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■ Date: April 13, 2021
Sparking a Second Life of Power Battery
PART 1. An Overview of Battery Reuse in China
The growing number of used power batteries has become a prominent issue in the electric vehicle industry and supply chain. With the strong uptake of electric vehicles in China, a great number of power batteries retire from their lives in EVs when the capacity degrades below 80% and falls short of vehicle requirements. By 2023, total retired power battery in China would amount to 84.17 GWh (nearly a half of the production of Lithium Ion Battery the world produced in 2019), equal to nearly 750k tons1. This article tries to provide an overview of battery reuse market in China by discussing market issues, current progress, and players’ activities.
1. Destinations of Retired Power Batteries
Upon retirements from electric vehicles, the used power batteries could be:
1) Discarded: Disposal of used batteries as waste is not recommended. Firstly, it will pose serious threats to environment and human health as the batteries contain toxic or corrosive materials. Secondly, it’s a waste of resources with no recovery of its remaining value in capacity or contained metals.
2) Recycled: This is the most common way to manage the used power battery in current industry. Valuable metals such as Co, Mn, Ni, Li are recovered through the process of disassembling, crushing, separating, purifying, smelting of battery cells. This material source for battery manufacturing is increasingly important due to rise in battery demand and material price in China. 
3) Reused (Echelon Utilization)As the used batteries still retain 80% of the original capacity, they could be used in in less demanding applications e.g., low-speed NEVs, communication base stations, and power storage equipment. Theoretically, this kind of secondary utilization can be performed many times until the battery capacity retention rate is reduced to 30%, the so-called multi-level echelon utilization (see Figure 1). After fulfilling the echelon utilization, those batteries could be recycled for resource recovery. 
Figure 1 Mechanism of Multi-level Echelon Utilization
2. Issues in the Battery Reuse Market
The process of “battery design & manufacturing, first life in EVs, second life in echelon utilization, recycling, and re-manufacturing” creates a closed loop for battery supply chain. Battery reuse in this loop manifests obvious environmental benefits as it better utilizes resources and reduces carbon emissions. However, several issues remain to be addressed in China’s battery reuse market to realize its business potential:
2.1 Issue of Informality
Despite the massive number of retired batteries, most of them have not gone through proper treatment and management. As is reported in 2018 and 2019, the actual power batteries collected through formal channels are less than 10% of the total retired battery amount in China2
If reutilized through formal channel, batteries would be collected, processed and sold by licensed vehicle manufacturers, scrapped vehicle recycling & dismantling enterprises, or battery recycling and reuse enterprises. These players need to acquire certifications and meet several requirements when tackling with used batteries. For example, their collection sites need to be registered in the national platform, the processing requires relevant technologies, equipment and proper ecological treatment for industrial wastes, and their products should meet certain standards.
While informal channels are mostly through online collection, or second-hand markets (see Figure 2). Informal collectors would simply check the used batteries and resell them directly after changing their cases; or their treatment covers incineration, crushing, concentrated acid extraction, and direct discharge of waste liquid. This process entails much less operational costs than formal ones, but causes serious environmental pollution, and lower resource utilization. Moreover, a number of batteries are left untraceable because they have not gone through official platforms and remain unregistered.
Figure 2 Informal Collection Channels in China
However, our analysis has found that informal channels will be gradually suppressed. 
  • Firstly, government policies and regulations start to guide the industry. (Please stay tuned for [PART 2. Political Aspects of Battery Reuse].) The Extended Producer Responsibility System (EPR) requires EV manufacturers to take full responsibility of building collection networks on their own or by partnering with other market players (see Figure 3). Currently, most of informal collection happens when consumers of EVs sell batteries to informal channels. Therefore, it’s important for EV manufacturers, which have access to consumers, to incentive them to return their batteries to formal network. Up to now, there are 12146 collection sites registered, mostly 4S stores initiated by EV manufacturers. While Product Coding System formulates coding standards for new and second-life batteries, as well as the correspondence between them, so as to enhance full-life-cycle sourcing & monitoring and increase transparency of power battery circulation.
Figure 3 Collection Networks Initiated by EV Manufacturers
  • Secondly, new business model shows up to transfer battery ownership away from consumers. The Battery Leasing Model encourages consumers to purchase vehicles without the batteries. The batteries’ property rights or ownership are purchased by the battery asset management company and consumers obtain the battery use right by paying rental fees. In this way, when batteries retire from EVs, they could be easily collected by battery asset management company and consumers have no rights to dispose of them. BAIC Group, for example, has combined battery leasing, swapping, and echelon utilization in its business model.
