Why subsidies won’t work for EV battery recycling in China

Eight years ago, in 2018, the number of EVs sold in China broke the one million mark for the first time, and sales figures have risen ever since. Most of the batteries in those cars use lithium technology and have lifespans of about eight years. Hence huge numbers are approaching the end of their useful life. From around 2028, four million tonnes of EV batteries will be retired every year, according to the China Electronics Energy Saving Technology Association.

Not all retired batteries take the same route. Some enter second-life applications such as telecom backup. Energy storage system is another option, though that route has been narrowed by a mandatory national standard issued in 2024 on safety grounds. The dominant end-of-life pathway remains dismantling and material recycling, which is the focus of this article.

In late 2025, China published a trial method for managing EV battery recycling, making clear that EV and battery manufacturers are responsible for that process. Nevertheless, multiple challenges remain. After studying several battery manufacturers and recyclers, I found that the formal recycling firms struggle to make a profit. Many batteries end up recycled in smaller informal operations that lack the equipment for environmentally safe processing, leading to both health and environmental risks.

There is currently no single national subsidy for EV battery recycling. But China's usual approach to industrial policy suggests one might be offered, either to EV buyers or formal recyclers. However, my research suggests a subsidy alone will not succeed and a new approach is needed.

Recycling problems: unprofitable, informal and uncertain

One leading battery manufacturer I spoke to has set up a recycling subsidiary. Waste material from the parent company's production lines offer a stable source of raw inputs, and it also has over 200 recycling points around the country. Though this company is unusually well-positioned in the industry, an official admitted that "if we were only recycling lithium, the maths wouldn't work." The iron, phosphorous, copper and aluminium in the battery needs to be recycled too if the operation is to be profitable.

This is down to the chemistry used in China's EV batteries. Over 80% of those sold are lithium iron phosphate batteries, which have much less recoverable value than the ternary lithium ones commonly used overseas. The ternary batteries contain valuable cobalt, nickel and manganese. A kilogram of cobalt from one is worth more than tens of kilograms of the materials recovered from a lithium iron phosphate battery.

If a big firm faces those challenges, we can imagine how tough things are elsewhere.

Formal recyclers also struggle to get enough batteries to recycle. The Ministry of Industry and Information Technology regularly publishes a list of standards-compliant recyclers, known within the industry as the "whitelist". Five editions of the list have been published, with 156 companies named. But compliance with standards is expensive. Non-compliant informal recyclers can afford to pay more for old batteries, and so snap up over 70% of this raw material.

Even with 200-plus recycling points around the country, the retired batteries they collect are still a fraction of what the parent company's production lines generate as waste, the official said.

Not being able to get old batteries is bad enough, but turning them back into useful compounds can be an expensive risk. Between 2022 and 2025, the price of lithium carbonate fell from CNY 600,000 (USD 88,000) a tonne to less than CNY 70,000. The market can change completely even as a battery goes through the recycling process. That uncertainty makes it impossible to manage stocks of recycled output, give customers stable prices, or make long-term operational plans.

To help the formal recyclers, the government has stepped up oversight of the sector, and some local governments are also handing out subsidies so they can compete with their informal competitors. For example, since 2023 Jingmen in Hubei has been paying a subsidy of CNY 50 per tonne of recycled batteries.

Subsidising recyclers may look like an easy route out, but it could be a trap.

Two lessons: appliance recycling in China and tyre recycling in California

In 2012, the Chinese government set up a fund to encourage the recycling of domestic appliances. Manufacturers were required to contribute to the fund, which was then used by the government to subsidise approved appliance recycling companies.

Manufacturers were in effect paying for recycling to be carried out by professional firms, with the government in the middle managing the process. The system made sense and is used worldwide. Since 1990, California has run a similar scheme for tyre recycling: every purchase of a new tyre includes a USD 1.75 fee, which the government collects and hands out to recyclers.

However, from the very beginning China's appliance scheme didn't take in enough, collecting between CNY 2.5 billion and CNY 3.5 billion a year but always owing recyclers more.

One expert in the handling of old appliances and electronics blamed the initial design of the scheme. Money was collected from manufacturers in line with how many appliances they sold that year, while the appliances entering the recycling system had been sold two or three decades earlier. There were billions of those old appliances in homes and recycling centres, for which recycling surcharges had never been collected. It was like expecting a pension fund only paid into by current workers to suddenly start paying out to all retired workers. By the end of 2022 the fund owed recycling firms a total of CNY 19.98 billion, according to the China National Resources Recycling Association.

