Lithium battery recycling, where is the story?

Author: Foolish Old Man

A-shares are a market with very efficient use of funds, especially in subject matter.

As Snowball Big V "Yuefeng _ Investment Notes" said, "In essence, the theme market of A-shares is a long-term game. ——That is, assuming that if this future can be realized, the company's final market value will reach what order, such as 500 billion, then sometimes it will quickly speculate the company's stock price to 200 billion. ”

Lithium battery recycling is a typical theme investment.

01 Success is also made of lithium, defeat is also by lithium

The non-ferrous metals industry in 2022 can be described as "lithium goes all over the world, and it is difficult to move without lithium".

Stimulated by the consumption of new energy vehicles beyond expectations, the price of lithium carbonate and lithium hydroxide, which are the core raw materials of power battery packs, is somewhat conservative to describe as soaring, and the long-term price is maintained at 50,000 yuan per ton of lithium carbonate, and the highest price in 2022 is close to 600,000 yuan.

In this atmosphere of price leap forward, the South American "lithium peck" that controls 65% of the world's lithium reserves is about to come out. Lithium battery recycling has also become a hot spot in the market from this moment, of course, and the replacement of lithium batteries - sodium-ion batteries.

The wind does not end, and the rain does not end. The slowdown in the sales growth rate of the downstream new energy vehicle market has reversed the market's expectations for lithium demand, and the price of lithium has also begun to decline from the November 2022 high. Lithium battery recycling and even sodium-ion batteries have become a thing of the past, from popular fried chicken to injury.

The price of lithium in 2022 has reached the point of suppressing demand. Historically, the general price is around 50,000 yuan per ton, and the high price of 200,000 yuan per ton has not been encountered most of the time. Taking a 60-degree electric pure electric model as an example, even if it is a lithium iron phosphate battery in 2022, the price will be about 60,000 yuan, basically accounting for 30%-40% of the price of a car, and one-half of the cost of the whole vehicle materials. Lithium carbonate rose from 100,000 yuan per ton to 500,000 yuan, and the increase in battery cost was 14,400 yuan. For most of the new energy vehicle companies with a net profit of less than 10,000 yuan, the pressure can be imagined.

From the perspective of lithium demand, the market space of power batteries and energy storage has enough space for the capital market to play, but all this is not based on lithium carbonate of 500,000 per ton.

From the perspective of the final game of power batteries, the current annual production of 80 million cars in the world, the number of cars is about 1 billion, after all the completion of electrification, the corresponding annual demand for lithium carbonate is 2.88 million tons, the cumulative ownership is about 36 million tons, the assessment report released by the Global Mineral Resources Strategic Research Center of the China Geological Survey, as of the end of 2020, the global lithium reserve assessment reserve is equivalent to about 128 million tons of lithium carbonate, lithium is not scarce.

And the key is that lithium, unlike oil, is a renewable resource, and the life of lithium-powered batteries is about 6-8 years, which means that when the sales of electric vehicles are stable, the demand for lithium can be reduced to almost zero, and the source of lithium can be solved only through recycling.

What's more, the final game cannot be lithium dominating the world, hydrogen energy, sodium-ion batteries will have their own place. The price ceiling of lithium, with its own glass ceiling. In fact, the high point of the stock price of Ganfeng Lithium, the leader of China's lithium resources, appeared in September 2021, and then there was a divergence trend of lithium prices rising and downward in stock prices, and it is clear that the market does not believe that the price of lithium carbonate can be maintained at a high level of more than 200,000 yuan per ton for a long time.

The impact of the fall in lithium prices on the lithium battery recycling industry can be described as immediate, even the voice of the brokerage is much smaller, and the weekly or monthly battery recycling reports regularly updated by several research institutes have quietly been updated in early 2023, as if it had never happened.

The fluctuation of lithium prices is the cyclical embodiment of the lithium battery recycling industry. Excessive attention to the cycle will make us ignore the long-term growth of this industry, in fact, the lithium battery recycling industry is a real long-term boom track.

