How Tesla’s Battery Mastermind Is Tackling EV's Biggest Problem

You're looking at bags and bags of spent lithium-ion batteries. Batteries for electric cars, phones, scooters, laptops, tablets, cameras, you name it. They are flammable and toxic so they cannot end up in landfills. And believe it or not, these old batteries are still filled with materials that are as good as new. Batteries are amazing in that sense because the metals in the critical materials they contain are highly recyclable. We recovered ninety-five, ninety-eight percent of many of those critical materials like nickel, cobalt and copper. Basically, all of those metals can be reused over and over again. This is JB Straubel, Tesla's long-time co-founder and CTO.

He was the brains behind many of Tesla's core technologies, particularly around

battery

technology. He left Tesla in 2019 so he could focus on recycling all of these batteries. He gave CNBC an inside look at his new company, Redwood Materials, where he's already recycling tons of batteries and shipping some of the recovered materials to Panasonic so the

battery

maker can put them back in Tesla cars. . We can't just take all of these really fantastic minerals and just get rid of them. That would be criminal. I mean, we have to reuse them. Straubel began thinking about this enormous and growing

problem

long before he left Tesla.

We started this, you know, because I saw this looming

problem

from the end-of-life vehicles that we were creating and I started to have a deep appreciation back then for the scale of what was to come and the fact that, you know , no I don't see anyone else preparing for the magnitude of that problem. I think the magnitude of the waste and scrap problem and the magnitude of batteries that need to be recycled is shocking to most people. I think there is a really interesting opportunity to link recycling and solving the end of life problem with the supply chain solution, putting more materials back into the feedstock so as not to hinder battery production.

In fact, batteries are everywhere today, and demand for lithium-ion batteries has increased sharply over the past five years and is expected to grow from $44.2 billion in 2020 to $94.4 billion in 2025, primarily due to electric cars. Electric vehicles are expected to reach 10 percent of global passenger vehicle sales by 2025 and rise to 58 percent of sales by 2040. Do we have enough materials to build all the electric vehicle batteries that will be needed? Frankly, no, not at this time. Today we don't have enough materials in the supply chain to build everything. Therefore, growth has to occur in the supply chain of all these vehicles.

Much of that investment has to go to the top of the food chain to determine where these materials will come from, investing in new mines, refining and recycling. We look at the materials found in cells. These are metals that are very durable. And we tried very hard to get them out of the ground. It's not that we have an excess supply from which we can extract cells to make cells. Our excess supply is in cells that have basically reached the end of their useful life and are ready to be recycled. So we would be really foolish not to harness the ability of older cells to create the next generation.

Panasonic says it produces two billion battery cells a year at the Tesla Gigafactory in Nevada. A Model 3 in particular, Model Y for the Tesla team. So just those two models in the United States that we support in this factory we need between 20 and 25 of these worldwide. But particularly here in the United States, we certainly need at least four, five or six of these factories to support the automotive industry as a whole. The batteries are made up of a mix of metals and minerals, including nickel, cobalt, lithium, graphite and copper, which are sourced from around the world.

Battery cells extracted from raw materials often travel more than 20,000 nautical miles from the mine to the automaker, a supply chain that is far from sustainable. Recycling has a very important role to play in the sustainability of electric vehicles themselves. One of the largest sources of CO2 from an electric vehicle comes from mining and the manufacturing of battery packs. Lithium mining is not a very CO2-friendly activity, so there will come a time when recycling batteries to get the metals you need will be an important factor in helping electric vehicles achieve carbon neutrality. Materials for electric vehicle battery cells, for example, could have been sourced from South America, Africa, Indonesia and Australia.

They are then often sent to China for refining and then, in the case of Tesla, to the US for cell production at Panasonic in Nevada at the Gigafactory. And in the near term, significant shortages of battery materials such as lithium, nickel, cobalt and copper loom. Right now, demand is outpacing supply five years from now, correct? That's right. How worried are you about that? Well, I'm quite concerned that this could become an obstacle to electrifying everything that people hope to do. I think it's going to be a bit of a pain when all these factories try to ramp up at the same time and recycling and being able to efficiently reuse those materials can alleviate some of the burden of needing new mines or finding new resources.

