1. One regulation, and the thing it has to govern

On 1 April 2026, the Interim Measures for the Recovery and Comprehensive Utilisation of Waste Power Batteries from New Energy Vehicles came into force. Jointly issued by six ministries — the Ministry of Industry and Information Technology, the National Development and Reform Commission, the Ministry of Ecology and Environment, the Ministry of Transport, the Ministry of Commerce and the State Administration for Market Regulation — it was promulgated as MIIT Order No. 73.

Before it, management of power-battery recycling in China rested mainly on a series of departmental normative documents, industry standard conditions and recommended technical standards. These carried guidance, but not compulsion. Order No. 73 is the first departmental regulation in this field with binding force.

Its timing is not accidental. As the National Development and Reform Commission noted in its policy explainer, China produced and sold more than 16 million new energy vehicles in 2025, close to half of all new vehicle sales in the country, and China has entered the stage of large-scale battery retirement. A cohort of batteries installed around 2018 is now reaching the end of its service life — and the system meant to receive them is not ready.

More precisely: in that system, capacity is in surplus and order is absent.

That is the central contradiction of this article. An industry whose nominal capacity is counted in millions of tonnes complains of being unable to fill its lines; a group of compliant firms with substantial investment and world-leading technology loses out in competition with workshop-scale collectors; and a market repeatedly described as an "urban mine" worth hundreds of billions of yuan conducts a considerable share of its transactions in places with no invoices, no environmental permits and no safety equipment.

2. Three numbers that contradict each other

The first thing to admit in any discussion of this industry is that we do not know exactly how many batteries retire each year.

Published estimates differ widely. The industry research unit of the Battery Recycling Committee of the China Electronic Energy Saving Technology Association forecast 820,000 tonnes of retired power batteries in China in 2025; SPIR put the 2025 figure at roughly 450,000 to 480,000 tonnes; other institutions have offered 1.04 million tonnes. The gap between the highest and lowest exceeds a factor of two.

A number pointing in the other direction is comparatively firm: on the competent authorities' own figures, China's comprehensive utilisation of waste power batteries exceeded 400,000 tonnes in 2025, up 32.9% year on year.

Place the two side by side and you have the industry's defining question: if retirement volume really approaches 800,000 tonnes while only 400,000 tonnes enters the formal comprehensive-utilisation system, where did the other half go?

Estimates disagree because the word "retirement" is itself blurry. A battery can end up in many places: scrapped with the vehicle, destroyed in a crash, replaced after degradation, removed and sold by the owner, moved to another province with a used car, put into an ageing vehicle still running in a county town, or installed in an energy-storage cabinet. Different models make different assumptions about when a battery counts as retired, about average life, mileage distribution and used-car flows — so the results diverge.

That in itself is the problem: in an industry whose total volume cannot be measured accurately, talking about recycling rates is meaningless. It is also exactly why Order No. 73 places traceability at its core — only when every battery can be tracked does management become possible.

Another set of numbers helps calibrate the picture, this time from the demand end. According to public reports, China's new energy vehicle penetration rate reached 57.8% in September 2025, and the national parc surpassed 31.4 million vehicles. At an average pack size of fifty to sixty kilowatt-hours and three to four hundred kilograms, a parc of 31.4 million corresponds to a pool of in-service batteries measured in tens of millions of tonnes. It is still bolted into cars today, but a slice of it comes off every year.

This is why "the retirement wave" has been invoked in the industry for seven or eight years without ever quite arriving: it is not a flood but a steadily rising curve. New energy vehicle sales began to scale around 2018 and accelerated after 2021; battery life is commonly six to eight years or longer; together this means genuine large-scale retirement only begins around 2025, with the peak still further out. Much of the "capacity idle on completion" seen in recent years stems from investment paced for the expected flood while reality delivered a slowly rising water level.

One common confusion of definitions is worth noting. The figure often quoted as "more than 3.8 million tonnes by 2030" refers to all types of waste lithium batteries, including consumer electronics, electric two-wheelers and energy storage; "more than 1 million tonnes by 2030" generally refers only to new energy vehicle traction batteries. The two differ several-fold, and mixing them produces entirely different conclusions about capacity. Unless otherwise stated, this article refers to automotive traction batteries.

