Project 9 - Growth Strategy for Battery Recycler (PE)

Intro:

This project was a Market Entry and Growth Strategy project for one of the leading global private equity firms, looking to grow the business of one its recent portfolio investments, a battery recycling company that has been struggling to find its position in the market. It is still a very nascent industry, with no clear forerunners in the domestic market, so the project entailed not only a detailed modelling of the market size (with no available market data to help us), but also a deep dive into the actual market dynamics of many of the potential up and coming players to see how the company can attain a competitive edge. I was charge mostly of the financial modelling in the first half of the project, and later on became more focused on trying to solidify and ascertain actual business models that the client could pursue through additional investments or partnerships.

The project was quite complex in regards to managing the many stakeholders that existed. Yes, the main client was the PE firm, but the firm actually had only a 50/50 stake of the business in question with a separate holding company, while the company in question also had its own agenda it wanted to enforce to its parent company as well. Alongside that we had get down to the actual implementation aspect of setting up potential partnerships, so we had to manage and set up multiple meetings with potential partners leveraging the network that our firm had to offer.

Duration/Members/W&L Balance:

This project lasted for 10 weeks, which I guess falls under the typical timeframe of a growth strategy project, so I don’t think the team felt like the timeline was too demanding, and due to the nature of the business being in its earlier stages, there was a limit to how much detail we could develop the business model without testing the waters. The project team consisted of 1 PL + 4 Consultants, with me serving as the anchor consultant. 4 consultants on a team is quite sizable, but I was the only senior consultant, so I mostly had a 1:1 role with the PL, and also had the swerve between modules as the financial modelling responsibility fell on me as I was the only one who had prior modelling experience. Goes to show you can’t always choose what you want to do in consulting, but also have to find ways to contribute outside your typical R&R to also hone your skillsets.

W&L balance wasn’t too bad, as we averaged going home probably around 12~1 AM. The main reason for life being ‘okay’ was probably because we were lucky the client’s knowledge level on this industry was not that high. After the first couple of weeks of the project, we were confident that the team knew the market better, and we were well position to take leadership of the content and the push through with our view of the market. We could also leverage our global network as well, as we had an internal reknown industry expert to help guide our understanding on difficult matters, and also help ‘wow’ the client by sharing anecdotal evidence from experience.

Battery Recycling Market Sizing

Each feedstock source of course had different expected volumes, but the most important aspect of the volume was the actual value of the metal content within the battery. Although the newest electric vehicles have a higher energy density and higher voltage applications, they have also become much lighter and compact with its battery chemistry, meaning that the higher value metals such as cobalt are not as present, and thus less desirable from a recycler’s perspective.

Thoughts on Industry:

The battery recycling industry is a gold mine, just waiting for the right market conditions to happen. The technology for recycling is not as complex, and the entire battery industry is slowly coming to agreement that the best usage for used batteries would be to fully recycle the metal contents and materials of the battery rather than the alternative of ‘re-using’ the battery, which entailed the re-purposing of a high voltage battery into a 2nd life ESS, etc. This is mainly due to the economics of the process, and since we have a very clear picture of when the feedstock for battery recycling is bound to reach high levels of volume (when the mass produced EV batteries reach their EOL lifespan of 7~10 years, so around 2030), the market industry is basically a race to establish sufficient economies of scale and infrastructure to be best prepared to capitalize the expected increase of feedstock. Until then, it’s a matter of who can survive based on limited supply, and who can establish hegemony depending on the market conditions and existing adjacent industry players.

For example, on one side you have the market leaders in waste management making their move into battery recycling as well, trying to leverage their already large access to landfills and logistical networks, and thus makes it seem like a logical next step to simply expand their coverage of waste collection and management. On the other side, you have large metal companies with pyrometallurgy capabilities with an in-depth understanding of the technological requirements needed to optimize yield in recycling, and existing relationships with PCAM/cathode material manufacturers, who are going to be the main recipients of recycled metals anyway as well. Lastly, there also are the battery manufacturers, who also have access to scrap material, the leading source of feedstock until EOL, who are still vying for ownership of the used batteries with the automotive OEMs, which is going to an uphill battle, but currently at a point where we cannot determine the outcome just yet. 

Due to the intricate nature of the type of players involved, achieving that first-move advantage and getting early access to feedstock would be the main method of establishing market leadership, and maintaining technological expertise as well.

To Recycle vs. Re-Use

The entire battery industry is slowly coming to agreement that the best usage for used batteries would be to fully recycle the metal contents and materials of the battery rather than the alternative of ‘re-using’ the battery, which entailed the re-purposing of a high voltage battery into a 2nd life ESS, etc. This is mainly due to the economics of the process…

Project Details:

Lots of modelling was required at first, as we had to first define the scope of the market, and determine the actual sources of feedstock from where the client had to target the supply. Each feedstock source of course had different expected volumes, but the most important aspect of the volume was the actual value of the metal content within the battery. Although the newest electric vehicles have a higher energy density and higher voltage applications, they have also become much lighter and compact with its battery chemistry, meaning that the higher value metals such as cobalt are not as present, and thus less desirable from a recycler’s perspective. The financial modelling had to take into consideration all the different battery chemistries, and the differing volumes by each feedstock source (such as landfills, battery manufacturer scraps, etc.)

Then after the market sizing was done, we had moved onto a strategic recommendation to the client after a brief analysis of its technology and set of capabilities. As the client was more focused on the pre-processing aspect of recycling, it didn’t have the metallurgical know-how to compete on a high level with metal companies, and thus determined the company needed to establish a strong partnership to overcome its deficiencies and secure a more stable supply of feedstock to operate its existing business lines.

We actually helped prepare a pitching deck for the client as well while meeting potential partners, and we found out later on that the negotiations ultimately led to the company in question getting a buyout from one of the largest corporate partners that we had introduced to them, so the company was able to acquire the sufficient capital to expand its operations in the end.

Personal thoughts:

Since I do have a personal background in the battery business, I do believe I had an easier time in understanding the subject matter, and was definitely able to leverage my understanding of the battery market and apply that to the battery recycling landscape as well. In addition, I love that I’m able to complete the full value chain, as I have now amassed experiences not only in battery manufacturing, and also downstream energy applications such as Virtual power plants or battery swapping, but also in terms of circularity and seeing how recycling as a business can also have huge impact in sustainability and traceability of energy. More than anything, I loved the dynamics of the team, and so far has been one of the more enjoyable projects I have had throughout my career. I think that helping these more ‘grassroots’ type of organizations leaving a greater rewarding feeling more so because you are able to see the result of the project unfold, and see how it actually impacted the growth of the client.

Consulting Lingo:

• New Business Entry

• Renewables/Energy

• Growth Strategy

• Joint Venture/Business model structure

• Market Sizing/Segmentation

• Excel modelling