The clunky supply chain also adds cost to batteries, which are the most expensive part of an electric car. The cost of the electric vehicle is falling, but is still dominated by the cost of the battery. And within the battery, the

biggest

cost is the materials. It's a pretty direct link to say that the way to further reduce the cost of electric vehicles so that more and more people can buy them is to figure out how we attack that cost of the material inside the lithium-ion battery. And as demand for electric cars continues to grow, it will put more pressure on those commodity markets.

But our goal is to find a way to decouple that and provide those materials for use at a lower cost. Redwood Materials is in the process of expanding and building new machinery to increase its capacity. Kevin Kassekert, another former Tesla employee, is helping to oversee that effort. The first challenge the company faces is gathering all the batteries. I like to think of the company and sort of three main groups. One really is picking and receiving, right? Which is what you see here. And there are very safe ways to do it. The other is more refined. So, breaking down the material, taking it from your product that you see in your base metals.

Good. Which are fully recoverable and then we rebuild them into battery-friendly products so we can sell them back into the industry. Currently we receive about 60 tons a day. This is about three trucks per day. And that continues to increase as we grow the business. We'll go through this in a couple of months. Redwood recycles a wide range of lithium-ion batteries, not just those used in electric vehicles. It gathers the materials through a series of partnerships with companies such as Panasonic, e-waste recycling giant ERI and Envision AESC, which makes batteries for the Nissan Leaf. It also partnered with Amazon.

Amazon is an interesting partner because it has batteries in many different areas of its business, from data centers with AWS to consumer products like Kindle. We are discussing a number of different projects with them, but the reach and access to the consumer world could offer some really interesting opportunities. It's been interesting how some of our partners quickly become overwhelmed by the problem these older products can create. When these things pile up, it becomes very difficult to deal with them. And you can't just throw them in the landfill. You can't just mash them up. They will catch fire.

We've had partners come to us in a bit of a panic and say, "Wow, you know, we have to solve this problem." You know, can you help? But beyond his partners, Straubel said the largest lithium mine could be in America's trash bins. There are a limited number of geological sources for many of these key materials. And for decades we've been digging it up, putting it into products, and using it in a lot of these consumer products that are just locked away, stored in people's drawers, literally at home, in their garage, or in a shoe box. And over time, that collection of old consumer products stored in the proverbial drawer at home has become, I believe, the largest resource of these materials in the world.

What do you think most people think? Do you think I don't want to throw it in a landfill, but I don't know what to do with it? I think there is a lot of confusion. There is concern about the data. There is a concern about just throwing it away. But there are many barriers to productive recycling. And the hurdle is so high right now that it encourages people to just do nothing to hold on to it. But you are wasting an incredibly valuable opportunity and resource that we can take advantage of. Consumers can help by dropping off their old electronics at places like Best Buy, Staples, Salvation Army or their local solid waste authority.

Recyclers will collect and destroy the data before restoring it or extracting materials. Once Redwood receives the batteries, they are broken down and processed in huge machines. This is one of the machines that is used to separate the different metals from the batteries, which allows us to separate very efficiently. nickel and cobalt away from things like lithium. The final product goes into these raw materials containers, which will be sent to the manufacturers. Redwood techniques recover more than 95 percent of the battery's nickel, cobalt, aluminum, graphite and more than 80 percent of the battery's lithium. This is one of our finished nickel products.

This is a mixed nickel sulfate product. And you can see it packaged up and ready to go back to basically making battery cathodes. This would be the type of product you would send to Panasonic or some other battery manufacturer. Now you can use this. Exactly. The lithium-ion battery recycling market is expected to grow to $18.1 billion in 2030, up from $1.5 billion in 2019. Recycling batteries isn't just good for the planet. It's also a surprisingly good business. We make margin and in a few different places there, and it's really initially solving the transportation and disposal problems of the batteries. And we also received a lot of consumer batteries, you know, things that used to be, you know, in the care of an individual, whether it's a scooter or a bicycle or a phone.

These things are a little unwieldy and have chemical and fire hazards. So we solved that problem. You charge customers to solve that problem. Well, or basically we can do it with a very, very low return fee. So in some cases, we actually give customers money back for batteries, depending on how much material we can recover and resell. And that's my other question. Are you making money reselling materials yet or are you still in the initial phase where you are not making a profit? Well, we are still growing very quickly. So we are consuming capital as we build the operation and the team.

