It is difficult to prepare morning tea if the milk vendor is late. It is difficult to get to work if the driver is absent. This intangible machinery of trust and cooperation that gets the world moving is called the supply chain.
For original equipment manufacturers (OEM) in the automobile industry, a supply chain manager evaluates requests for proposal and completing the signing of contracts. The law enforcement agencies implement these contracts.
There is a huge cost associated with a contract breach. So, ultimately it is the trust and cooperation between contracting parties that run the supply chain machinery of a large auto OEM. Poor planning and operational failures can lead to internal supply chain risks.
To meet the growing automobile demand, the auto OEMs need to have undisrupted flow of material and components to their assembly lines.
However, various geopolitical factors (micro and macro) pose a risk to the supply chain of an automotive company. From the Russia-Ukraine war to a bandh (strike) in West Bengal or a riot in South Africa, these disruptions take up different faces and forms.
The electric vehicle (EV) industry is scaling up and the sector faces several risks, including those associated with the battery recycling supply chain. The supply chain risks in EV battery recycling industry today may be classified into the following main themes:
1. Demand planning
2. Geopolitical risk
3. Underutilised capacity
By 2030, roughly 1.2 million end-of-life EV batteries will need to be recycled per year and the number could rise to 14 million per year by 2040, according to the International Council on Clean Transportation, a nonprofit organisation.
The Indian government’s thinktank NITI Aayog, in its 2022 report, titled Advanced Chemistry Cell Battery Reuse and Recycling Market in India, estimated that the cumulative potential of lithium-ion batteries in India during 2022-30 will be around 600 GWh across all segments in the base case.
Of this, 128 GWh will be available for recycling by 2030, with 46 per cent (59 GWh) estimated to be coming from EVs alone.
To plan for this demand without locking in capital in underutilised assets would be the biggest challenge.
Then, there are multiple geopolitical risks. Recent supply chain disruptions resulting from the COVID-19 pandemic and Russia’s invasion of Ukraine, combined with rapidly growing demand, especially in the high-growth Global South, have dramatically increased the cost of materials and energy.
The average price of lithium was nearly four times higher in 2022 than in 2019, and became double for cobalt and nickel. Battery metal price hikes in early 2022 led to increasing battery prices — up nearly 10 per cent globally relative to 2021 — after years of continuous decline.
One of the key impacts of these events was created in the global supply chain. It is well-known that during 2019-20, the supply chain became a bottleneck due to COVID-19. Private as well as public entities wanted to manufacture locally and focus on self-reliance so that they didn’t have to depend on unreliable global supply chains.
Too often, cell and battery manufacturers ask their vendor partners for sustained supply of raw materials on a daily basis. Ensuring such steady supply through legally binding contracts is not possible currently because of highly uncertain geopolitical factors.
With a growing trend encouraging global integration of localised supply chains, such Just In Time (JIT) inventories may become possible in a few years. But as of now, the only evidence of ‘glocalisation’ in the EV battery industry is the vast diaspora of investors in the lithium supply chain.
Finally, there are capacities lying underutilised. Companies around the world are hurriedly building battery recycling facilities, and more than 200 businesses globally now have a combined capacity to recycle more than 1 million metric tonnes of end-of-life batteries per year, according to the Circular Energy Storage (CES), a London-based consultancy.
In fact, automotive OEMs are building their own EV battery recycling facilities as most of the material in EV batteries is expensive but recyclable. Mercedes-Benz inaugurated its battery recycling facility in Germany in October 2024. However, most of these recycling facilities are locked up capital far from a profitable rate of utilisation.
However, while recyclers wait for those end-of-life batteries to arrive, a lot of their current capacity is underutilised. “On a global basis, we have much more capacity than we need,” said Hans Eric Melin, founder and managind director, CES, was quoted as saying in an article in c&en, a publication on the chemical and engineering industries.
This, again, points to the challenge of uncertainty in building robust supply chains. Capacity planning is a big bottleneck.
With the buzz around lithium-ion batteries catching pace, at least 2GWh of recycling capacity has come up in India and 58.88 GWh of waste EV battery volumes are expected by 2030. However, the input volumes do not match the scale of CAPEX invested.
Because EVs are still fairly new to the market, relatively few end-of-life batteries are available to recyclers, compared to those still on the road. For now, around half of recycling plants’ feedstock material is made up of production scrap from battery factories, including electrode offcuts and faulty cells. But over the next decade, end-of-life batteries will come to dominate that feedstock as battery production becomes more efficient and the availability of EOL batteries grows.
Like in China, underutilisation of capacity will happen in India as well. In fact, there are many recyclers in the country with underutilised capacities at present.