02 Long-term growth of lithium battery recycling industry

Even when lithium prices are high, the lithium battery recycling industry has not made money, because the cost has risen rapidly.

Lithium battery recycling is to purchase waste batteries from automakers or second-hand recyclers, extract materials that can continue to be used through physical or chemical processes, and then sell them for secondary sales.

The core indicator of the lithium battery recycling industry is the discount coefficient. Taking ternary lithium batteries as an example, the pricing of waste batteries is based on the price of Shanghai nonferrous network nickel, cobalt, etc., multiplied by a certain coefficient, interestingly, because lithium does not participate in pricing, so the discount coefficient fluctuates greatly. Generally, this coefficient is below 100%, but when the price of lithium soars, the discount coefficient will be far more than 100%.

It doesn't matter if it's more than 100%, as long as the price of lithium carbonate is still high, recycling can make money. However, the price transmission in the Chinese market is too fast, speculators rush up, the quotation of lithium iron phosphate scrap in ordinary years is only 4,000 pieces a ton, and it will directly jump from 40,000 yuan in 2022, a large number of power battery companies live well when lithium prices are low, but face the dilemma of no rice under the pot when lithium prices are high.

The lithium battery recycling industry is a cyclical growth industry, which is not only cyclical due to the fluctuation of the price of recycled materials, but also has the growth brought by the rising scrap of new energy to replace the power battery of fuel vehicles.

The development of new energy vehicles in China is completely step-by-step, exceeding even the most optimistic expectations at first. According to the "New Energy Vehicle Industry Development Plan (2021-2035)" issued in October 2020, by 2025, "new energy vehicle sales will reach about 20% of the total sales of new vehicles", in fact, this goal has been completed in 2022, and the market penetration rate is expected to be 50% in 2025.

The pace of total lithium battery recycling depends on the sales of new energy 6-8 years ago. According to the 6-8 year life of power batteries, the current scrapped batteries mainly come from new energy vehicles on the road in 2017 and before, and a large part of them are commercial vehicles, especially buses. In view of the stagnation of new energy vehicle sales in the three years from 2018 to 2020, the high growth of power battery recycling may not be until after 2026. But even if the amount of recycling may stagnate for a while, the steep upward curve of new energy vehicle sales is enough to make any investor's blood boil.

If we add up the downstream consumer electronics and energy storage of lithium batteries, we get the above general table, which is basically consistent with the trend of new energy vehicle sales, because from 2021, the power batteries used in new energy vehicles have exceeded two-thirds of the entire lithium battery demand, becoming a decisive factor.

But the recycling industry, like a carrot hanging in front of a donkey, looks beautiful, but can never eat it.

The previous example is the dismantling of a car. According to the data of the Ministry of Public Security, China's car ownership in 2022 is 319 million, considering that China's car sales have reached the 10 million mark in 2009 and peaked in 2017, and now the annual scrapping volume should be at the level of 10 million vehicles, but only 2.386 million cars will enter the formal channel for scrapping and dismantling in 2021, which means that less than 20% of scrapped vehicles may enter the field of dismantling.

The problem is that the price given by formal dismantling enterprises is too low. According to the normal scrapping process, the final raw materials obtained by recycling enterprises are steel, non-ferrous metals, plastics, rubber, and glass, and the overall value is not high. Generally speaking, the core value of a car is five major assemblies, including the engine, gearbox, front axle, rear axle and frame, the cost performance of these five assemblies is obviously much higher than that of new parts, and it is much higher than selling scrap directly.

So, although the capital market has told a round of stories on the scrapping of cars, this dream has never been fulfilled. Until today, the market value of Tianqi shares, the leader of the whole industry chain of automobile scrapping and dismantling, is less than 6 billion, and the TTM price-earnings ratio is less than 25 times. This market capitalization and valuation is obviously unimaginative.

03 Why is there really a market for lithium battery recycling

How can we conclude that lithium batteries, as part of the whole car, will not go down the old road of scrapping and dismantling of cars in the past?

