A rapid increase in consumer demand for electric vehicles (EVs) since 2011, along with regulatory pressure to reduce emissions and a decrease in cost for lithium-ion batteries, has led most of the world’s automakers to produce electric vehicles in their current and future lineups. This increase in production requires significant resources. While EV production volume was historically constrained by the complex processes required to build them, the primary bottleneck as of 2020 is the raw materials needed to make their batteries, including lithium, cobalt, and other rare earth minerals.

As a result, the raw materials required for an EV can total $6.7K on average, as opposed to just $2.4K for internal combustion vehicles. The battery alone can constitute 30% to 40% of the cost of producing an EV as of 2023. These costs present a major challenge for the mass production of EVs. As an example, in 2021 Mercedes committed $47 billion to its mission of becoming an EV-only brand by 2030. To hit its target, the company will require more than 200 gigawatt hours (GWh) of battery capacity, almost 4x the entire production capacity of the US in 2021. In 2024, Mercedes announced a delay in its electrification goal and pushed it back 5 years citing slowing demand for EVs.

Redwood Materials recycles lithium-ion batteries from EVs and consumer electronics in order to extract anode and cathode components, refine them into reusable material, and repurpose them for battery cell production by US auto manufacturers. This allows auto manufacturers to accelerate production and meet demand, decreases reliance on foreign supply chains, and reduces costs and emissions related to mining and the transportation of metals.

Redwood Materials was founded in 2017 by JB Straubel (CEO) and Andrew Stevenson (CFO). Straubel received his bachelor’s degree in energy systems engineering at Stanford University, where he became known for converting an old Porsche into an electric vehicle for the purpose of drag racing. He involved himself in solar car racing during the same period. Straubel later received his master's degree in engineering, also from Stanford.

In 2003, Straubel met Elon Musk, who had recently left PayPal, and pitched him on his idea for an electric car — a vehicle with 10K cells he believed would be capable of crossing the US on one charge. He and Musk, who was already looking to fund an EV project, identified a small startup named Tesla Motors which quickly became a household name with Musk’s investment and marketing.

Straubel became an early employee of the company and helped develop the lithium-ion battery powertrain that has become a blueprint for manufacturers around the world. Musk credits Straubel as a Tesla co-founder for his contributions. Fixated on the problem of wringing as much power from batteries as possible, Straubel was frustrated by the lack of planning for battery reuse and the economic barriers to making EVs cheap and accessible to all.

In 2017, Straubel and Andrew Stevenson, then the head of special projects at Tesla, filed documents with the SEC announcing their intention to launch Redwood Materials. The SEC note disclosed a $2 million investment in the stealth startup. Stevenson would go on to serve as the Redwood Materials CFO. Straubel left Tesla in 2019.

In 2019, Redwood Materials set up shop in Carson City, Nevada, conveniently located just miles from the Tesla Gigafactory, the country’s largest lithium-ion battery factory. It raised $40 million from Amazon, Breakthrough Energy Ventures, and the Capricorn Investment Group to start scaling operations. The purpose of Redwood Materials and its place within Straubel’s wider vision was to recycle batteries, capturing as much long-term value as possible from the complex array of raw materials required to make them.

Redwood Materials recycles battery materials, which is intended to create a circular supply chain by recovering and refining critical materials like lithium, cobalt, nickel, and other valuable metals from end-of-life electronics and batteries.

Lithium-ion batteries are comprised of four key parts: the anode (negative electrode), cathode (positive electrode), separator, and electrolyte. The cathode, made of lithium, nickel, and cobalt, represents a substantial part of a battery's cost. Meanwhile, the anode, composed of copper and graphite, greatly influences the battery's charging performance. The electrolyte is usually a lithium salt in an organic solvent. The separator is designed as a barrier to keep the anode and cathode apart and is comprised of synthetic resin.

The traditional means of obtaining the metals and other minerals required for battery production is through mining. Though mining is less expensive than recycling, there are many weaknesses in the supply chain and negative externalities. Lower prices are often due to cheap mining labor which is frequently likened to slavery. In 2023, many of the locations where mines are prevalent were affected by air pollution, water contamination, and land degradation. From mine to manufacturer, battery materials travel 50K nautical miles as of 2022, producing carbon emissions along the way. Reliance on mining also puts the EV industry at the whim of volatile global commodities markets.

Source: Redwood Materials

Source: Redwood Materials

Redwood Materials has a three-step process for battery re-harvesting: (1) collection and recycling, (2) refinement and remanufacturing, and (3) supplying battery materials to manufacturers. There are three primary ways that recyclable materials enter Redwood Materials factories:

1. Consumer electronics (including old phones, e-bikes, power tools, and laptops) are received from third-party e-waste suppliers and direct mail.

