After experiencing a couple of very solid years during the pandemic and post-COVID, the automotive recycling industry is experiencing a slight pull-back as new and aftermarket part availability increased.
“This resulted in an effective price reduction that stabilized in the third quarter of 2023,” said Paul Delaney, chief visionary officer of Fenix Parts. “It’s important to note that as demand for used parts declined, the price of the vehicles at auction also declined. This provided an opportunity for margin expansion despite lower selling prices. The best recyclers in the industry have used the COVID boost to establish a new baseline from which to grow.”
So what are the biggest factors currently affecting the auto recycling industry? Inflation is having a big impact on the market. As Delaney explained, inflation impacts the auto industry in the same way it does many other industries. The cost of labor, fuel and materials has continued to rise.
In addition, he pointed out that the expected adoption of electric vehicles has slowed, but the continued use of Advanced Driver-Assistance Systems (ADAS) in vehicles will likely continue to reduce the number of collisions, offset by the increased cost of maintaining and replacing the ADAS components.
“Unlike many industries, used parts continue to be sourced by direct person-to-person contact. There are a number of initiatives in process that seek to make it easier for our customers to purchase parts electronically,” Delaney said. “Recyclers need to be able to embrace this change and streamline the process for their customers. In addition, it’s important to understand that the population of vehicles on the road is changing to include more EVs and hybrids and companies need to adapt their product mix to meet this change.”
Phil Dunne, managing director at global consultancy Stax, added that the auto parts recycling industry is influenced by a number of factors. One of the key factors is the average age of the overall vehicles in operation (VIO). This increased during the COVID period as fewer new cars were bought, and has continued to increase post-COVID as the availability of new cars has taken time to recover.
“Newer vehicles are covered by warranty and predominantly repaired within franchised dealerships, using OEM parts. Older vehicles are more likely to be maintained and repaired by independents that are more willing to use recycled parts, which can cost 50 percent less than new parts and are therefore attractive to more price sensitive customers,” Dunne said. “The industry is returning to a more normal supply/demand situation now and recycled ‘green’ parts represent around 11 percent of collision repair parts by value in North America. In Europe, there is significant variation in the uptake of green parts, driven by different insurance stipulations and attitudes towards sustainability, ranging from around 4 percent in the U.K. to 13 percent in Sweden.”
According to Todd Bialaszewski, owner of Junk Car Medics, the auto recycling industry had a strong run during and right after COVID, and that continues. Demand for used auto parts surged as people held onto their cars longer and new car production slowed.
“The supply chain issues have eased, but the demand for affordable, recycled parts is still high,” Bialaszewski said. “When you factor in the economy, people are still in the mindset they were during COVID-19 when incomes were lower. People are still trying to repair their cars and keep them on the road longer. I expect the lifespan of vehicles to rise for the next several years. We reported this analyzing the lifespans of recycled vehicles in 2023 and will keep an eye on it into the future.”
David Klanecky, chief executive officer of Cirba Solutions, further pointed out that in the aftermath of the pandemic, global supply chain challenges put a strain on the automotive industry, which today has resulted in greater demand.
“As those headwinds eased, the auto industry committed to a significant shift towards electric vehicles and more importantly the need for a domestic supply chain, creating new opportunities for the recycling industry,” Klanecky said. “A growing focus on a circular economy and sustainable practices is pushing for better ways to recover and recycle metals, plastics and natural materials like those found in EV batteries.”
Additionally, Klanecky said the demand for recycled content is going to increase significantly, and it’s imperative that OEMs plan for that shift now. Cirba Solutions is creating a closed-loop business model to support the growing EV industry to help OEMs, cell manufacturers and battery material producers plan for this demand, ultimately supporting the growth and sustainability aspects throughout the battery lifecycle.
Even as the recycling industry heats up, the industry is playing a game of catch-up. As new battery chemistries and pack/module designs emerge, recyclers must adapt by the time those cars reach their end-of-life, which could be 8 to 10 years down the line.
“Recyclers need to stay ahead of the innovation curve and build foundational recycling processes that can easily adapt to and integrate with the evolving needs of the market and partners,” Klanecky said. “This ensures efficient resource recovery ultimately benefitting American consumers.”