Most importantly, however, unit operations are profitable. So we can take these inputs, refine them, purify them and sell them at a profitable unit margin. And that's the fundamental key: it's improving quite rapidly as we improve the technology and the scale. That gives me encouragement that this is economical today relative to mining. Even at this early stage, there has been a surprising flourishing of recycling companies globally. China is again leading this, the United States is catching up, as is Europe. But recycling is an unattractive industry that could be very profitable in the future because of course we need to take those batteries, recharge them, recondition them and use them again.

That's the good news. And there are many companies working right now to meet that demand. Another major player in North America is Li-Cycle, which has operational battery recycling plants in Ontario, Canada, and Rochester, New York, and has plans for rapid expansion. This is our facility in Rochester, New York. It is part of the Kodak Eastman Business Park. So one of the things we like to say about this facility is that we're not just recycling batteries, we're also recycling a building. Li-Cycle says recycling is more efficient than mining. In the long term, recycling is more efficient. It uses less energy, uses less water and uses fewer reagents than traditional mining processes.

So our cost base will always be lower. The benefit for Li-Cycle is that we don't set the price.The mining industry sets the price. In fact, it is the marginal operator of that industry that sets the price. And what we do is benefit from those higher prices. Now, in the long term, we can see a potential where recycling begins to impact and reduce the cost of these materials. But at the moment we are a relatively small part of the overall ecosystem. We are really unlocking the value of batteries and we are selling those materials at prices dictated by the market, which are dictated by mining and refining.

Nowadays, mainly, we don't depend on anyone paying us a waste fee. And, frankly, customers don't like that. They want to know that we are going to unlock value. An equivalent mining company wanting to produce similar materials would struggle to produce the same levels of margin that we can offer as a recycling company. So not only is there a good sentiment and a good ESG story behind what Li-Cycle is doing, but from a business perspective, it's very profitable. This could absolutely be more profitable than mining. You know, mining has fluctuations and a complete dependence on the cost of raw materials, which makes it a really different type of industry.

We are more focused on manufacturing and conversion costs, but our business rises and falls with the price of commodities, as a result mine is totally tied to that. Battery recycling will be an absolutely crucial component in this entire 21st century supply chain. You have a couple of problems and challenges to address here. One is to get rid of the volume of end-of-life batteries that will come from electric vehicles and really take off starting in 2025. The second thing is, what metals can you get from those batteries and what can they be converted into and what Can industries use them again?

And that is a secondary problem. And right now there are many pioneers who are dedicated to recycling. It's going to be a great industry. Straubel says the plan is to continue improving recycling technology and create a completely closed-loop system so recycling can surpass geological mining. We are actively setting up facilities and looking for locations in Europe, maybe Norway, maybe Germany, and also some smaller facilities in other corners of the US, maybe Texas, maybe somewhere in the Midwest. Within five to seven years, we will need to be able to break down materials in the EV space at the rate they are manufactured today.

So if there are, you know, let's say to make rough calculations, a thousand cars are produced per day and there are more than that. We need to be able to recover and recycle at the same rate when those products reach the end of their useful life. And that's just in the electric vehicle space. Almost everything has a battery these days. So a lot of that technology is lithium-ion cells and it all has value that needs to be recovered and returned to the supply chain. And could recycling replace mining one day? With battery recycling, you will never get enough lithium from those batteries and in the right quality to use in batteries again.

That is a fundamental question for the industry. That will not change, especially now that the demand profile is also increasingly increasing. But the fact of the matter is that, today, it is cheaper to extract lithium than to recycle it from existing battery packs. So this is expected to continue for the next at least 10 years or so. But still, it will be a very important part of making the production of electric vehicles and batteries more environmentally friendly. Electric vehicle batteries will not end up in landfills. There are technologies available like ours, like Li-Cycle, that are efficient, profitable, don't need subsidies and can do it as a sustainable and growing business.

When I think about the perhaps distant future, when we are operating as a truly sustainable society and economy, we need to productively rebuild everything we have built. This is kind of the tip of the proverbial iceberg. We are currently recycling several gigawatt hours of energy storage per year. It seems like a big amount, but it's only maybe one or two percent of what's actually being built today. So if we look to the future, we need to be operating at a scale 100 times larger than today in just a few years. This must be solved. There really is no alternative.

We can't just throw these batteries into the ocean or a landfill. You know, it just doesn't work. So I really enjoy working on slightly underserved problems that don't get enough attention, where, you know, with a small team, we can affect a huge industry in the future and we can invent some things that will have a dramatic impact on a large part of the industry.