3. The economics of the grey market: why the compliant players go hungry

Eight in ten scrapped vehicles arrive without a battery

Start with a single detail that explains the whole picture.

According to CCTV Finance reporting in the second half of 2025, a compliant dismantling enterprise in Wuhan reported that roughly 80% of the scrapped new energy vehicles delivered to its plant arrived without their traction battery.

A scrapped electric vehicle without a battery is easy to understand physically: before it entered the scrappage channel, its most valuable part had already been removed and sold separately. The traction battery accounts for thirty to forty per cent of vehicle cost and is the single largest item of residual value. When an owner or intermediary can sell the battery to whoever bids highest, there is no reason to leave it in the car.

The resulting division of labour is this: licensed dismantlers receive the shell, while the heart flows into another market. Battery processing lines built at considerable expense by compliant firms therefore sit chronically starved.

This is the loophole that Order No. 73 seeks to close with its "vehicle-and-battery-together scrapping" rule: a scrapped new energy vehicle must arrive with its traction battery, failing which it is treated as an incomplete vehicle under the relevant rules. The weight of that sentence lies in tying the battery's whereabouts to the administrative act of deregistration — an owner who wants a scrappage certificate and wants the plate cancelled must produce the battery. (Battery-swap models are exempt from this provision; the authorities are drafting separate rules for swap and similar business models.)

Two sets of books for one tonne of batteries

Where a battery flows depends on a very plain cost comparison.

On publicly reported industry figures, a compliant enterprise incurs more than 3,000 yuan in dismantling costs per tonne of waste batteries, while a workshop-scale operator can keep costs within 1,500 yuan. Where does the difference come from? From precisely those things a compliant firm must bear and a workshop can skip: environmental impact assessment, discharge permits, waste gas and wastewater treatment facilities, fire and explosion-proof design, hazardous waste storage and transfer manifests, worker protection and training, production safety investment, and compliance records across the whole process.

These are not optional extras. They are the cost of doing battery processing safely and cleanly. Waste lithium batteries contain electrolyte, organic solvents and heavy metals; crushing generates dust and off-gases; residual charge brings the risk of thermal runaway and ignition. Every environmental and safety step on a compliant line corresponds to continuing operating expenditure.

Skipping them gives the workshop a cost advantage of around 1,500 yuan, which it converts into a bidding advantage on the collection side. In practice, workshop bids typically run 20% to 30% above those of compliant firms.

For a fleet operator, repair shop or trader holding a few tonnes of retired batteries, this is a question without suspense. Both sides are buying the same goods; one pays two or three tenths more, settles in cash, wants no invoice, and asks no questions about provenance.

The result is adverse selection: the more rule-abiding the firm, the higher its acquisition cost and the less material it can secure; the more indifferent to rules the collector, the higher its bid and the more plentiful its supply. This is the textbook case in environmental economics — when external costs are not priced in, obeying the rules becomes a competitive disadvantage in itself.

The capacity paradox of the whitelist

The second structure to understand is the "whitelist".

Under the Standard Conditions for the Comprehensive Utilisation of Waste Power Batteries from New Energy Vehicles, the Ministry of Industry and Information Technology publishes qualifying enterprises in batches — known in the trade as the whitelist. As of the end of October 2025, five batches had been published, totalling 156 enterprises.

The capacity these 156 firms have built is considerable. Institutional estimates put whitelisted capacity for cascade use and dismantling of lithium-ion batteries at 4.233 million tonnes a year as of the end of 2024. Actual processing volume over the same period, on the same basis, was estimated at about 654,000 tonnes — a utilisation rate in the low teens. Another estimate found whitelisted firms recovered 225,000 tonnes in 2023 against roughly 1 million tonnes of annual processing capacity, a utilisation rate below one quarter. The specific figures vary by methodology, but the direction is identical: nominal capacity and actual throughput differ by an order of magnitude.

Set against this is the number of registered companies. Business registration data indicates that as of May 2025 there were more than 170,000 enterprises in China associated with power-battery recycling and utilisation — whitelisted firms account for less than one in a thousand.

