Towards a Standardized Accounting Framework for EV Battery Recycling Provisions

Jean-Philippe Hermine

Managing Director

Marine Hautsch

Project manager Critical raw materials & circularity

As the Extended Producer Responsibility (EPR) obligations entered into force in August 2025 as part of the EU Battery regulation on electric vehicle batteries, the Institute for Mobility in Transition, in collaboration with EY, carried out an analysis of the potential accounting and industrial impacts of recycling such batteries.

Key Takeaways
Starting in August 2025 and in line with European regulation, automakers will need to provision more than €1 billion annually to cover their obligations related to EV battery recycling. This obligation is based on key assumptions that still need to be harmonized, such as battery lifespan and the resale price of raw materials. It also requires greater reliability in recycling cost calculations. These new challenges affect automakers’ overall strategies, requiring mobilization of strategic functions, particularly to structure the recycling sector and define the best approach to adopt.

Recycling electric vehicle batteries is expected to represent more than €1 billion to be provisioned each year by car manufacturers starting in 2026 to cover their obligations on the European market.

Given the materiality of the issue, several key assumptions and structuring rationales for the provision should be standardized across the sector- or at the very least be the subject of shared guidelines: lifespan, share of batteries with a second life, gross recycling cost, and resale price of raw materials.

A structured and relatively standardized provisioning exercise would enable the mobilization of strategic and operational functions within companies around the challenge of battery recycling, in order to define the best approach to adopt: choice of battery chemistry and eco-design, direct participation in the structuring of the recycling sector, outsourcing to subcontractors, or discharging the obligation through a producer responsibility organization.

Passenger cars and light commercial vehicles account for 15% of the European Union’s greenhouse gas emissions.¹ Road transport is therefore particularly affected by the EU’s climate objectives: achieving carbon neutrality by 2050 and reducing emissions by at least 55% by 2030 compared to 1990. Automakers are specifically targeted by the obligation to progressively reduce tailpipe emissions of new vehicles.

Registrations of new electric vehicles in Europe rose from 1.2 million in 2020² to 1.6 million in 2024³, a 30% increase in 4 years. Electric and plug-in hybrid vehicles reached a market share of around 22% in 2024. This share could rise to 45% by 2030⁴ and 100% for EVs by 2035, according to some projections. These vehicles represent as many batteries that will need to be collected, treated, and recycled at end of life—10 to 20 years after their first registration.

In this context, the European Union strengthened in 2023 the regulatory framework for the management of end-of-life electric vehicle batteries through the Regulation on Batteries and Waste Batteries (EU Regulation 2023/1542). This regulation requires the first entities placing electric batteries on the European market to finance collection, treatment, and recycling operations under the principle of Extended Producer Responsibility (EPR).

Here we assume that only automakers are considered the first entities placing EV batteries on the market under this regulation. Automakers will therefore need to provision annually for the future costs related to the collection and recycling of batteries placed on the market during that year. According to international accounting standards⁵, a provision must be recognized when two conditions are met:

The company has a present obligation resulting from a past event, which must be settled by an outflow of resources: this obligation arises from placing batteries on the market within the regulatory framework described above;
The amount of this obligation can be reliably estimated: this condition is generally met.

As with any application of accounting standards, recognition of a provision is required only if the associated amount is material for the company.

The estimation of EV battery recycling costs for automakers depends on two main variables: the volume of batteries placed on the market and the unit recycling cost. According to the International Council on Clean Transportation (ICCT), 1.6 million electric vehicles are expected to be placed on the European market in 2025. Considering an average recycling cost between €1,500 and €4,000 per ton of battery (depending on composition) and assuming 30% of batteries have a second life outside the automotive sector, the recycling of batteries placed on the European market would cost automakers more than €1 billion per year, to be provisioned starting in 2026.

The estimate of the average recycling cost mainly depends on three factors:

Battery technology choices and the existence of sufficient recycling capacity for these technologies, enabling economies of scale. Several “gigafactories” dedicated to producing NMC batteries have emerged, but automakers are also using LFP batteries, which involve different recycling challenges.
The condition of end-of-life batteries, since additional safety measures must be taken for the transport and treatment of batteries in “degraded condition.”
The volatility of raw material prices, which directly affects the resale value of recycled materials, and thus the net recycling cost. For example, between August 2021 and May 2022, cobalt prices (NMC batteries) rose by 64% (+$34/t), while lithium prices (LFP batteries) multiplied by five (+$64/t). Conversely, between December 2022 and December 2023, cobalt prices dropped by 32% (–$14/t) and lithium by 80% (–$68/t)⁶.

Despite these uncertainties, automakers remain required to determine whether the estimated recycling costs are material and need to be provisioned. To enhance the reliability of this estimate, certain key assumptions could be harmonized across the sector:

the lifespan of batteries (10–20 years depending on sources),
the share of batteries with a second life,
the share of batteries in degraded conditions,
the gross recycling cost per ton (depending on battery chemistry),
the resale price of raw materials.

Such convergence would improve the comparability of environmental provisions between automakers, while also facilitating dialogue with recycling industry stakeholders and public authorities.

Improved reliability of recycling cost calculations would also help automakers inform their decisions on the types of batteries to integrate (NMC or LFP), the eco-design of battery packs, and the strategy to adopt for end-of-life recycling: outsourcing to recycling service providers, investing in specialized companies, or forming joint ventures with other automakers.

As with other products subject to Extended Producer Responsibility, the EV battery recycling sector could also be managed by producer responsibility organizations, which are currently being structured in France, in particular. Automakers could then discharge their obligation by joining these organizations and paying them an eco-contribution to finance the collection, transport, and recycling of EV batteries.

The Strategy, Finance, and Sustainability corporate functions within car manufacturing companies must be fully involved in analyzing these sustainability issues, which impact the company’s overall strategy and financial planning. Beyond regulatory compliance, adopting a rigorous and harmonized approach to calculating battery recycling costs will allow companies to anticipate financial commitments and make informed strategic choices, while embedding sustainability issues at the core of their industrial and financial strategies.

1
https://www.europarl.europa.eu/topics/fr/article/20180920STO14027/nouveaux-objectifs-de-reduction-des-emissions-de-co2-pour-les-vehicules
2
https://theicct.org/publication/on-the-electrification-path-europes-progress-towards-clean-transportation/?gad_source=1&gad_campaignid=22639629046&gbraid=0AAAAA_pFlecHPZqrQa8Yc8wFZ5R200NND&gclid=CjwKCAjwq9rFBhAIEiwAGVAZP5fhoi5d6P3-Q5BGYh2PmyHGfPJLOM69jTyfhrvDiadfX94zcR9CrRoCoeoQAvD_BwE
3
https://theicct.org/wp-content/uploads/2025/02/ID-309-%E2%80%93-EU-Monitor-cars-2024-Market-Monitor-70167-v3.pdf
4
https://www.alixpartners.com/newsroom/2024-alixpartners-global-automotive-outlook-france/
5
https://www.ifrs.org/issued-standards/list-of-standards/ias-37-provisions-contingent-liabilities-and-contingent-assets/
6
https://www.lme.com/en/Market-data/Reports-and-data/Historical-data-for-cash-settled-futures