EV Materials Start

As more EVs are sold around the world, EV recycling businesses will grow. Investors know this, which is why one of the premier EV recycling franchises just got more money to meet future demand.

But the investment also highlights an important point about EVs that is considered less often.

Tuesday, Tesla (ticker: TSLA) cofounder J.B. Straubel’s EV materials company Redwood announced a $1 billion capital raise. It was a Series D round led by Goldman Sachs (GS), T Rowe Price (TROW), and Capricon, a private-equity player focused on sustainable investment.

The Series D capital-raising round can be the one before an initial public offering. While the company didn’t immediately respond to a request for comment about a potential stock listing, it did say that the $1 billion deal values it at “more than $5 billion.”

Most investors can’t buy Redwood shares yet, but stock in Li-Cycle (LICY), which is also a battery recycling and materials company, is another way to benefit from potential growth in EV recycling. Its shares closed up 4.7% in Tuesday trading at $4.68 apiece.

The S&P 500 and Nasdaq Composite rose 1.5% and 1.7%, respectively, which means the overall market is responsible for most of Li-Cycle ‘s move. But the Redwood valuation might have something to do with it too.

Li-Cycle, which has a market capitalization of about $800 million, has begun to generate revenue: Second-quarter sales came in at $3.6 million. Wall Street projects 2023 and 2024 sales of about $15 million and $155 million, respectively.

Financial data on Redwood isn’t widely available.

The element of Redwood’s and Li-Cycles’s growth stories that investors may only rarely consider is that EV battery metals such as lithium, iron, cobalt, and manganese aren’t consumed. Once they are mined, they are available to be recycled over and over again, just like scrap steel, aluminum cans, or old copper wires. It’s the nature of metals.

There is a well-developed infrastructure for recycling steel. Think of junkyards crushing traditional cars.

The infrastructure for lithium and cobalt is another story, but that is what Redwood and their peers are building: EV junk-processing businesses. They are handling what is more like a fuel tank in a traditional car than the gasoline used to power it.

Gasoline and the oil used to produce it are produced once and then consumed, essentially gone forever. Some 4.5 billion tons of oil are burned around the world each year.

The total amount of copper, aluminum, cobalt, manganese, and lithium mined each year amounts to less than 120 million tons today. Steel is a 2 billion-ton-a-year business, but only about 10% to 15% of steel production is used to make cars. Buildings and construction account for about half of all steel usage.

When investors compare EVs to traditional cars, the apt comparison isn’t batteries to oil. It is oil to electricity. Coal and natural gas are used to generate electricity, but so are sources that aren’t linked to carbon dioxide pollution and global climate change. About 40% of U.S. energy production is from non-carbon-emitting sources.

EVs accounted for roughly 8% of all U.S. sales of new cars in the second quarter of 2023. They still amount to less than 1% of all vehicles on U.S. roads.

Write to Al Root at [email protected]