Put the three numbers together and the true shape of the industry emerges: at one end, 156 compliant firms with capacity, technology and environmental facilities that cannot fill their lines; at the other, more than 170,000 registered entities of highly variable substance, plus a mass of workshops that never register at all. In between sits a pool of several hundred thousand tonnes a year worth tens of billions of yuan, allocated according to price rather than qualification.

Overcapacity inflicts a second injury. To spread fixed costs, compliant firms must raise utilisation; to raise utilisation they must chase material; to chase material they must raise their bids. But the ceiling on bids is set by recoverable metal value, so processing margins are squeezed, sometimes to the point of buying dear and processing at a loss. The steady stream of exits and stalled projects in recent years mostly traces back to this.

Where those batteries actually went

The third question: what becomes of the batteries collected through informal channels?

On industry estimates cited in media reporting, roughly 60% flow into small energy-storage projects and 40% have their metals extracted illegally.

The first path is to reassemble retired cells into home storage cabinets, telecom base-station backup, power packs for electric tricycles and low-speed vehicles, and integrated solar-plus-storage units. This is not technically illegitimate in itself — serious engineering for battery second use does exist, requiring cell-by-cell testing of capacity, internal resistance and self-discharge, consistency grading, a new battery management system, and safety validation of the finished pack. But workshops do none of this. They typically perform only visual sorting and a crude charge-discharge test, then mix old and new, different batches and different manufacturers' cells in a single pack, fitted with the cheapest available management board. Such products look fine at first; as cycles accumulate, consistency differences are amplified, and the failure eventually presents as thermal runaway.

It should be noted that Order No. 73 makes a move here that is easily misread: it no longer uses the term "cascade utilisation". The reason is that the quality of cascade-use battery products on the market varies so widely that enterprises and consumers struggle to tell compliant products from non-compliant ones. In its place is an explicit prohibition — no organisation or individual may use waste power batteries, directly or after processing, in electric bicycles or in other fields prohibited by law, administrative regulation or mandatory standard. This is not a ban on all second use; it removes a blurred label that had been widely abused and draws an explicit exclusion zone.

The second path is metal extraction. The workshop method is typically manual dismantling, open-air crushing and crude acid leaching to extract nickel, cobalt and lithium for sale downstream. Electrolyte vapours, heavy-metal-bearing wastewater and crushing dust are largely untreated, which is why costs are low. The environmental price is externalised — borne by soil, water and the surrounding population.

Together, these two paths constitute an underground industry of considerable scale. It simultaneously undermines three things: the economics of compliant firms, the integrity of battery traceability, and the environmental benefit recycling is supposed to deliver.

4. What Order No. 73 changed

With that structure in view, each provision of Order No. 73 can be read against the problem it targets.

First, lock the battery to the vehicle. The vehicle-and-battery-together scrapping rule addresses the loophole in which eight of ten scrapped vehicles arrive without a battery. Its enforcement handle is the rigid administrative step of deregistration, which is more forceful than any industry appeal.

Second, give every battery an identity. The measures require batteries to be coded at production, with the code following the battery through manufacture, installation, use, repair, recovery and comprehensive utilisation, supported by a national traceability platform to which every actor in the chain must report data. In 2026 a new power-battery traceability platform came online, replacing the earlier national monitoring and traceability management platform, adding modules for enterprise duty-performance assessment, traceability analysis and industry surveys.

The point of traceability is to turn "where is this battery now" into a queryable fact. When a battery's code goes dark after a given step, the chain of responsibility has a traceable starting point. This is the key infrastructure for governing the grey market — not by pursuing every workshop, but by making it impossible for a legally produced battery to vanish quietly.

Third, make clear who is responsible. The measures place recovery responsibility firmly on vehicle manufacturers and battery manufacturers: they must build collection outlets, publish collection information, and may not refuse retired batteries. This is extended producer responsibility, made concrete for traction batteries. As of the end of October 2024 there were more than 15,000 power-battery collection service outlets nationwide, about 27% more than in 2022; the ten largest network operators are all vehicle manufacturers, together accounting for about 35.9%.

