The race has begun to supply the hundreds of millions of batteries it will take to power the electric vehicle revolution.
Most of these efforts depend on mining materials like lithium, cobalt, and nickel. But recycling will also be an important part of the battery supply, and a new state-owned company has a head start.
(ticker: LICY), a Canadian company based in Toronto, is already a leading recycler of lithium-ion batteries.
It went public by merging with a specialty acquisition company, or SPAC, and began trading last month. Li-Cycle opened at $ 11.70 on August 11, the day after the merger, and traded mostly lower until this week, when several analysts issued positive reviews.
Li-Cycle is not yet profitable and may not be for at least two years, so analysts tend to rate it on expected sales.
This year, sales are only expected to reach $ 12 million. But Li-Cycle predicts sales will hit $ 958 million in 2025 as the company opens multiple facilities in the United States. This ramp-up will not really start to bear fruit until 2023 or 2024.
Using a multiple of 3.5 times his estimate for 2024 sales, in line with other fast-growing names related to electric vehicles, Wedbush Securities analyst Daniel Ives offers a price target of $ 14 per share, nearly 30% above the recent price. . He believes the company is “at the heart of an impending green tidal wave”.
|Recent price:||$ 10.94|
|Modification of the current fiscal year:||5.6%|
|Market value (bil):||$ 1.7|
|2022E sales (in millions):||$ 45.4|
|Net income 2022E (in millions):||– $ 25.6|
|BPA 2022E:||– $ 0.14|
|PER 2022E:||N / A|
Note: Estimates for fiscal year 2022 ending in October. E = estimate. N / A = not applicable.
Electric vehicles only account for 5% of global auto sales today and 3% in the United States, but the next few years could see parabolic growth.
President Joe Biden has set a target that half of vehicle sales in the United States will be electric by 2030. Lithium-ion battery sales now total $ 41 billion per year, but are expected to reach $ 115 billion. dollars by 2030, Ives notes. And the battery recycling industry could grow from $ 2.7 billion to $ 7.5 billion by 2027, he estimates.
Li-Cycle was founded in 2016 by two engineers who had worked on lithium at the Canadian company Hatch. In an interview, co-founder Ajay Kochhar said they were unimpressed with current recycling methods, which mainly involve burning unnecessary materials and using heat to separate chemicals. At least half of a battery’s valuable material can be wasted in the process, Kochhar says.
They decided to “start from a blank sheet” and invent their own process. The result is a patent protected method that relies more on chemical treatment than combustion and causes much lower emissions. Up to 95% of valuable material is saved, Kochhar added.
The company’s cost of materials is much lower than its competitors and considerably less than the cost of mining them as well, writes Ives.
Li-Cycle’s automated recycled material sorting process enables it to recycle all kinds of battery-powered items. About half of the materials Li-Cycle recycled in 2020 came from consumer electronics, but its main area of growth is electric vehicles.
The company has already signed agreements with major manufacturers of battery components. One of them is with Ultium Cells, a joint venture between
It also signed an agreement to ship all of the chemicals it produces at a facility under construction in Rochester, New York, to privately-owned metals trading company Traxys.
At the start of this year, the value of the materials it was expected to sell to Traxys was $ 300 million a year, Morgan Stanley notes.
Li-Cycle is building a network of departments and centers across the country to extract key materials near supplier manufacturing facilities. Li-Cycle’s facilities can now process 10,000 tonnes of material per year, enough to create the material that will power approximately 20,000 electric vehicles.
Morgan Stanley analyst Adam Jonas estimates that Li-Cycle has a 30% market share in North America, based on the amount of material it recycles.
The company also intends to expand overseas, where market opportunities are even greater than in the United States.
One factor that can hold back inventory is that it will take time for battery recycling to increase. If Li-Cycle investors had to wait for old EVs to go to junkyard, that would mean it could take a decade for the profits to materialize. But Li-Cycle is already capitalizing on the growth of the industry.
For one thing, at least 5% to 10% of the battery material is thrown away in the battery building process, and Li-Cycle has made deals to take this material and extract the key components.
This is one of the reasons Ken Geren, chief investment officer of UBS O’Connor’s Environmental Focus Strategies, a hedge fund, owns the stock.
“I think the market is assuming that there is really no material exposure to profit until the car batteries are recycled, which is maybe 10 years later,” Geren said. “I think what is misunderstood is that thanks to the manufacturing process, which is developing rapidly today, their volumes will increase dramatically.”
Electric vehicle companies may also have to dispose of batteries for other reasons. A GM recall involving the Chevrolet Bolt’s lithium-ion batteries, for example, affects more than 140,000 vehicles.
Kochhar says he couldn’t argue if Li-Cycle is involved in recycling any of these batteries.
Just a few years ago, potential investors were telling Kochhar it was getting started too early because this market wouldn’t exist for a decade.
Today, the industry is advancing at a rate that even surprises it.
“And we’re just getting started, aren’t we?” ” he says. “That’s the exciting thing.”
Write to Avi Salzman at [email protected]