  • Thirdly, more formal players will enter the industry with growing economic feasibility. Usually, formal players would gain less profit compared to informal ones, because getting licenses requires investment, and formal processing is more demanding and costly. The vague economic feasibility sets barriers for market entry of formal players. However, with technology advancement to reduce the cost and scale effect of retired batteries, more players will gain the momentum to enter the industry. 
2.2 Technical Barriers 
Technical pain points exist throughout the battery processing, which encompasses 1) battery disassembly, 2) screening & testing, 3) regrouping, and 4) system integration. 
  • Firstly, the variety of battery designs and safety issues hinder the development of battery disassembly. There is a complex mix of different battery types, pack designs, and connection methods in collected batteries because they are produced by different power battery manufacturers for various of vehicle models. This great variety makes it difficult to set an automatic disassembly line to fit all battery types. Also, the improper treatment of power batteries would cause serious safety issues such as short circuit, liquid leakage, or even fire or explosion.
  • Secondly, batteries’ future electrical performance is hard to predict in the screening and testing process. How well retired batteries perform in the future is of high importance to their second use in other applications. However, a number of factors during the charging/discharging process will influence their future performance and make the prediction complicated (see Figure 4). At present, testing & evaluating the residual value of batteries is still at its early stage. How to better predict battery SOH, cycle life, etc. by linking some parameters (internal resistance, temperature, SOC, etc.) have always been the focus. Furthermore, the evaluation of cells or modules cannot be applied directly to the entire system, and there are no relevant test methods and evaluation standards available now.
Figure 4 Capacity Degradation of Power Batteries
  • Thirdly, what level of batteries to be regrouped and a series of factors in system integration need to be considered. Among electric vehicle batteries, a cluster of cells (the smallest unit) could make up a module, and a cluster of modules could make up a pack. The retired batteries could be disassembled into cell or module level, and then regrouped into packs. In this case, echelon utilization could be achieved: 1) directly via pack without disassembly, 2) via module or cell after disassembly and regrouping into battery packs. Different regrouping strategies depends on the needs of applications, technical feasibility and cost in the process. In terms of system integration, it is necessary to balance the charging and discharging of batteries which lack absolute consistency. Other factors include the structure of BMS (battery management system), intelligence, reliability, or flexibility of the system etc.
To address these barriers, our analysis has found that Intelligent Disassembly, and Remaining Useful Life (RUL) prediction are key technologies under development. Different scenarios of battery reuse via pack, module, or cell are also assessed in [PART 3. Technical Aspects of Battery Reuse]. 
2.3 Economic Feasibility
When assessing its competitiveness, it’s crucial to consider both 1) the price comparison of second-life batteries and new batteries (attractiveness); 2) the profit margin of battery reuse (profitability). 
Our analysis has found that battery reuse in general is economically feasible (see Figure 5). 
  • Attractiveness: When comparing second-life batteries and new batteries, current price gap of ~30% makes the former attractive to buyers. Also, it outperforms lead-acid battery in electrical performance & environmental friendliness, which makes battery reuse an ideal compromise between price and performance.
  • Profitability: From the perspective of battery reusers, there is limited margin (roughly 10% at most) or even loss when we subtract cumulative cost from the selling price. Uncertainty about profit margin is one key barrier that discourages players from entering this market. However, with technology advancement and scale effect, the cost of battery reuse is expected to be further reduced. Please stay tuned for [PART 4. Economic Aspects of Battery Reuse].
Figure 5 Economical Analysis of Battery Reuse in China
3. Players’ Active Participation
Despite the above-mentioned barriers, a number of players have already stepped into the industry and exerted influence across the lifecycle based on their business and expertise (see Figure 6). Power battery manufacturers, for example, would facilitate battery reuse from the battery design; EV manufacturers have more control over the collection channels; and enterprises which have experience in recycling seeks to extend their battery circulation by incorporating battery reuse. It is shown that single player’s efforts are not sufficient, and cooperation across the value chain in this industry are highly valued. More cases and business models of players are available in [PART 5. Business Model and Key Players]
Figure 6 Lifecycle of Power Batteries
Although battery reuse has not matured in China, promising signs are shown during the progress on tackling the market issues. Massive volume of retired batteries and government’s focus towards batteries’ circular economy will accelerate the market creation; while key momentum comes from intra-industry cooperation with which players across the value chain are expected to utilize their unique advantages and capture the values of second-life batteries.
1. 东吴证券. 2018.02 "动力锂电池报废高峰已至,开启百亿回收市场”
2. Sina News. 2020.10 "动力电池回收风云起,好生意背后隐匿的痛点仍未解"
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