Fourth, draw red lines. Besides the prohibition on use in electric bicycles and similar fields, the measures set explicit requirements on comprehensive-utilisation enterprises: compliance with laws on resource utilisation, environmental protection and production safety; completion of environmental impact assessment and investment filing; possession of a discharge permit; and construction of matching environmental and safety facilities. These requirements were previously scattered across various documents; they are now written into a binding regulation.

The four are sequenced. Traceability is the foundation: without codes and a platform, none of the others can be verified. Vehicle-and-battery-together scrapping is the sluice gate: it closes the largest leak. Producer responsibility is the funding mechanism: it stops processing costs that belong to the manufacturing side being dumped on society. The prohibitions are the floor: they mark the uses that can never be permitted.

There is an institutional backdrop as well. In February 2025 the State Council executive meeting approved an Action Plan for Improving the Recovery and Utilisation System for New Energy Vehicle Power Batteries, setting out arrangements for collection networks, standards and regulatory coordination. Order No. 73 can be read as that plan landing at the level of a binding departmental regulation — first an action plan to set direction, then a regulation to set rules.

For companies, the most tangible change brought by Order No. 73 is the redistribution of compliance costs. Previously, the extra cost a compliant firm bore could not be converted into competitive advantage, because the market did not distinguish compliant from non-compliant. Now, with vehicle and battery manufacturers explicitly designated as responsible parties and with every battery's movement subject to reporting, the risk of choosing a non-compliant partner rises from near zero to something that may be pursued. That is where the regulation truly acts — it does not eliminate workshops directly; it changes the cost to large customers of dealing with them.

It is worth noting that the logic of this design is not "build more capacity" but "reallocate the material". The industry does not lack processing capability; it lacks a mechanism that makes batteries flow by the rules. If vehicle-and-battery-together scrapping and traceability are genuinely enforced, utilisation rates at compliant firms will rise accordingly — not one new line required, only the return of material that should have gone to them in the first place.

Of course, implementation takes time and enforcement resources. Vehicle scrappage, used-car flows, inter-provincial transport and hazardous-waste supervision sit with different agencies, and the fact that six ministries issued the document jointly is itself an indication of how much coordination is needed. The marker of real effect will not be the number of documents but two observable indicators: the growth rate of comprehensive utilisation through formal channels, and the change in the share of scrapped new energy vehicles that still have their battery.

5. Lithium carbonate, the invisible hand

If policy determines where batteries should go, price determines where they do go. And in this industry, price is almost synonymous with one thing: the price of lithium carbonate per tonne.

The lithium carbonate market in the first half of 2026 traced a rollercoaster. The year opened at around 117,000 yuan per tonne; in January the main futures contract hit consecutive limit-up sessions, briefly breaking above 170,000 yuan, with the market average for battery-grade material passing 159,600 yuan per tonne; by mid-May it reached a year-to-date high of 200,000 yuan per tonne; by the end of June it had fallen back to around 150,000 yuan; and as of late July, spot benchmark prices were oscillating in the 140,000 to 150,000 yuan range. Within six months, high and low differed by nearly a factor of two.

This curve matters more directly to recyclers than it does to lithium miners.

A recycler's business model is fundamentally to buy metal-bearing scrap at one price and sell refined metal salts at another. When lithium prices rise, the purchase price of scrap follows — but usually with a lag, and by a margin set by competitive intensity. In an upswing, inventory appreciates and processing margins widen; in a downswing, material bought at high prices may already be below cost by the time processing is complete, producing real losses. During the decline in lithium prices from 2022 to 2024, a great many recyclers went down exactly this way.

Hence a practice that has emerged to escape the price cycle: do not earn the metal spread, earn the processing fee. The typical model is a closed-loop agreement with a carmaker or battery manufacturer — the counterparty delivers production scrap and retired batteries, the recycler processes them and returns the metal materials, charging a stable tolling fee. GEM describes this as "scrap for raw material"; its essence is to change the business model from betting on price to selling a service.