2. End-of-life EV batteries, which are recovered for reasons ranging from depleted capacity to automobile accidents.

3. Scrap from battery cell production. These factories scrap up to 10% of battery materials, which could amount to 80 GWh of squandered capacity by 2025. A former Tesla engineer claimed the company was wasting over $200 million worth of scrap metals.

Source: Redwood Materials

All of these items are shipped to one of Redwood Materials’ facilities, where employees take apart electronics and extract recyclable components. As part of this process, these components are reduced to their recoverable base metals. Materials are placed in an oven at 2.7K degrees Fahrenheit and converted to brightly colored powders which are used to produce anode and cathode final products.

According to Redwood Materials, its processes can reclaim more than 80% of the lithium contained in cells as well as upwards of 95% of the nickel, cobalt, aluminum, and graphite. While batteries do degrade over time, this has a minimal effect on the base metals, which can be recovered.

Asked about why recycling is so important, Celin Mikolajczak of Panasonic’s battery technology team stated:

Customer

Redwood Materials serves customers on both sides of its operation: those in the market for receiving recyclable materials, and those producing new materials.

The company’s known partners for receiving recyclable materials include Panasonic, Envision AESC, Amazon, Ford, Volvo, the Volkswagen Group (including Audi), Toyota, Lyft, and ERI, which is an e-waste recycler. These companies either collect old consumer electronics from their customers or send retired EV batteries to Redwood Materials’ facilities. The company aims to develop further relationships with EV manufacturers that do not have the capability to recycle materials themselves.

Source: Redwood Materials

While a small percentage of people do send their old electronics to e-waste recyclers, it is not a widespread practice. Straubel argues the world’s largest lithium source could actually be in the drawers of American homes where deprecated electronics are abandoned. As one of the leading buyers, Redwood Materials believes that educating consumers and making it easier for them to hand over electronics (such as offering free shipping) is important.

Redwood Materials also provides chemicals and battery materials to manufacturers like Panasonic, which supplies batteries for Tesla. In 2022, Redwood Materials and Panasonic created a partnership to begin providing cathode materials to Panasonic’s new Kansas factory by 2025.

Market Size

Redwood Materials lies at the intersection of several markets. The lithium-ion battery market was valued at over $28 billion in 2023 and is expected to reach $135 billion by 2031 as the electrification of vehicles and homes continues to expand. EVs accounted for 7.6% of car sales in 2023, up from 4.6% in 2021 but regulatory changes and increasing demand lead analysts to argue they will account for fully 10% of auto sales by 2025 and 58% by 2040. As of January 2024, GM’s CEO expected the company’s EV sales to be 10% of GM car sales in 2024.

The market for recycled lithium-ion batteries was worth $6.5 billion in 2022 and could reach $18 billion by 2030. According to Straubel, several GWh worth of energy storage is recycled per year, comprising 1-2% of what is actually being produced annually. That small proportion of total output leads the company to believe expansion opportunities within the market are substantial.

In a broad sense, the biggest competition to Redwood Materials is mining, since there’s a possibility that demand for lithium-ion batteries will be filled by resource extraction and not recycling. Due to the ever-increasing demand for electrification, governments around the world, including the Biden Administration in the US, have been committing billions to increase the supply of necessary metals. Within the battery recycling landscape, Redwood Materials faces several direct competitors.

Ascend Elements: Founded in 2015 in Massachusetts, Ascend Elements recycles lithium-ion batteries and converts them into various forms of engineered cathode materials. Its patented process which it calls Hydro-to-Cathode™ direct precursor synthesis uses a liquid solution in lieu of Redwood Materials’ ovens. While it does not yet have a focus on anode materials, its ability to easily change the concentration of formulas to provide a wide variety of cathode materials is attractive to partners such as Land Rover, Jaguar, and Honda. Ascend Elements has raised almost $1.8 billion in total funding as of May 2024, with $480 million coming from US Department of Energy (DOE) grants and an additional $100 million in debt.

Li-Cycle: Founded in Ontario in 2016, Li-Cycle uses a patented water-based process to extract valuable chemicals from batteries and separate them into recycled battery components. The most notable chemicals extracted include cobalt sulfate, lithium carbonate, and nickel sulfate. Its process recovers up to 95% of materials lost in otherwise disposed batteries. The company’s operations have expanded to Rochester, New York, and plan a recycling hub in Italy. The company went public via a SPAC in 2021 at a $1.6 billion market cap. In March 2024, Li-Cycle laid off 17% of its staff to save cash and focus on building a facility in New York. As of June 2024, the company had a market cap of $77 million.

