SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among EV battery recyclers. We look at why they are compelling and why each could be a fit for a blank-check merger.
It is clear to all that in order to meet climate goals, internal combustion engines are going to have to get off the road in favor of electric vehicles (EVs). But, while a great amount of investment has been put into the EV production side of the equation, the next great challenge will be making that production itself sustainable.
As anyone who’s ever tried to get rid of old AA batteries “the right way” knows, it is not easy to deal with the end of life of those materials ecologically. And, there are about to be millions of much larger batteries out there in the chassis of EVs on the road. EV manufacturers, which have gotten a major boost from ESG-specific funds, will be under continued pressure to make sure they aren’t reducing carbon emissions only to poison the ground with spent lithium.
EV battery recyclers also stand to assuage another pressure in the market – that of materials supply. Li-Cycle (NYSE:LICY), which combined with Peridot in August, has offtake agreements that give it access to an estimated 30% of lithium-ion batteries in consumer electronics and EVs in the North American market.
In addition to the shredded copper, plastic and other commodity by-products it is able to re-sell from these recycled batteries, it already sells black mass – an ingredient in many batteries – right back to manufacturers. It will also soon be able to separate out concentrated forms the precious metals in those batteries like lithium, cobalt and nickel that are among the most competitively sought-after resources in on the planet at the moment.
Li-Cycle hit a post-completion high of $12.73 earlier this month and closed Thursday trading at $11.40. Although it touches upon a variety of materials, the lithium-ion battery recycling market alone is expected to grow from $1.5 billion in 2019 to $18.1 billion in 2030. Luckily for SPACs, the battery-recycling space hosts a variety of mature private targets that could use SPAC cash to invest in EV-specific technologies and also growth-stage companies nearing an inflection point.
Northvolt is in some ways the David Hasselhoff to Li-Cycle – a medium-sized deal in the US, but way bigger in Europe.
The Stockholm, Sweden-based company has been recycling a number of materials since its founding in 2016, but has veered hard in the direction of both recycling EV batteries and churning out finished battery products from this input in return. By 2022, Northvolt expects it will be able to recycle 25,000 tons of battery cells, while Li-Cycle aims to reach a capacity of 9,500 tons once it scales. By 2030, Northvolt aims to have its consumer batteries made up of 50% recycled content.
While American green energy ventures are still waiting on the Biden infrastructure package, Northvolt has been receiving robust support from the EU and Europe-based investors. As such, this could mark an opportune time for US investors to gain access to the company.
Northvolt’s first next-generation battery recycling plant is set to go online in 2022 and these development efforts have already been funded by a $2.75 billion Series E in June that drew in Goldman Sachs (NYSE:GS), Volkswagen (DE:VOWG) and Swedish automaker Scania, among others. The company also announced a joint venture with Volvo (ST:VOLV) and SPAC-targeted EV-maker Polestar to produce more sustainable batteries for the automakers later that month.
As such, Northvolt is not hurting for cash and reportedly reached a valuation of $11.75 billion in this last private raise. But, it must nonetheless be interested in how much higher the public markets might place that value, and its investors through nine venture capital raises are surely just as interested or more so.
But, given its advantageous perch, Northvolt could decide to seek out the best fit for a SPAC deal rather than let them come to them, with the big dogs Churchill VII (NYSE:CVII) and Social Capital Hedosophia VI (NYSE:IPOF) standing out. Both raised over $1 billion in total proceeds at IPO have teams that consistently get the attention of the market.
But, not all of the opportunities in this space are whales.
Battery Resourcers, which has raised just $92.8 million in total outside funding since its 2015 founding, is expanding its pilot recycling plant network with unique twist on the process. The Worcester, Massachusetts-based company is finishing its recycled materials with the battery market in mind, specifically re-combining them to make battery-ready cathode materials and graphite.
This promises to create a full closed-loop process in partnership with battery-makers, and Battery Resourcers has already lined up supply. In June, it signed an agreement with Honda (TYO:7267) to offtake its EV batteries in North America, which is promising. But SPAC cash could certainly go to work in its operations.
Battery Resourcers’ initial agreement with Honda will have it process EV batteries at the company’s new Massachusetts facility capable of handling about 10,000 tons of batteries. This puts it on a similar scale as Li-Cycle, which largely raised capital through small grants leading up to its SPAC deal.
Rice II (NYSE:RONI), Sustainable Development I (NASDAQ:SDAC) and Tech and Energy Transition (NASDAQ:TETC) are all hunting for targets in Battery Resourcers’ neighborhood and have similar levels of cash in trust as Peridot brought into the Li-Cycle deal.
Redwood Materials is positioning itself to be a kind of American Northvolt, working to be the offtaker of recyclables from not only the EV industry, but also renewable energy storage, consumer electronics, and the manufacturing space.
Casting this broader net, the Carson City, Nevada-based company gains access to other metals like gold, silver, palladium, tantalum, and neodymium, which are used in the production of electronic circuits and are commodities in their own right.
As attractive as the end-of-life EV opportunity is, SPACs have done well in the past year targeting recycled material-makers outside of this silo. PureCycle (NASDAQ:PCT), which closed its combination with Roth CH I in March, produces a recycled plastic material that is cheaper to produce than new plastic. It finished Thursday trading at $14.85 while aluminum-recycler Ardagh Metal Packaging (NYSE:AMBP) closed at $9.98 two months out from its closing its deal with Gores V.
Redwood’s co-founder and CEO JB Straubel was a co-founder and CTO at Tesla (NASDAQ:TSLA) before striking out on his own and he also serves on the Board of SPAC-listed EV battery-maker Quantumscape (NYSE:QS). Redwood’s processes currently recapture 95% of key materials like nickel, and sells a high proportion of its recycled stock to Panasonic (TYO:6752).
In some ways, Straubel and Redwood represent a coming shift in talent and capital in the timeline of the massive EV transition. First, the question was how to make EVs. That’s been answered. Next comes the question of how to build a charging infrastructure that can support their deployment – that’s ongoing. But, as the EV industry scales, the next battle may sorting out supply bottlenecks to maintain momentum and making sure the transition does not replace one form a pollution with another.