The precondition is scale and customer relationships. According to public information, GEM's dismantling volume of power lithium batteries reached 52,576 tonnes in 2025, up 46% year on year and more than 10% of China's total social scrappage, with the recycling business turning profitable; it recovered 15,076 tonnes in the first quarter of 2026, up 40%, against a full-year target of 80,000 tonnes; the company has established cooperation with more than 1,100 vehicle and battery manufacturers worldwide and operates six recycling bases in Jingmen, Wuhan, Wuxi and elsewhere, all on the MIIT whitelist.

This also explains why concentration in this industry will rise as it is formalised. Closed-loop partners will not hand batteries to an operator without qualifications, traceability capability or inter-provincial transport permits — that would mean handing over their own compliance risk. The stricter the policy, the more large customers prefer a small number of auditable partners.

Price has a further transmission path that is easily overlooked: it sets how active the workshops are. The higher the lithium price, the higher the implied value of a retired battery, the larger the premium a workshop is willing to pay, and the greater the share of material diverted. In other words, during an upswing compliant firms enjoy higher output prices while facing fiercer competition for input — the two do not necessarily offset. This is why mature players stress that they do not trade the spread: not because they would not like to, but because that spread has already been competed away at the point of purchase.

Over a longer horizon, lithium prices determine something still more fundamental: the cost competitiveness of recycled metal against primary metal. When lithium prices are high, extracting lithium from waste batteries is clearly cheaper than from ore or brine, and recycling is a good business. When lithium prices stay low and primary supply is abundant, recycled material loses its price advantage and recycling degenerates into an environmental obligation that must be performed but does not pay. This is precisely why the EU underpins the sector with mandatory recycled-content quotas — it does not expect price to remain on recycling's side, and instead creates demand by law. China currently has no equivalent mandatory blending requirement; that slot in the policy toolbox is still empty.

Price also determines the recycling economics of different battery chemistries. Ternary batteries contain nickel and cobalt and carry high metal value, so recycling margins are relatively good; lithium iron phosphate batteries contain neither, and what can be recovered is mainly lithium plus iron and phosphorus, at markedly lower value per tonne. Yet lithium iron phosphate accounts for a large share of installed capacity in China, meaning the bulk of what retires at scale in future is precisely the lower-value chemistry. This is a long-term constraint the industry must face squarely: metal prices cannot be relied on to underwrite the business forever; processing efficiency and scale are the foundation.

6. A new shoe drops: the consumption tax

In July 2026, the Ministry of Finance, the General Administration of Customs and the State Taxation Administration issued an announcement adjusting consumption tax policy for certain batteries.

Under the announcement, from 1 September 2026 mercury-free primary batteries, nickel-metal-hydride batteries, lithium primary batteries, lithium-ion batteries and all-vanadium flow batteries are subject to consumption tax at 2%; from 1 September 2027 the rate on these products rises to 4%. At the same time, from 1 September 2026 to 31 December 2028, sodium-ion batteries, solid-state batteries and fuel cells, together with perovskite, tandem and gallium-arsenide photovoltaic cells, are exempt.

The immediate meaning of the adjustment is the phased withdrawal of a battery consumption tax exemption that had been in place for many years. Its policy intent has several layers: balancing the tax burden across energy forms, and steering the industry toward newer technology routes — the exemption list of sodium-ion, solid-state, fuel cell and perovskite is exactly where expectations for the next generation lie.

For the recycling industry the effects are indirect but real.

First, higher end-product cost sharpens sensitivity to material cost. When every battery carries an additional levy, battery makers' tolerance for upstream material prices falls, and recycled material that can offer stable, lower cost becomes more attractive.

Second, taxation pushes transactions toward documentation. Consumption tax collection relies on proper invoicing and filing, while one of the chronic ailments of this industry is precisely the invoice-free trade — workshops buy without issuing invoices, while compliant firms must obtain valid input documentation. The tighter the tax system, the less room the invoice-free chain has to survive. That objectively favours formal recycling channels.