Because of the chemical properties of the battery and its special status in the whole vehicle, it is determined that lithium battery recycling is an indispensable part of the automotive industry chain, rather than a dispensable accessory like the scrapping and dismantling of the car.

Under the current technical conditions, the life of automotive power lithium batteries is a metaphysics, and it may not be fully predicted for a long time. Zeng Yuqun of CATL said in a public interview, "The world of electrochemistry is like an energy cube, the unknown is far greater than the known."

In order to reassure their customers, new energy vehicle manufacturers have given high standards of warranty conditions for the three electric systems. Tesla is generally a single-motor rear-wheel drive version for eight years or 160,000 kilometers, a dual-motor four-wheel drive version for eight years or 19.2 million kilometers, and BYD is a three-electric system lifetime warranty, although the restrictions are slightly more, but it is also sincere enough.

Then the problem comes, we all know that the real inflection point of new energy vehicle sales is in 2021, in February of this year, when BYD was not even "more than 30,000", monthly sales were just over 20,000 units, according to our current expected life of power batteries of 6-8 years, until 2027, Tesla or BYD, will really usher in the pressure of battery after-sales.

Do not forget danger, do not forget death. If the pressure brought by battery after-sales gives Tesla BYD, Tesla aside, according to BYD's net profit of just over 10,000 yuan per bike, how many of his families can survive this wave of scrapping peak?

The proportion of power batteries in the value of the whole vehicle is too high. According to the calculation of 60 kWh of electricity per bicycle, even if it is a cheap lithium iron phosphate battery, at the price of 2022, it will cost 60,000 pieces, if a large number of BYD's electric vehicles need to replace the battery after 6 years, how does BYD need to deal with such a large cost?

In the era of fuel vehicles, after-sales service maintenance is an important source of income for 4S stores and is income generation. In the new energy era, the after-sales problem of batteries has become a burden for manufacturers.

For automakers, they have no choice but to include batteries in the management of the entire life cycle, which necessarily includes recycling.

From the beginning, automakers must manage the whole life cycle of lithium-powered batteries from the four dimensions of development, production, use and recycling. This writing is particularly like lying flat workers reading PPT according to the book, I mention a point that everyone understands. In order to reduce the cost of battery replacement, automakers should consider subsequent recycling from the time of battery design, for example, try to increase the part that can be recycled, the future scrapped battery may be directly pulled back to the battery workshop, without too much process can be directly reloaded, you can imagine how much this contributes to the relative competitiveness between automakers.

There is also a problem, that is, independent third-party battery factories, such as CATL, where is his market positioning?

Not long ago, on January 30, 2023, CATL announced that its subsidiary Guangdong Bangpu will invest no more than 23.8 billion yuan in Foshan to build a 500,000-ton waste battery material recycling project, which has greatly boosted the lithium battery recycling industry, which has been dormant for a long time due to the fall in lithium prices.

In the era of fuel vehicles, every mainstream fuel vehicle brand will make its own engine. As the core component of new energy vehicles, is it possible for batteries to jump out of the era of fuel vehicles, and independent third-party suppliers appear in the endgame?

As far as the current situation is concerned, the sales of more than 300,000 high-end models are not large, and the cost performance of self-built battery factories is not high, and third-party battery suppliers can be relied on. However, for the mainstream price segment of 100,000-200,000, which accounts for 50% of the entire passenger car market, the cost performance is the lifeline, and this possibility is obviously unlikely. In other words, manufacturers who rely on third-party supply battery packs will not survive in the 100,000-200,000 price range.

04 Lithium battery recycling industry chain

At present, the industrial chain of lithium battery recycling can be divided into two links: echelon utilization and scrap recycling.

The core of echelon utilization is in the hands of automakers or battery factories from the beginning. The so-called echelon utilization is the reuse of batteries on the basis of light scrap. Manufacturers need to disassemble, screen and reassemble battery packs that have deteriorated performance and do not meet power battery standards, and finally carry out system integration, and then use them in some areas that do not require high energy density. We can find that this process requires detection, reassembly and integration capabilities, which is equivalent to the entire battery manufacturing back-end process, except for battery factories and vehicle manufacturers, it is difficult for general companies to have long-term competitiveness.

