China's power-battery recycling industry is being billed as a trillion-yuan opportunity, yet most automakers are still watching from the sidelines. A regulation that took effect in April 2026 makes vehicle manufacturers the first responsible party for recycling retired EV batteries, but according to a report from the Chinese outlet Huxiu, the vast majority of carmakers are doing little more than meeting compliance requirements.
Why carmakers hesitate
The stakes are large. By the end of 2025, China had more than 40 million new-energy vehicles on the road, and industry forecasts cited by Huxiu predict cumulative retired batteries will exceed 3 million tonnes by 2030, creating a market worth more than 200 billion yuan (about $28 billion). At a workshop in Haikou organised by Greenpeace and local partners, Jiecheng New Energy vice-general manager Yang Haoyu went further, predicting the recycling market could eventually reach one trillion yuan.
Retired batteries are often called a "second mine." Recycling them could supply 24% of the lithium, 31.2% of the cobalt and 16.8% of the nickel needed each year for battery production, according to figures shared at the event. Li Jiayu of the China Battery Industry Association said recycling serves three purposes: preventing heavy-metal and organic pollution, reducing China's reliance on imported nickel, cobalt and lithium, and eliminating safety risks from improper disposal.
Yet most carmakers are not diving in. The new rules, formally the Interim Measures for the Recycling and Comprehensive Utilisation of Retired Power Batteries of New Energy Vehicles, shift oversight from voluntary guidance to mandatory regulation and implement an extended producer responsibility (EPR) scheme. Automakers are named as the primary responsible party, with battery makers second. Carmakers must build or authorise recycling service points matching their sales volumes, and a vehicle cannot be scrapped if its battery is missing. All batteries must be logged on a national traceability platform covering production, installation, repair, scrapping and reuse.
Enforcement has already begun. Between April and June, five government ministries ran joint inspections that punished more than 1,300 recycling and storage companies, according to the report.
Still, most carmakers are choosing to outsource the work to third-party recyclers rather than build their own operations. The reasons are practical. Recycling capacity for hydrometallurgical processing already exceeds 4 million tonnes, but only about 500,000 tonnes of power batteries actually retired in 2025, leaving a gap of more than 3 million tonnes and forcing many legitimate recyclers to operate well below capacity.
The shortage exists because most EVs in China were sold between 2018 and 2020, and batteries typically carry 8-12 year warranties, so the big wave of retirements has not arrived. Meanwhile, batteries from accidents, repairs and recalls are often snapped up by informal "grey market" dealers who pay higher cash prices because they avoid environmental, safety and tax costs. As Wang Dechuang, a committee chair at the China National Resources Recycling Association, put it at the workshop: the EPR safety net cannot really work while supply is scarce, and will only function once retired batteries become abundant.
Technology shifts squeeze margins
Battery chemistry is also eroding profitability. Older retired packs are mostly high-nickel ternary cells with valuable cobalt and nickel, but lithium iron phosphate (LFP) batteries now account for more than 80% of new installations. LFP packs offer little value beyond their lithium, so recycling economics are tied to lithium prices, and a downturn can push operations into losses.
There are structural mismatches too. Carmakers that build their own dismantling and smelting plants would enter a heavy chemical industry far from their core business, with huge investment and strict environmental permits. Most prefer to collect batteries through their 4S dealership networks and hand them to specialist recyclers, but in a tight market that middleman role rarely earns steady profits.
Technical hurdles remain. The new 24-digit battery "digital ID" and national traceability platform only cover the battery pack handover stage, not crushing, smelting or recycled-material flows. The commerce ministry's vehicle-scrapping system and the industry ministry's battery traceability platform are separate and do not share data. Battery health and cycle data vary by manufacturer, and recyclers that accept batteries without full traceability risk penalties if safety incidents occur. Dismantling is also expensive because packs are sealed with strong structural adhesives for safety and weight reasons, and there is no unified standard for pack design or battery management system protocols across brands.
For now, the regulation has forced carmakers to register recycling networks, but most are treating it as a paperwork exercise. Whether they move from compliance to investment will depend on the arrival of the retirement wave, lithium prices and whether the traceability system can actually close the loop.