It should be said that consumption tax is not levied on recyclers directly; it falls at the battery manufacturing stage. What the recycling industry feels is a second-order effect: how a change in end cost alters battery makers' procurement preferences, and how a tightening documentary regime alters the form of scrap transactions. Such effects rarely show up within a few months, but they persist, and they work in concert with the traceability requirements of Order No. 73 — both push the industry toward being properly documented.

Third, the technologies pointed to by the exemption list — solid-state and sodium-ion batteries in particular — will change the object of recycling in the future. Today's processes are designed around liquid lithium-ion cells: discharge, dismantle, crush, sort, leach. Solid-state batteries differ in structure and materials; sodium-ion batteries differ in the composition of their metal value. Neither will retire at scale for at least another decade, but the choice of process route for new lines needs to consider them in advance.

7. The European yardstick

If domestic policy sets the floor for this industry, EU rules are setting the ceiling.

The EU's battery regulation lays down a comprehensive set of requirements across the battery life cycle; three of them bear directly on China's recycling industry.

The first is the battery passport. From 18 February 2027, light means of transport batteries, industrial batteries with a capacity above 2 kWh, and electric vehicle batteries placed on the EU market or put into service must carry an electronic record — a digital battery passport — documenting material composition, carbon footprint, recycled content, durability and other information.

The second is minimum recycled content. Eight years after the regulation's entry into force — that is, in 2031 — recycled content in batteries must reach 16% for cobalt, 6% for lithium, 6% for nickel and 85% for lead; thirteen years after entry into force, in 2036, these rise to 26% for cobalt, 12% for lithium, 15% for nickel and 85% for lead.

The third is material recovery targets. For lithium, the target is 50% by the end of 2027 and 80% by the end of 2031; for cobalt, copper, lead and nickel, 90% by the end of 2027 rising to 95% by the end of 2031.

Each of the three means something different for Chinese firms.

The battery passport is a demand for data capability. A battery exported to the EU must be able to state where its materials came from, what its carbon footprint is, and how much recycled content it contains — and those data must be auditable. For Chinese battery makers this means bringing the upstream supply chain, including recycled-material suppliers, into a verifiable data system. Recyclers able to supply auditable traceability data will earn a premium; those that cannot will be excluded from export supply chains.

Recycled content is a demand for supply capability. Putting 6% recycled lithium into a battery presupposes that enough recycled lithium exists, of stable quality and traceable origin. In effect this creates a mandatory global demand for recycled metal. China is the world's largest producer of both batteries and battery materials, and a substantial part of that demand will ultimately have to be met by China's recycling system.

Recovery targets are a demand for technical capability. Raising lithium recovery from 50% to 80% is not easy in engineering terms — lithium losses during leaching and extraction have long been a pain point. Leading firms have already pushed their indicators high: public information indicates GEM achieves lithium recovery above 96.5% and nickel and cobalt recovery above 99.5%. Such indicators are internationally leading, and are among the few capabilities China's recycling industry can export directly.

There is one more account Chinese firms must settle in advance: carbon footprint. The battery passport requires declaration not only of recycled content but of life-cycle carbon footprint — and using recycled material is one of the most effective ways to lower that footprint, since recycled metal typically consumes far less energy than mining and smelting ore. In other words, the EU rules turn "use recycled material" from an environmental gesture into an economic choice that improves two hard indicators at once. For Chinese battery and material makers, whether they can reliably source recycled metal with documentary traceability will directly affect whether, and at what price, their products enter the European market.

For recyclers this means that what they sell is no longer merely metal salt, but "metal salt plus an auditable certificate". The certificate may be worth no less than the product. Domestic firms that connected early to the traceability platform and can supply complete batch records will gain the first-mover position in this round of rule-tightening; capacity that survives on invoice-free trade will be permanently shut out of export supply chains.

Set domestic rules and EU rules side by side and something interesting appears: both are doing the same thing — rebuilding this industry through traceability. China does it through battery coding and a traceability platform; the EU through battery passports and recycled-content verification. For Chinese recyclers, those able to satisfy both systems may not be the most numerous, but they will certainly be the most valuable.

8. Process routes and the geography of capacity

Technically, resource recovery from traction batteries follows two main routes.