Princeton NuEnergy: Chao Yan, a postdoctoral research associate at Princeton University, founded Princeton NuEnergy in 2019, with commercial production beginning in 2021. Its process uses much less water, chemicals, and high temperatures compared to competitors and instead uses high-throughput, low-temperature plasmas. The company claims that this allows it to achieve the same 95% recovery rate of anode and cathode materials while using much less energy. Princeton NuEnergy has raised $52 million of funding as of June 2024 following its $26 million Series A.

Redwood Materials receives batteries from a wide array of customers. The transportation of devices containing batteries is actually the largest cost for the company as well as the dismantling of different devices. While receiving smaller batteries is already a profitable venture, the larger, heavier batteries still present a complicated problem. Depending on the amount of materials a battery may yield and the sales that provides, Redwood Materials sometimes ends up paying customers back for their devices.

Upon selling the materials back to manufacturers, the price is largely dictated by the broader resources market. Because recycled battery materials are such a small fraction of the precious metals industry, the company’s pricing power is virtually non-existent. According to Tim Johnson, a co-founder of Li-Cycle, this is actually a longer-term advantage of recycling. As technology improves and the company can recycle batteries at a lower cost while capturing more value, profit margins will naturally improve as the final price will still be determined by the cost to mine.

While Redwood Materials is still burning cash as it invests heavily in research and development to drive down costs, the long-term hope is to improve the unit economics of collecting, refining, and selling materials. As of 2021, the company has been able to recapture metals at a lower cost than mining. Asked about the profitability of operations in a 2021 interview, JB Strausel said the following:

In 2020, the first full year of operations, Redwood Materials processed 10K tons of scraps from Panasonic and Envision AESC as well as batteries from Amazon’s shipment vehicles. The team stated that the following year they hoped to double production and produce several GWh of batteries. For reference, each GWh can produce anywhere between 10K-20K EVs depending on the manufacturer. In April 2021 the company was on track to surpass its goal, receiving 60 tons of devices and scraps per day, enough to fill three semi-trucks.

One year after breaking ground on the Nevada factory, Redwood Materials began producing anode copper foil and began producing cathode active material at the end of 2023. To aid in that process, in 2022 the company began construction of a 600-acre, $3.5 billion facility in South Carolina to complement the 400-acre Nevada site. These factories are designed to run on completely renewable electricity and are supported by a $2 billion conditional loan from the US Department of Energy which will be distributed according to milestones agreed upon by the two parties.

Source: Redwood Materials

The company’s goal is to recycle and produce 100 GWh of battery materials every year by 2025, enough to power 1 million EVs. The longer-term goal is to reach 500 GWh annually by 2030 to assist the development of 5 million EVs. As the factories scale and improve, Straubel believes that by 2030 the company can bring the price of raw materials down to half the cost required to mine them. The company says doing so would reduce battery cell manufacturing-related emissions by at least 40%.

In 2023, Redwood Materials acquired Redux Recycling GmbH, a German lithium-ion battery recycler, to expand its European presence and work with suppliers, customers, and partners across Europe. At the time of announcement, Redux was the leading European lithium-ion battery recycler and had a facility in Bremerhaven, Germany equipped with 10K tons of annual processing capacity. The facility is able to recycle batteries from EVs and E-bikes, stationary storage systems, and consumer electronics. A team of 70 technical staff ranging from chemical engineers, metallurgists, and material scientists was brought over as part of the acquisition and expanded Redwood Materials’ footprint in Europe.

During 2023, Redwood was reported to have recycled 10 GWh worth of lithium batteries, which is around 44K tons of material and enough to build batteries for 100K EVs.

Since receiving its first check-in 2017, Redwood Materials has raised $3.8 billion in total funding as of June 2024, with half of that figure coming from a $2 billion Department of Energy loan. The company raised a $1 billion Series D in August 2023 at a $5 billion post-money valuation. Notable investors in the company include T. Rowe Price, Goldman Sachs, Capricorn Investment Group, OMERS, and Microsoft Climate Innovation Fund.

Partnerships with Battery and Auto Manufacturers

As legislators consider setting sunset dates for the same internal combustion vehicles to promote EV sales, as in California, the demand for EVs will likely continue to rise. The existing relationship between Redwood Materials and Panasonic, the Tesla battery supplier, provides a significant source of growth, but the team will inevitably need to form substantial relationships elsewhere.

