We begin coverage of Li-Cycle, a pioneer in the North American lithium-ion battery recycling market, which we believe will grow as the transition to electric vehicles accelerates. Recycling lithium-ion batteries partly solves the global supply disruption caused by the pandemic and helps reduce the risk of millions of tons of spent batteries ending up in landfills. We estimate the fair value of Li-Cycle shares at $ 15.
Li-Cycle offers a more efficient and competitive battery recycling solution that should help the company gain market share as regulation of used lithium-ion batteries becomes more stringent and supply chain partners seek to reduce their environmental impact. With Li-Cycle acting as a buyer, the company has the opportunity to benefit from the complexity of supplying lithium-ion battery materials, which further supports the company’s revenue. Due to the high prospects for the development of the lithium-ion battery recycling market and the innovative technology of the company itself, we see Li-Cycle as a successful bet on the mega trend of transport electrification, especially in the context of the continuing instability of global logistics.
Founded in 2016, Li-Cycle Holdings is a lithium-ion battery recycling company based in Ontario. Co-founders Ajay Kochhar and Tim Johnston formerly worked on projects across the lithium-ion battery value chain at Hatch, a global engineering consulting firm. The company uses a spoke and hub model where spokes convert spent or new scrap lithium-ion batteries to black mass. Black mass is then transported to nearby hubs and converted to key metals (lithium, nickel and cobalt) used by customers in the production of recycled lithium-ion batteries. The company currently has two spoke facilities that will supply the planned Rochester hub with black mass upon startup. Li-Cycle has a long-term agreement with Traxys that secures a buyer as it ramps its Rochester hub. Net proceeds from the SPAC merger are expected to be sufficient to fund management’s rollout plan of 20 spokes and 4hubs with all facilities expected to be operational by 2024.