The pyrometallurgical route uses high-temperature smelting to reduce and extract the metals. It is relatively simple and tolerant of variable feedstock, but energy-intensive, generally poor at lithium recovery, and demanding in off-gas treatment. The hydrometallurgical route uses acid leaching, solvent extraction and precipitation to separate and purify nickel, cobalt, lithium and manganese one by one, with high recovery rates and high product purity that can feed directly into precursor and cathode material production — but with a long process chain, exacting requirements on feedstock consistency, and heavy wastewater treatment burdens. China's leading large recyclers are predominantly hydrometallurgical, and typically extend into an integrated "recycling — precursor — cathode material" chain, because only by connecting recycling to the materials business can value beyond the tolling fee be retained in-house.

Beyond these two, routes such as direct regeneration remain at research and pilot stage. Their appeal is in skipping the long journey of breaking material down to elements and rebuilding it, instead repairing cathode material for reuse, which in theory means lower energy use and cost; but the demands on feedstock consistency and purity are severe, and near-term handling of compositionally complex socially collected material is difficult.

More noteworthy than the process route, in fact, is the geography of capacity.

Recycling has a feature that distinguishes it from other manufacturing: its raw material comes not from mines but from the cars of ordinary households. Feedstock distribution follows the vehicle parc — which is to say population and consumption — while capacity distribution over recent years has followed the vigour of local investment promotion, the availability of land and energy quotas, and proximity to the parent materials business. The two do not naturally coincide.

The result is regional mismatch between feedstock and capacity: some regions with very large electric vehicle parcs lack sufficient local compliant processing capability, while some regions with dense capacity have limited local supply and must collect across provincial boundaries. Inter-provincial transport of waste batteries counts as dangerous goods transport, with requirements on qualifications, routing and manifests, and costs that are not trivial — further compressing compliant firms' margins. Workshops bear no such cost; they simply haul the batteries away in an ordinary truck.

The efficiency problem of the collection network is therefore fundamentally a question of logistics and outlet density, not merely of plant capacity. This is why Order No. 73 requires vehicle and battery manufacturers to build collection outlets and disclose information — the outlets are the capillaries of this chain, and without capillaries a thick artery achieves nothing.

Another underrated link is pre-treatment. Before a retired battery reaches the metallurgical stage it must pass through testing, discharge, pack disassembly, module disassembly, cell removal, crushing, pyrolysis and sorting. This work determines both recovery rates and safety downstream, yet it remains the most labour-dependent and accident-prone part of the chain. Mishandled residual charge causes fires; volatilised electrolyte injures workers; and the sheer variety of module structures makes automation hard to standardise — packs from different carmakers and different model years differ down to bolt positions. Solving this requires not only equipment but structural information from the traceability system: if a dismantling line can know in advance the model and internal structure of the pack in front of it, automation becomes possible. This is an additional dividend of traceability — it turns a governance tool into a production tool as well.

From a cluster perspective, two kinds of opportunity will appear in this industry over the next few years. One is the supporting demand around leading recycling bases: crushing and sorting equipment, sealed and explosion-proof equipment, off-gas and wastewater treatment plant, hazardous-waste packaging and transport, battery testing and sorting equipment, and automated dismantling lines. Battery dismantling still relies substantially on manual work and the penetration of automated sorting equipment remains low — both a safety hazard and an opening for the equipment industry. The other is the demand for compliance services: traceability system integration, carbon footprint accounting, third-party testing and certification — all of which become necessities once the battery passport takes effect.

9. Variables worth tracking

First, the "battery-attached rate" of scrapped new energy vehicles. This is the most direct indicator of whether Order No. 73 is genuinely being enforced, and the precondition for any recovery in compliant capacity utilisation.

Second, the annual growth rate of formal comprehensive utilisation. More than 400,000 tonnes in 2025, up 32.9%, is the baseline; if the new rules work, that growth should accelerate through 2026 and 2027 while the gap against retirement estimates narrows.

Third, the central tendency of lithium carbonate prices. It sets the economics of recyclers, and also the bidding power of workshops. When prices are high, the temptation of the grey market is correspondingly greater.

