The Real Battery Economy

Why policy and investment must move beyond production and recycling

The battery market entered 2025 expecting momentum. Instead, it found itself navigating a far more fragmented and uncertain landscape.

In the United States, the gradual weakening of several components of the Inflation Reduction Act has done more than reduce support for individual battery and EV projects. It has altered behavior. U.S. automakers have visibly softened their EV ambitions, reframing electrification timelines and re-emphasizing hybrids and conventional platforms. The effect has been immediate: slower commitments to new battery production capacity, delayed midstream investments, and growing uncertainty around large-scale recycling projects whose economics depend on volume and long-term confidence.

These developments have not remained contained within U.S. borders.

Europe entered 2025 already under strain. EV market growth stalled in 2024 for the first time, margins compressed, and several OEMs found themselves squeezed between slowing demand at home and intensifying competition abroad. Trade tensions and weaker export performance, particularly in China, have compounded the challenge. Against this backdrop, European carmakers have pushed for a relaxation of electrification timelines—and the European Commission has shown a willingness to accommodate.

Because the automotive industry remains the primary driver of battery demand in both Europe and the United States, these shifts have had systemic consequences across the battery economy.

A midstream caught between two worlds

Rapid policy and market reversals have proven especially difficult for midstream players—battery material suppliers, recyclers, and processing companies—in both regions. These challenges are magnified by one critical asymmetry: China has not slowed down.

Chinese battery and materials output continues to expand, and the need for Chinese players to place volumes in global markets has intensified price pressure precisely when Western demand growth has weakened. Investors, already cautious after a difficult 2024, have become more selective. Projects that looked robust only 18 months ago are now struggling to clear investment committees.

In the United States, companies are forced to pivot—either by identifying new value streams or by accepting a slower growth trajectory. In Europe, the response has been more defensive. Battery material producers, recyclers, and adjacent industries increasingly call for policy intervention to “protect” the regional battery ecosystem.

Two proposals now dominate the discussion: stronger local content requirements in automotive manufacturing and restrictions—or outright bans—on exports of black mass and other battery intermediates.

At the same time, the automotive sector itself is fighting on two fronts: seeking to soften or delay the 2035 ICE ban while simultaneously calling—often alongside NGOs—for renewed incentives to stimulate EV demand.

Looking for value in the wrong places

This is where CES believes the market needs to fundamentally recalibrate.

For almost a decade, battery discourse in both Europe and the US has been dominated by two phases: production and recycling. Mining, refining, production of cells and packs have together with recycling been treated as the primary sources of value and the main levers for policy intervention.

What has been largely overlooked is the phase that sits between production and recycling: use. In the case of electric vehicles, battery use has primarily been framed as a climate initiative—focused on emissions reduction—while its strategic and economic significance has received far less attention. This has obscured the role batteries play as productive assets that enable energy security, efficiency gains, and long-term value creation across multiple markets.

In The Real Battery Economy, CES argues that batteries should not be understood primarily as manufactured goods or waste streams, but as long-lived infrastructure assets that generate value continuously throughout their operational life.

Our Battery Economy Model illustrates this clearly. While the sale of a battery pack captures the combined value of upstream mining, materials, cells, and assembly, this initial transaction represents only a fraction of the total economic value created by the battery over time. The dominant value driver is neither battery production nor material recovery—it is electricity consumption, and services, enabled by the battery.

This is particularly consequential for Europe.

 

Batteries, electricity, and European competitiveness

The European Union remains highly dependent on imported fuels. More than 95% of oil consumed in the EU is imported; including Norway and the UK reduces this figure, but dependence still sits around 70–75%. Gas dependency is lower, yet still significant, with roughly 60% sourced externally.

Electricity is different.

The EU imports less than 5% of its electricity, and when Norway and the UK are included, the region is a net exporter. Electrification therefore shifts energy demand toward the only energy market in which Europe is structurally self-reliant.

EVs amplify this advantage. They are three to four times more energy-efficient than internal combustion vehicles, and large-scale electrification increases demand in a market where additional supply—solar, wind, and storage—is not only generated domestically but increasingly the cheapest energy available.

The challenge, of course, is that gas still sets the marginal price of electricity. But this is precisely why accelerating investment in renewables and batteries is not just a climate strategy—it is an industrial one. A rapid build-out of renewable energy does not only make Europe more independent; over time it can also reduce energy costs, strengthening competitiveness while raising overall economic welfare.

From this perspective, batteries generate far more value through their use than through their production or recycling. Policy that slows battery deployment therefore undermines the most strategically important value creation the sector offers.

Value lives where batteries are used

CES data on vehicle lifetimes shows that electric cars are—and will continue to be—used for well over 20 years. As the chart illustrates, this long operational life fundamentally reshapes where and when value is created. While battery production generates a one-off value at the point of sale, the cumulative value generated during use grows year by year and quickly surpasses the original production value.

The largest share of this value comes from the consumption and production of electricity enabled by batteries. As fleet sizes grow, electric vehicles increasingly function not only as transport assets, but as part of the energy system itself—acting as flexible loads, distributed storage, and, over time, providers of vehicle-to-grid services. These contributions accumulate gradually, but at scale they become the dominant source of economic value associated with batteries.

Beyond this core use-phase value, additional layers of value emerge later in the lifecycle through reuse, repurposing, and eventually recycling. While important—particularly from a global resource efficiency point of view—these activities represent a smaller and more delayed share of total value creation. Their contribution depends directly on how long batteries remain in productive use and on the size of the fleet that ultimately reaches end-of-life.

