In China, the world's biggest producer of electric vehicles and batteries, recycling is the key to lithium self-sufficiency

With Tesla CEO Elon Musk breaking ground this week on a US$375 million lithium refinery in Texas, China is also keen to guarantee its supplies of the key ingredient for electric vehicle batteries.

Lithium, dubbed "the new oil" or "white gold" of the new energy era, has emerged as a critical mineral in China's competition with the United States.

Unlike fossil fuels, analysts said the metals used in electric vehicles could be reused and recycled, offering the prospect of self-sufficiency and meeting the Chinese leadership's national economic security concerns.

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"China has very little control over lithium resources," said Zhao Yiming, a partner at Inno Investment Bank, which has an extensive portfolio of investments in the battery industry.

"Consequently, when we want to ramp up EV development, but foreign competitors want to contain us, they can manoeuvre the flow of these resources, including the lithium mines.

"Many parties have already taken action. But if we can reach self-sufficiency in resources like lithium by recycling enough materials from retired batteries, that would be very significant."

As the world's largest market for electric vehicles, as well as the largest producer of lithium-ion batteries, China consumes more lithium, cobalt and nickel - metals used in producing electric vehicle batteries - than any other country.

But it is also overreliant on imports, with around 80 per cent of its raw lithium and more than 95 per cent of its cobalt and nickel ores coming from overseas, according to Chinese media reports.

Shengang Securities estimated last month that 62 per cent of China's lithium carbonate, an important industrial chemical used in producing lithium-ion batteries, came from overseas last year.

China produced 19,000 tonnes (18,700 tons) of lithium last year, accounting for 14.6 per cent of global production, according to US data. Its lithium reserves were just 7.7 per cent of the estimated global total.

The lithium-ion battery recycling industry in China is still in its early stages but is developing rapidly, with the government investing heavily in research and development, as well as providing incentives to domestic manufacturers.

Recycling of lithium was even written into the Chinese government's latest five-year development plan.

"By 2030, the size of China's battery recycling market could reach 140.6 billion yuan (US$20.3 billion), nearly nine times the actual market size in 2022," the National Development and Reform Commission, the country's top economic planner, said in a report published in February.

The emphasis on recycling reflects concerns over China's high reliance on overseas supplies and geopolitical uncertainties that might endanger them.

The foreign ministries of Argentina, Chile, and Bolivia - known collectively as the "lithium triangle" because they possess more than half of the world's identified reserves - discussed a possible agreement on the production and pricing of lithium last year.

And in November, the Canadian government ordered three Chinese companies to divest themselves of stakes in three small lithium miners based in Canada.

Zhao said that in addition to national security and market concerns, lithium-ion batteries needed to be recycled for environmental reasons.

Batteries account for nearly 40 per cent of the cost of manufacturing an electric vehicle, but they deteriorate over time and are eventually destined for dismantlement and recycling.

"In the new energy field, the battery recycling industry is one of the few that has a sure-fire future for development," Zhao said.

"Because once the battery is retired, it must be recycled or it will be solid waste, posing a risk of explosion if not handled properly. So we can't just leave them there and not do anything about them."

With new energy vehicle production and sales having hit fresh highs in recent years, and with early batteries having a lifespan of five to eight years, a decommissioning peak is gradually approaching.

Several Chinese companies have already invested in battery recycling.

Contemporary Amperex Technology, a leading lithium-ion battery manufacturer and a major supplier to Tesla, is working on developing a closed-loop recycling system for electric vehicle batteries.

GEM, another battery manufacturer, and Anhua Taisen Recycling Technology, have also developed recycling processes for lithium-ion batteries to recover metals like cobalt, nickel and lithium from the batteries.

Chinese vehicle manufacturer BYD has also developed a recycling process that can recover up to 90 per cent of the materials used in a battery.

Half of the lithium used in China would be recycled by 2026, Zhao said, and the country would eventually become nearly self-sufficient in lithium through recycling.

But the percentage of recycled metals could drop before it rises, thanks to the rapid rise of new electric vehicle sales, said Lin Daoyong, general manager of Shanghai Yiding New Material Technology, who has decades of experience in the lithium trade.

"The development of the battery recycling industry could be staved off as China can't freely import decommissioned batteries from abroad," he said, while adding that the industry would still see massive expansion in the near future.

Chinese companies were also setting up overseas bases to recycle batteries, analysts said, with South Korea, Europe and Southeast Asian countries including Thailand and Vietnam all desirable locations.

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

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