There's a solution to China's lithium squeeze: electric vehicle battery recycling

There is a shortlist of things to consider when buying a modern electric car over a petrol or diesel, and for me they are:

Not to look goofy. Electric vehicles (EVs) used to be weird, ugly vehicles that were tucked away at the back of motor shows as far away from Aston Martin, Maserati and Ferrari as you can get. Tesla changed that with the help of Lotus with its first roadster in 2008, and then the Model S. Other manufacturers realised this and some of the slickest designs from Porsche, Audi and Mercedes are head-turners.

Range anxiety. Hong Kong is an ideal place to own an electric car as you cannot really drive far given it is just 70 per cent of the size of London. That is one reason why they have been so popular in the city - you are not going to run out of juice. However, in Europe or the United States, range is still an issue though becoming less so with improvements in battery technology and management though electronics.

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Being green. I am currently driving a Audi A4 Diesel which sips fuel and gives me about 27km/litre. I think I'm doing well with that. I am no tree-hugger, but my family are switching to electric now and I am thinking the same, given their cars are about four times more efficient on energy consumption than mine.

Cost of the batteries. What happens when the battery pack fades after seven years or so and I need to replace it and pay for recycling? That still worries me, but until this year, battery packs have become progressively cheaper every year.

Charging infrastructure. I would need the mother of all extension leads to charge an electric car in Mui Wo and even if I had one a feral cow might just inadvertently pull the plug. But recharging infrastructure is being built out in most major cities and if you own an electric car, in 2022 you are unlikely to run into a problem.

The switch to electric cars has been steadily increasing across the globe, but it has got a boost recently from government incentives to move more rapidly towards net-zero carbon emissions after the COP26 climate conference and associated pledges in Glasgow last November.

It has also become apparent that the overall lower cost of running and maintaining an electric car is significantly lower than the cost of one powered by petrol or diesel. There is far less to go wrong in an EV that has far simpler mechanics and fewer things to wear out, but of course with all electric and electronic devices, the battery performance will fade over time and that repair will be costly. However, the low running cost, even though the purchase cost of an EV remains high, is appealing enough for many motorists to consider the switch.

UK electric leasing company DriveElectric predicts that in 2022 there will be a 74 per cent increase in new electric vehicle registrations over 2021. This is based on its own market analysis, taking into account the shortages in semiconductors which will continue for the next two years restricting the availability of cars overall. When factoring in a return to normal in the semiconductor industry by 2025, DriveElectric sees 50 per cent of all new registrations being electric or hybrid.

Towards 2030 with governments such as the UK, Germany, Ireland and the Netherlands introducing bans on new petrol or diesel cars, demand for EVs will also accelerate leading to a progressive increase in battery demand and overall performance.

Recent advances in battery technology, energy management and software is leading to a new challenge in the electric car industry; who can produce a car that can go 1,000km on a single charge first.

With a battery that is 50 per cent smaller, 30 per cent lighter than its current EV offering, the 100 kWh of energy stored in the power-pack for the new Mercedes EQXX concept car theoretically has a range of an appealing 1,000km - or the distance from the Mercedes factory in Stuttgart to the French Riviera. However, for an average US family, that would be two full charges a month based on average distances driven and, in terms of my relatively efficient Audi, it would burn 37-40 litres of diesel on such a journey versus the Mercedes EQXX equivalent energy consumption of about 10 litres diesel. It is easy to understand the appeal of such an EV.

The Japanese are hot on the tail of the Germans with a new Toyota model boasting a 1,000km range car, with a 10 minute recharge time, using solid-state lithium batteries, with the Koreans also featuring high on the list of long-range electrics, perhaps not yet nudging the 1,000km barrier.

With all of that, what could possibly go wrong for the success of EV market penetration into the next decade with such healthy competition, technological development and overall product appeal?

According to the Chilean Copper Commission, which advises the Chilean government on copper and other metals produced by the country, including lithium, the electric vehicle industry will dominate the growth in demand for lithium, and by 2030 will account for around 75 per cent of demand for the battery metal, up from 22 per cent in 2022, with the overall demand more than doubling over the next eight years.

The price of lithium carbonate in China has increased six-fold since January 2021, as mining companies now scramble to increase production and develop new sources, which is hurting the battery suppliers. China is the largest battery-producing country and needs to secure an uninterruptible supply as global demand will outstrip production and deplete stockpiles. Arguably, this is going to lead to a new pricing mechanism for the metal, along with copper, that may continue for some years.

If there can be a positive from the price increase of lithium, it will lead to increased recycling as currently only 5 per cent of batteries produced end up being recycled - something that is becoming a concern to environmentalists and battery makers alike. Without the focus shifting towards recovering materials from depleted batteries and using those rather than new materials, EV makers are creating a new and unacceptable environmental issue. This is the crux of what could turn out to be a single point of failure for the car manufacturers.

Until now it has been simply cheaper to dump old batteries and make new ones given the ample cheap supplies of lithium, even though production of the ore is resource hungry and comes with a heavy environmental price tag - one tonne of lithium requires 2,273,000 litres of water to mine the carbonate. Keeping the final cost of the battery low to make the new car affordable has been the most important factor even if the environment suffers as a result. In the future, that may have to go hand in hand with investment in recycling, which for lithium batteries, is complex and expensive and will soon start to substantially add to the cost of a new car.

Perhaps recycling policies will become part of the decision process for buyers of an EV towards 2030. We may just have to live with the fact that buying a new car will become progressively more expensive if governments stick to their net-zero pledges based on models assuming the widespread use of electric vehicles. We may buy fewer as a result, expect them to last longer and have to pay for the expensive recycling at the end of their useful life. That is possibly something the automobile manufacturers and leasing companies have not fully factored in.

Neil Newman is a thematic portfolio strategist focused on pan-Asian equity markets

This article originally appeared on the South China Morning Post (SCMP).

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