Along those lines, EVs also present a new challenge due to different materials and assembly methods. EVs are powered by complex battery packs containing critical minerals that can be recovered from end-of-life batteries at an approximate rate of 95 percent. However, current EV designs don’t prioritize battery recyclability, and safe handling of these batteries is critical to avoid environmental and thermal event risks from improper disposal or damage from mishandling.
“Auto recyclers will need to collaborate with battery recycling partners that are skilled in how to properly package, transport, store and process the batteries to recover the metals and put them back into the supply chain for future use,” Klanecky said. “Returning these critical minerals to the supply chain will not only promote a more sustainable automotive industry but will also alleviate the critical mineral supply pressures that are expected to hit the industry as early as 2030.”
Dunne agreed that the biggest challenges will be the increasing number of electric vehicles in the VIO and the complexity of driver assistance systems, both of which will change the product mix that recyclers will be offering.
As he explained, electric vehicles have fewer parts for maintenance but the same parts for collision repairs. The impact is also significant operationally as they are more likely to be written off, available for salvage and require different skills for dismantling.
“Driver assistance systems require multiple sensors that are typically on the extremities of the vehicle and therefore vulnerable to collision,” Dunne said. “The complexity of these parts will make repairs more expensive, which will heighten the need for less expensive recycled equivalents.”
Embracing Continuous Change
The shift away from traditional internal combustion engine vehicles and toward EVs is reinventing the entire manufacturing process, and with it, the dismantling and recycling processes for new generation vehicles at end-of-life. For instance, EV batteries contain critical metals like lithium, nickel and cobalt. Recovering and recycling these materials requires specialized expertise and processes, making battery-specific recyclers a necessary partner for automotive teams throughout the supply chain.
As Klanecky explained, the International Energy Agency projects that every other car sold globally in 2035 will be electric. Much of this is driven by climate and policy goals set by government agencies both in the U.S. and overseas.
“Challenges in the critical mineral supply chain and the price of EV batteries are hurdles for manufacturers, potentially holding them back from scaling new EV production. The recent increase in tariffs for lithium-ion batteries from China from 7 percent to 25 percent is a strong market signal to manufacturing operations around sourcing materials domestically,” Klanecky said. “This is why finding innovations in reliable and sustainable technology options will be essential for the future of electrification, allowing for supply chain resiliency and domestically sourced content reducing logistical costs, as well as emissions.”
In addition, Bialaszewski said the industry’s biggest challenges are ongoing changes to environmental regulations and the need for more advanced technology to keep up. “Auto recyclers need to invest in better, cleaner recycling processes to meet new standards,” he said.
Looking ahead, the number of vehicles on the road is expected to continue to increase, as are the number of miles each vehicle drives in a year. Additionally, the average age of vehicles in service is expected to increase through 2030. Delaney said these are all positive trends for the recycling industry.
“Compounding this expansion of the market is the fact that the auto recycling industry is built upon scarcity,” Delaney said. “The demand for recycled parts exceeds supply. As a result, the industry compiles large amounts of data in order to use statistics to make decisions on procurement and pricing.”
Globally, the industry is projected to grow to $243 billion by 2032, according to the new Global Vehicle Recycling Marketing Report. “So, suffice it to say the future is strong. The changes to regulations and the increase of EVs on the road will have the biggest impact. It’ll be interesting to see how AI technology makes its way into the industry,” Bialaszewski said. “We’ve been playing with it heavily over the last several months, optimizing our pricing models.”
“Adapting to these changes while making it possible for customers to interact with the recyclers electronically will be the key to success in the future,” Delaney said. “Those recyclers who anticipate these changes and remain nimble will flourish.”
Recycling programs also help companies achieve environmental, social and governance (ESG) goals by closing the loop on materials and conserving resources through reduced waste. As Klanecky pointed out, collaborations between automakers, recyclers and other companies will only become more essential with the growing focus on stronger supply chains and sustainable practices.
“The consumers’ increasing awareness of sustainability, combined with the professionalized supply of a low-cost alternative, all points to a positive future. The biggest impacts will be increasing EV numbers and the complexity of driver assistance systems, both of which will impact product offerings and operational capability requirements,” Dunne said. “I also think that AI will have a role to play in ensuring that the right products are recycled at the right time from the right salvage vehicles to optimize availability based on a rigorous analysis of demand patterns over time, seasons and regions.”