled battery materials locally sourced from “urban mining,” or scrap rather than mining.

This has encouraged US companies to move faster on recycling efforts than their counterparts in the European Union, which has focused on mandating including minimum amounts of recycled content in future EV batteries.

Recycling firms Ascend Elements, Li-Cycle and others are planning European plants over the next few years, but access to funding and Made-in-America incentives means many US plants are already being built.

“What it (the IRA) does is change the demand equation for battery materials,” said Mike O’Cronley, CEO of Ascend Elements, which already has a recycling plant open in Georgia and has received nearly $500 million in Department of Energy grants under the infrastructure law for a plant slated to open in late 2023 in Kentucky. “We need to keep those valuable materials … so we can put them back into EVs.”

The race is on to create a “closed-loop supply chain” where recycled minerals are fed into locally produced new batteries, said Christian Marsten, chief technology officer at Ultilium Metals, which is building a plant in Bulgaria and plans to build a plant in the UK by 2026.

“Everyone wants to control their own supply chain and no one wants to depend on the Chinese,” he said.

However, China is still leading the race, having announced stricter standards for recyclers and increased research support last month. Following the passage of the US Inflation Reduction Act last year, Chinese officials denounced the law as “anti-globalization” and accused the US of “unilateral bullying”.

rapid growth

Globally, there are at least 80 companies involved in EV recycling, with more than 50 startups attracting at least $2.7 billion over the past six years from corporate investors including automakers, battery makers and mining giants like Glencore (OTC: ), according to PitchBook.com data.

Consultant Circular Energy Storage said the amount of EV batteries available for recycling should increase more than tenfold by 2030. About 11.3 gigawatt hours (GWh) of battery life is expected to end in 2022, and this should increase to 138 GWh by 2030 – the equivalent of about 1.5 million EVs, CES said.

Electric vehicle batteries can last for 10 years or more.

Some industry executives estimate that the rapid growth means that by 2040 as much as 40% of battery material used in new EVs could come from recycled stock.

Today there is very little recycling capacity in the US, and virtually none in Europe.

At a facility in Poole, southern England, car breaker Charles Trent Ltd has built two lines where workers rebuild damaged or old vehicles in order to recycle everything. It has created special containers for EV batteries, which are sold for research or used by retrofitters electrifying fossil-fuel cars, partly because there is nowhere to recycle them.

In Europe, EV batteries are currently shredded into “black mass” that is shipped to China for recycling.

‘nothing to lose’

The race to get the best value out of that black money is on.

“Whoever gets the highest yield at the lowest cost… will win the game,” said Bruno Thompson, CEO of England-based startup The Battery Recycling Company, which plans its first plant in 2024.

Dallas, Texas-based Ecobatt, which shreds batteries in Europe and the US for recycling elsewhere, has improved its recovery process so about 70% of battery-cell lithium is available for recycling, said Thea Soule, chief commercial officer.

Ultimately, Soule said, yields should reach levels closer to 90% to 100%.

Achieving better yields matters as the European Union will mandate minimum amounts of recycled lithium, cobalt and nickel in EV batteries within eight years. The EU will also impose stricter conditions on recycling outside Europe.

Those conditions will effectively keep local recycling going, said Kurt Vandeputte, senior vice president at Belgian materials firm Umicor.

There are also industry concerns about finding old EVs for recycling. Today, up to 30% of Europe’s old fossil-fuel cars disappear overseas – to new owners in developing countries or to scrap. Some automakers are trying to figure out how to keep track of those EVs.

Nissan (OTC: ) has turned to leasing EVs in Japan to retain control of the batteries, while Chinese EV maker Nio (NYSE: ) leases batteries to customers to retain ownership.

Keeping those minerals in Europe would cut off a cheap source of transportation for the developing world.

BMW’s sustainability chief Becker said the value of the battery material is expected to make recycling more attractive than selling vehicles overseas, but Europe must focus on ensuring EV batteries don’t slip away.

“We have to make sure we don’t lose anything,” Baker said.

($1 = 0.8902 Euro)