Amazon, one of Redwood Materials’ early investors, is also a large investor in the EV truck company Rivian. New US tax credits for EV manufacturers provide benefits to those that source their materials domestically which is difficult for batteries whose materials are largely mined overseas. Working with Redwood Materials allows EV companies to take advantage of these credits.

But EVs are not the only 21st-century innovation requiring batteries. Partnerships with factories that build smartphones, smartwatches, laptops, and more are present opportunities. Additionally, governments around the world are pushing for grid scale energy storage, which helps prevent blackouts by balancing utility energy supply and demand and also prevents the loss of renewable energy during periods of surplus.

Expansion to Foreign Markets

International expansion is a key opportunity for Redwood Materials, which currently only operates in the US. It is also essential for the company’s ongoing viability. Relationships between capital-intensive mines, which face huge startup costs, and manufacturing plants that can't afford supply chain disruptions, are typically long-lasting. These contracts often span many years, ensuring the viability of the business for both parties. A similar long-term commitment will likely be required from battery recyclers, as its battery customers will need the same level of dependability. The more time Redwood Materials takes to expand internationally, the more opportunities manufacturers have to lock in extended contracts with mines or other recycling companies.

In 2021, Straubel said that—while North American expansion is still the lowest hanging fruit—the company is looking at Europe and Asia as its second and third most important growth areas respectively.

Licensing and Co-Locating Operations

The largest cost for Redwood Materials remains the logistics of collecting and transporting batteries to its Nevada factory. This factory is conveniently located near the Nevada Gigafactory which reduces the costs of shipping materials to production. As more partnerships emerge, Redwood Materials will have to decide which are large enough to require co-located factories to reduce shipping costs. For example, if a Rivian partnership became successful at a later point, Redwood Materials could place a site near the Rivian plant in Illinois to reduce the costs of shipping materials from Nevada.

Because its factories operate on renewable energy, the largest source of emissions for Redwood Materials is transportation. Any effort to reduce the transportation needs of goods also cuts emissions.

Development of Alternative Fuels and Batteries

While EVs are the most common way to reduce emissions created by vehicles, they are not the only option. Hydrogen fuel cells, for example, show great promise. Just like lithium-ion batteries, there are many considerations with fuel cell EVs (FCEVs), but many customers appreciate that their only emissions are water vapor and warm air. Companies like Toyota, BMW, Hyundai, and Honda have all released an FCEV, and startups like Nikola Motors are trying to do the same. If a hydrogen fuel turns out to be technologically superior or gains market share dues, it would affect Redwood Materials.

Additionally, lithium-ion batteries are not the only option being investigated for concealed energy storage. Solid-state batteries have gained a lot of attention due to their high energy density. While they still contain many of the same minerals being processed by Redwood Materials, a switch to solid-state batteries may require substantial factory changes.

Inability to Optimize Operations

With so many unusual inputs—from electric toothbrushes to large vehicular batteries—Redwood Materials’ processes are innately challenging to streamline. This is part of the reason mining remains the cheaper option. If operations cannot be streamlined, the price may never come down to a competitive point that allows Redwood Materials and its customers to mutually benefit.

One important thing to note is that if battery breakdown and production become less time- and capital-intensive, customers and the broader market may demand lower prices for recycled batteries, eating away at the company’s margins.

Alternative Recycling Methods

Most of Redwood Materials’ competitors are using water-based methods to recycle battery materials instead of the company’s heat method. As scale increases, one specific recycling method may emerge most sustainable, or water-based methods in general may prove generally superior. While factories can in theory be retrofitted, the furnaces and equipment Redwood Materials has invested in have long payback periods. To minimize this risk, the company will likely continue to work toward making its processes more efficient, while maintaining awareness of developments in the broader sector in case a process change is required.

Redwood Materials operates in the rapidly expanding battery recycling market, employing a patented, heat-based technology to refine battery materials from old electronics and battery cells and recycle certain components for anode and cathode materials. Due to government regulation and increased consumer demand, the EV market is growing rapidly—meaning both an increase in demand for battery materials and an increase in extant batteries approaching the end of their life.

As Redwood Materials looks to expand globally, deep partnerships both on the e-waste supply and battery material demand sides will be extremely important. Government investment, in the interest of making EV supply chains more robust, has produced a number of competitors to Redwood Materials. Along with lowering the cost of operations, Redwood Materials will need to keep a strong watch over competitors to ensure they are using the best technological processes to provide the lowest price product.