There were also concerns about how the money was spent.

Subsidies from the fund accounted for about half the profits of the recycling firms. In theory, that should have been invested in better technology and equipment to mitigate environmental damage. But in reality, most was not spent on those upgrades: "The subsidies were used to buy in more appliances to recycle," the expert said.

As subsidies were paid out according to the quantities of appliances recycled, companies were incentivised to compete on the market for old appliances, in order to get the next subsidy payment. The firms were competing with other recyclers, both formal and informal, and middlemen who trade in old appliances. So the more subsidies were paid out, the fiercer competition became, and a funding mechanism intended to improve recycling systems ended up encouraging competition for material inputs. Ultimately, the companies weren't competing on technology or who could produce the best recycled materials, but on who could buy up supplies.

Since January 2024, manufacturers have no longer been required to contribute to the fund, and the mechanism has in effect ended.

California's tyre recycling scheme also failed to get the expected results. Unwanted tyres are no longer piling up in stacks, but only 35.1% of old tyres were sent into the recycling system in 2023, essentially unchanged from 36.6% in 2018, according to figures from California's Department of Resources Recycling and Recovery (CalRecycle). The rest were landfilled, used as fuel and burned in cement kilns or power plants, or exported abroad as fuel. This is because the demand for recycled rubber in higher value products simply isn't there.

From subsidies to recycled content requirements

A 2023 EU regulation on batteries may provide an alternative approach. Rather than offering subsidies to recyclers, it sets minimum requirements for the use of recycled materials in EV batteries sold on the EU market: 16% for cobalt, 6% for lithium and 6% for nickel from 2031, rising to 26%, 12% and 15% respectively in 2036.

This approach uses an entirely different logic. When battery makers know their products have to include recycled materials, they seek out recycling partners offering stable and high-quality supplies. Some may even invest in recycling operations themselves. That gives recyclers a long-term and predictable market and removes reliance on subsidies. It also means they have to compete on the quality of their product. Rather than money flowing from government to recyclers, it goes from battery makers to the recyclers best able to supply the product they need. The incentives are changed.

However, certain conditions need to be in place for it to work.

Refined recycled lithium carbonate is chemically identical to virgin material, and no test on the compound itself can tell them apart. So proving that a material is recycled means tracking it through the production chain, not testing it. Neither the EU nor China has that in place yet. The EU's mandatory Digital Battery Passport, which will record material origin and recycled content, comes into force in February 2027; the verification methodology is still being drafted. While in April 2026, China Automotive Data (Tianjin) launched a voluntary industry platform, an early step toward any mandatory system.

Chemically identical doesn't mean the finished battery performs the same. Refined recycled lithium can meet compound-level specifications, but as cathode designs move toward higher energy density and faster charging, tolerances tighten. Trace impurities, morphology and batch-to-batch variability that pass on paper can still show up as impedance growth or accelerated degradation once cells are cycled. Industry qualification increasingly turns on cell-level testing, not just chemical analysis. That's the practical gap battery makers weigh when deciding how much recycled feedstock to use.

Also, and as mentioned, lithium iron phosphate batteries are far less economic to recycle than ternary batteries, which contain valuable cobalt and nickel. If China adopts the EU approach of mandatory recycled content, it will need to produce a set of rules taking actual circumstances into account.

The need: recycling responsibilities, a recycled content mandate and carbon pricing

EV recycling in China will require a recycled content mandate, a regulatory crackdown, and carbon pricing.

The recycling policy which came into effect in April included EV batteries in the extended producer responsibility framework, meaning manufacturers need to set up recycling points and tracing systems. That decides who recycles the batteries. The next question is who will use the recycled materials?

Recycling mandates ensure formal recycling by compliant firms; recycled content requirements ensures the output from the process has a market. Carbon pricing, meanwhile, ensures the lower-carbon recycled materials are competitive on price. If every tonne of carbon has a cost, using recycled materials will be cheaper – an extra advantage. For batteries with low recyclable value, such as lithium iron phosphate ones, higher carbon costs will mean recycled materials are more competitive than virgin equivalents. Only those three approaches combined will ensure formal recycling companies can find profitable markets and create a healthy EV battery recycling sector.

This article is also published on Dialogue Earth. illuminem Voices is a democratic space presenting the opinions of leading Sustainability Thought Leaders, their views do not necessarily represent those of illuminem.

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