Fourth, the penetration of the tolling-fee model. How much capacity is covered by closed-loop agreements marks the industry's progress from betting on price to selling a service.

Fifth, the export-compliance response once the battery passport takes effect. February 2027 is a hard date, and the ability to supply auditable recycled-content data will immediately filter the supplier base.

10. Building order is harder than building capacity

In ten years China built the world's largest power-battery industry, and along the way the world's largest power-battery recycling capacity. The first achievement demonstrates this country's organisational capability in manufacturing: given a clear direction, capacity can be raised in a very short time.

The second exposes a shortcoming of a different kind. Recycling is not a pure manufacturing problem; it is a problem of transactional order. As a battery passes from an owner's hands to a dismantling plant it goes through repair shops, used-car dealers, collection points and intermediaries, and at every step the actor can choose compliance or non-compliance — while the non-compliant path is always cheaper, faster and less troublesome. Capacity can be stacked up with capital. Order cannot.

After 1 April 2026, this industry has for the first time a yardstick with binding force. The yardstick will not produce results by itself; it needs enforcement, data, cross-agency coordination and time. But the direction is clear: use codes to make every battery traceable, use vehicle-and-battery-together scrapping to lock batteries into the scrappage process, use producer responsibility to push costs back to the manufacturing side, and use prohibitions to sever the most dangerous flows.

If this mechanism works, what China gains is more than a higher self-sufficiency rate in metals. It gains a circular industry that can be audited, that meets international rules, and that can export technology and capacity on a continuing basis — one of the few strategic resources China can create for itself in metals such as lithium, cobalt and nickel, where its primary endowment is weak.

It is worth remembering that this industry's outcome will not be decided by any single company's technical indicators. A lithium recovery rate of 96.5% matters, but if half the batteries never reach that line at all, even the best recovery rate applies to only half the resource. What determines the total is where material flows, not how it is processed. This holds for every circular industry dependent on socially collected material — scrap steel, scrap aluminium, waste plastics, end-of-life vehicles all travelled the same road: workshops first fill the vacuum, then regulation rebuilds order, and finally the firms able to be both compliant and large consolidate the market. Traction batteries have simply compressed that process into a decade.

The value of a mine has never depended only on how much metal it contains, but on whether anyone can extract it in an orderly way.

Data sources and principal references

All facts and figures in this article are drawn from public sources and cross-checked across multiple sources; items that are institutional estimates rather than statutory statistics — retirement volumes, the share of informal channels, capacity utilisation rates — are identified in the text by basis and source type, with no subjective extrapolation.

  • Tianxia Gongchang Industrial Platform — China factory database and industrial-chain structural data
  • Ministry of Industry and Information Technology and five other ministries: Interim Measures for the Recovery and Comprehensive Utilisation of Waste Power Batteries from New Energy Vehicles (MIIT Order No. 73) and accompanying official explainers
  • National Development and Reform Commission: policy explainer on the red lines set for comprehensive utilisation of waste power batteries
  • State Council: Action Plan for Improving the Recovery and Utilisation System for New Energy Vehicle Power Batteries, approved at the State Council executive meeting in February 2025
  • Ministry of Industry and Information Technology: enterprise lists under the Standard Conditions for the Comprehensive Utilisation of Waste Power Batteries from New Energy Vehicles (successive batches); public information on the power-battery traceability platform
  • Ministry of Finance, General Administration of Customs and State Taxation Administration: 2026 announcement on adjusting consumption tax policy for certain batteries
  • Regulation (EU) 2023/1542 on batteries and waste batteries: provisions on the battery passport, recycled content and material recovery targets
  • China Association of Automobile Manufacturers and the Battery Recycling Committee of the China Electronic Energy Saving Technology Association: estimates of retired power-battery volumes
  • GEM Co., Ltd. and other listed companies: recycling volumes, technical indicators and business-model disclosures in periodic reports and investor-relations records
  • China Media Group (CCTV Finance), Xinhua News Agency, China Industry News and 21st Century Business Herald: investigative reporting on power-battery collection channels and informal dismantling
  • Shanghai Metals Market and Business Society: spot and futures price data for lithium carbonate