Summary of Key Points
Starting from April 2026, a new regulation requires that the manufacturer of a new energy vehicle is responsible for recycling its batteries. This has shifted the role of car companies from mere participants to legal entities with direct responsibilities. However, since battery ownership remains with the car owners, informal channels (such as small street vendors) have seized a large portion of the supply due to higher prices and more convenient transactions, leaving the formal recycling systems in a dilemma where they cannot obtain enough batteries for recycling. Although recycling companies have excess capacity (with an annual disposal capacity of 3 million tons, compared to only 600,000 tons of batteries retired last year), they are facing short-term losses due to high compliance costs and fluctuations in metal prices. They will need to wait until the peak retirement period in 2028 to see any improvement. Car companies are treating battery recycling as a strategic initiative: firstly, to hedge against fluctuations in raw material prices; secondly, to overcome barriers to entering overseas markets, such as the EU's Battery Regulation. The key lies in establishing digital management of the entire battery life cycle, turning retired batteries into circular assets. In the future, the competitive advantage will no longer lie in selling cars, but in the ability to manage these batteries effectively.
Detailed Analysis
1. Car Companies under the New Regulation: Shouldering Responsibility, but Batteries Escaping Control
The regulation states that the car manufacturer must recycle the batteries, yet the batteries are the property of the owners. Owners sell their old batteries based on the highest offer and fewer bureaucratic requirements. Small street vendors, who do not need to issue invoices and handle cash transactions, can offer higher prices (as they avoid environmental compliance costs), leading to a significant flow of batteries into informal channels.
- Batteries that are easier to recycle: Those with warranty issues (replaced at 4S stores) and those from operational vehicles (with proper maintenance records).
- The most difficult to track: Batteries from scrapped private cars (sold as used cars or to scrap yards, thus losing traceability) and batteries from accident-damaged vehicles (ending up in unlicensed repair shops with unknown fates).
- Consumer awareness gap: Most consumers do not know where to recycle their batteries and are more concerned about how long they can still use them, rather than where the batteries will go after being retired. As a result, they naturally prefer to sell them for a higher price.
The current dilemma for car companies is that although the law requires them to recycle the batteries, the batteries are not in their possession. This is not a matter of environmental protection; it is a commercial issue of disconnect between responsibility and resource management.
2. Recycling Companies: Facing Short-Term Challenges but Long-Term Opportunities
Recycling companies are facing an oversupply of capacity but a shortage of materials:
- Insufficient supply: Only 600,000 tons of batteries were retired last year, while the disposal capacity is 3 million tons. Formal recycling companies cannot obtain these batteries because larger suppliers (car companies) demand higher prices, and smaller, scattered channels increase recycling costs.
- High costs: Formal companies must invest in environmental facilities (accounting for 5%-8% of total costs) and go through complex compliance procedures, which are 10%-20% more expensive than those used by small vendors.
- Cycle-related risks: Fluctuations in metal prices significantly affect profits. For example, when the price of lithium carbonate dropped from 600,000 yuan per ton to 80,000 yuan per ton, recycling companies suffered losses before they could even process the purchased batteries (a significant industry-wide loss in 2023-2024).
In the long run, the first peak of battery retirements (from the 6.7 million vehicles sold in 2020) will generate three to four million tons of batteries. After the industry consolidates and excess capacity is eliminated, prices are expected to rise, creating real opportunities for recycling companies. For now, they are competing for a place in this market.
3. Why Do Car Companies Consider Recycling as a Critical Area?
Car companies are pursuing recycling for strategic reasons, not just for environmental purposes:
- Supply chain security: The prices of raw materials for power batteries (lithium, nickel, cobalt) are highly volatile (with lithium prices dropping by 87%). Recycling these materials helps to mitigate risks and create a closed loop: old batteries → recycled materials → new batteries.
- Compliance with EU regulations: The EU Battery Regulation requires that batteries entering Europe must have a "battery passport" documenting their carbon footprint and the proportion of recycled materials. Without a recycling system, companies cannot enter the European market.
- Example: Geely's approach: It invested 110 billion yuan to establish a battery group that manages the entire process from recycling to repair, regeneration, and reuse. By leveraging its 4S stores and vehicle scrapping programs, as well as long-term contracts, Geely aims to transform batteries from disposable items into circular assets.
Companies without recycling capabilities will be at a disadvantage in both their supply chains and their ability to enter overseas markets.
4. The Challenge of Convincing Consumers to Use Formal Recycling Channels
Consumers play a crucial role in the battery recycling process. Car companies need to address two issues:
- Difficulty in finding recycling options: Make it easier for consumers to find recycling points, such as through their 4S stores and authorized service outlets.
- Desire for higher prices: Provide incentives that link battery recycling with new car purchases or after-sales maintenance (e.g., using recycled batteries to offset the cost of a new car).
- Disadvantages of informal channels: Once the regulation takes effect, informal recyclers may face legal penalties. The compliance advantages of formal channels will become increasingly evident.
Only when consumers see that formal recycling channels are both convenient and cost-effective will they be more likely to dispose of their batteries through these channels.
5. Future Competition: Focusing on Full Battery Life Cycle Management
In the second half of the new energy vehicle market, competition will no longer revolve around range or autonomous driving capabilities, but around the ability to manage batteries effectively:
- Digital tracking: Every battery should have a record of its entire life cycle, from production and installation to use and retirement (including its health status, remaining lifespan, and residual value).
- Residual value pricing: Determine how best to reuse the batteries (e.g., as energy storage or for metal extraction).
- Closed material loop: Recycle the resulting materials back into new battery production to reduce costs and carbon footprint.
Car companies must transform from mere vehicle sellers into battery asset managers, treating each sold battery as a long-term investment rather than a one-time transaction. By 2028, those who have established effective battery management systems will gain a competitive advantage.
In Conclusion
While the new regulation appears to be about environmental protection, it is actually about competing for control over the ownership of retired batteries, the ability to determine their residual value, and the efficiency of material recycling. The winner in the future of new energy vehicles will be the company that can turn retired batteries into assets that are traceable, valuable, and recyclable.