Even this does not fully capture the benefits associated with battery use. This perspective does not account for secondary effects such as cleaner air, lower noise, and improved urban mobility enabled by lower operating costs for buses, taxis, and ride-share services. Taken together, these effects reinforce the central insight shown in the chart: the real economic value of batteries is created gradually, during use, and at scale—not at the factory gate or at end-of-life.

Precisely because the largest share of value is created during use, policies that raise the cost of batteries, vehicles, or electricity—especially through trade restrictions or material bottlenecks—inevitably slow the expansion of these services and benefits. Even if production- or recovery-related value increases locally, the loss of value during the use phase can outweigh those gains.

It is for this reason that many current policy proposals resemble end-of-pipe solutions from the 1970s and 1980s: they address visible symptoms rather than the underlying system that generates value.

Residual values as a policy blind spot

One example is the continued emphasis on EV purchase subsidies.

While tax credits and upfront incentives can stabilise short-term demand, they do little to support the long-term health of the vehicle market. CES analysis shows that EV residual values decline significantly faster than those of ICE vehicles. This has cascading effects across finance, insurance, and secondary markets.

Lower residual values reduce average cash values for damaged vehicles, pushing more cars out of circulation earlier. Combined with weak used-market demand, this accelerates exports—resulting in a permanent loss of future value for the European market. It also pressures OEMs to lower new-vehicle prices, as three-year-old EVs often sell for half their original price.

By contrast, incentives tied to ownership—vehicle tax relief, congestion charge exemptions, or access benefits—support value throughout the vehicle’s life, not just its first lease cycle.

The EU’s End-of-Life Vehicle regulation seeks to address the export of damaged or end-of-life vehicles by restricting shipments to markets where lower repair costs make refurbishment economically viable. In practice, these exports have become an important way for insurers and dismantlers to recover value from EVs whose residual values in Europe have fallen too low to justify repair.

The regulation therefore intervenes at the end of the value chain, without addressing the underlying causes of low residual values in the first place—namely concerns about battery health, limited charging access, and high long-term ownership costs. Addressing these factors directly—by adding value organically for drivers—would raise vehicle values, make repairs and component recovery economically viable within Europe, and retain more value in the local circular vehicle ecosystem without relying on export restrictions.

Black mass bans and the illusion of control

A similar logic applies to proposed bans on black mass exports.

While increased local feedstock would benefit European recovery facilities in theory, the root problem is not volume—it is competitiveness. High energy costs and weak downstream demand strain European material recovery companies and their customers, including precursor and cathode producers. As a result, these players are structurally unable to pay the prices that their peers in China and South Korea can sustain.

The primary effect of an export ban would therefore not be higher utilisation or stronger recovery economics downstream, but lower prices in the upstream market—a segment that is already struggling with overcapacity. This pressure would force upstream actors to seek value elsewhere, often by exporting vehicles or batteries themselves, legally or otherwise.

Rather than anchoring value in Europe, such measures risk shifting value loss upstream while leaving the underlying downstream constraints unresolved. These constraints are structural: weaker competitiveness driven by compounding cost pressures in the European region, including high and volatile energy prices, higher labour costs, and limited access to skilled personnel at scale. As long as these conditions persist, restrictions on material flows cannot substitute for the fundamentals required to sustain competitive recovery, precursor, and cathode production in Europe.

Structural price pressure and what it implies

Another consequence of the continued focus on production and recycling is the underestimation of persistent price pressure in the battery market itself. Efficiency gains, scale, and global competition will continue to drive down battery costs. This is unquestionably beneficial for users, but it places increasing strain on battery manufacturers and material suppliers.

At the same time, the growing market share of iron- and manganese-based chemistries further compresses value across the supply chain. While these chemistries improve affordability and resilience, they also reduce overall market value and make it considerably more difficult for players whose portfolios are not aligned with these technologies.

Together, these dynamics reinforce a critical point: battery production alone is no longer the primary value driver.

The path forward: demand, energy, and durable value

Despite these challenges, the battery market continues to offer substantial opportunities—if approached holistically.

Smaller batteries, range-extended EVs, fast charging, and improved infrastructure all reduce dependence on upstream supply while supporting adoption in the critical second and third ownership cycles. These trends once again underline that value creation increasingly occurs outside the battery factory gate.

Ultimately, the most effective way to improve conditions for battery production in Europe and the United States is not to shield producers from market forces, but to expand demand and lower energy costs. Competitive electricity prices and strong use-phase economics increase battery demand, improve utilization rates, and create the volumes that sustainable production depends on.

If policy support is to be effective, it should therefore focus on the fundamentals that cannot be relocated: affordable clean energy, efficient electricity markets, and incentives that strengthen long-term ownership and use. Addressing these conditions will do more to improve the business case for local production and recycling than any attempt to manage symptoms through trade restrictions or export bans.

This is the core of The Real Battery Economy.

Value created through use—electricity consumption, grid services, mobility, and system efficiency—is value that stays in the market. Unlike production or material recovery, it cannot be offshored.

For policymakers and investors alike, the message should be clear: the battery market cannot be understood—or governed—by focusing solely on where batteries are made or where they end up. The decisive value lies in how they are used—and in creating the conditions that allow that value to grow.

Hans Eric Melin

Founder CES Research & Consulting