Batteries that cannot even be used in the echelon can only be scrapped and dismantled in the end. This can also be divided into two processes, one is pretreatment, which is basically a mechanical and physical process, crushing and dismantling, and logistics processes followed by a series of chemical metallurgical processes.

The pretreatment process is mainly involved in equipment companies, such as Zhejiang Mining Co., Ltd., metallurgical process is a large number of participants, fierce competition, in addition to battery factories such as the Bangpu cycle affiliated with the Ningde era, traditional waste material recycling enterprises and non-ferrous enterprises have also invested in this promising sub-industry, trying to get a piece of the pie. The core indicator of the metallurgical process is the recovery rate.

At present, the recovery rate of mainstream recycling enterprises such as nickel, cobalt and manganese can achieve 98% of the standard, and the recovery rate of lithium can only be achieved by 85%, and there is still a lot of room for improvement in the follow-up, but since it is smelting, it is unlikely that there will be particularly difficult technical difficulties to overcome, which is nothing more than time and efficiency.

There are many reports on the lithium battery industry chain that can be found on the Internet, and they are also very comprehensive, and we will no longer carve out the details. We focused on addressing the fact that those segments are truly growing from an endgame perspective.

In the whole life cycle of lithium batteries, because the vehicle manufacturer undertakes most of the warranty tasks, it is natural that the lithium battery will have the right to deal with the dismantled lithium battery, which determines that the vehicle manufacturer controls the cow's nose of the lithium battery recycling industry - the source of materials.

In the recycling process of lithium batteries, automakers will take a dominant position in the first step of echelon utilization, because this process is basically equivalent to the back-end process of battery manufacturing, and automakers familiar with the battery manufacturing process obviously have a technical advantage.

When the power battery cannot be reused, it enters the scrap recycling link. The pre-treatment process is relatively standard, and the main beneficiary is the equipment company. The latter metallurgical process involves a professional metallurgical process, and the deep involvement of the vehicle manufacturer is of little significance, even if BYD is deeply involved in all aspects of battery production, it will not go down to produce raw materials such as lithium carbonate. OEMs need to cooperate with a metallurgical company with a certain level of technology, and the automaker provides waste batteries and provides guidance to the supporting metallurgical company, which carries out the recycling work.

In summary, we can conclude that the long-term growth of the lithium battery recycling industry is reflected in whether listed companies can establish long-term cooperative relationships with existing automakers.

The visible future of the lithium battery recycling industry is to become a link in the automotive industry chain attached to the automaker, in addition, the probability of achieving long-term growth is unlikely. No matter how high the current market share and excellent the technical level of these existing companies, it is difficult to have long-term growth potential without automakers.

Unfortunately, these star enterprises in the lithium battery recycling industry, from the traditional waste material recycling Grammy and Tianqi shares, to the nonferrous metallurgy industry Ganfeng Lithium, Huayou Cobalt, Xiamen Tungsten, and electrochemicals Guanghua Technology, do not have a clear binding relationship with the vehicle manufacturers. At present, the cooperative relationship is relatively clear is Bangpu Cycle, which is directly a subsidiary of CATL.

The future valuation of the lithium battery recycling industry is to refer to the auto parts industry, with a net profit margin of 10%, and the growth time series lags behind the new energy vehicles by 6-8 years. If the business model is to charge processing fees, it is to calculate processing income based on a net profit of 20 million per year per 100 million fixed asset investment. Both of these are normal and reasonable profit levels in the auto parts industry.

In the short term, most companies in the lithium battery recycling industry can only be placed in the observation bar, and whether they can invest in the future depends on their cooperation with automakers, especially BYD, which currently accounts for 40% of the market share of new energy vehicles. In addition, from the perspective of "the soldiers and horses have not moved, the grain and grass go first", crushing equipment such as Zhejiang Mining Co., Ltd., may logically have more space in the early stage.