Chicago-based LKQ Corp. has introduced a scale to auto salvage and recycling operations in the 21st century that is unmatched by earlier efforts. The firm has 1,600 locations and a global presence that likely help it monitor trends.
LKQ, following the lead of global vehicle manufacturers, likely has been studying when to make investments to gain a foothold in the electric vehicle (EV) market while not neglecting internal combustion engine (ICE) vehicles and the money it can make from them.
Changes afoot under the hood
The automotive recycling process, from parts harvesting and reselling to shredding, has evolved over decades to handle the many different opportunities and regulatory hurdles inherent in end-of-life vehicles (ELVs) with internal combustion engines.
ICE vehicles themselves evolve continually as automakers and truck manufacturers experiment with new technologies and materials. The in-common aspects of ICE ELVs, however, have provided several offshoots of the automotive recycling effort.
For dismantlers, those efforts can range from paying close attention to exhaust systems and the precious metals that can be found within them to ensuring the safe handling of lead-acid batteries, which entails strict health and safety rules while also being tied to an established end market.
Shredder operators keep an eye out for these same components but set up their shredding processes in large part because producing sufficient volumes of shredded steel body panels, frames and engine components creates a ferrous scrap grade desired by mills and foundries around the world.
EVs as designed initially by Tesla and increasingly by established global automakers will make some of these tasks fall by the wayside.
For shredder operators, Tesla has favored aluminum body panels for its models. Other EV makers are not compelled to follow Tesla’s lead on that front, but if a large percentage of them turns to the lighter metal, it contributes to a change in the ferrous versus nonferrous scrap blend potentially fed to a shredder.
For dismantlers, what is missing on an EV is perhaps most noteworthy. EVs do not contain an exhaust system or numerous under-the-hood components that have fueled the ICE auto components aftermarket.
The Automotive Recyclers Association (ARA), Manassas, Virginia, has made navigating change a theme at its 2021 event this November in Dallas. There is little doubt the change being referred to includes the eventual larger parade of EVs.
Included on the ARA program this November are two sessions with Andy Latham of U.K.-based Salvage Wire, who will address training issues regarding high-voltage vehicles and advanced driver assistance systems. Latham has contributed to the recently revised “ARA Electric and Hybrid Vehicle Technology Guide,” which is available from ARAUniversity.org.
In addition to lacking the staples of the components aftermarket, EVs contain something that remains a source of uncertainty for recyclers: the high-voltage battery packs, which are far from standardized and do not yet yield well-understood or established salvage or scrap markets.
How to handle batteries plucked from no-longer-roadworthy EVs, however, has attracted the attention of some entrepreneurs and, increasingly, of established salvage and recycling firms.
Buying time by acting quickly
The move by LKQ, the world’s largest scale auto dismantling firm, seems to signal it sees the same inevitable changes coming that ARA is helping to address. “This acquisition reinforces our ongoing commitment to expand our parts and services offerings to meet the demands and opportunities that arise from technological changes in the automobile industry,” Justin Jude, LKQ president of North America wholesale operations, said when the Green Bean Battery acquisition was announced in May.
“Battery reconditioning represents a natural extension of our current powertrain remanufacturing operations,” he added. “In addition, Green Bean’s entrepreneurial history, proprietary technology and sustainably focused products fit well with LKQ’s mission and culture, and we are proud to have them join our North American team.”
Michael E. Hoffman, who covers LKQ and is a Baltimore-based investment analyst for investment banking firm Stifel Financial Corp., is favorable toward the LKQ purchase of Green Bean and says he sees a clear strategic fit.
Why should LKQ make an acquisition while EVs still make up a tiny percentage of the scrapped vehicle stream? “Be an early mover, establish knowledge and expertise well in advance of any upswing in battery volume and the overall evolving change taking place” in the vehicle stream, Hoffman tells Recycling Today.
Jude of LKQ referred to Green Bean’s entrepreneurial history and proprietary technology, and Hoffman says the institutional knowledge at Green Bean is likely a core consideration for LKQ.
Dismantling firms like LKQ are not the only ones considering how to prepare for a future with a radically different vehicle mix. U.K.-based EMR Ltd., which operates auto shredding plants in that nation and the U.S., is investing resources in a more EV-centric future.
For EMR the stopwatch could be running even faster, as the U.K. government has a stated policy of ending the sale of ICE vehicles in the 2030s.
In a September essay posted to the Recycling Today website, Steve Thomas, end-of-life vehicle manager for EMR Ltd., writes in part, “The EV revolution is coming, and EMR is evolving its business to make sure it’s ready for the challenges and opportunities ahead.”
Late in 2020, EMR announced it was taking part in a three-year partnership called Recovas. Partners in that effort include automakers Bentley Motors, BMW and Jaguar Land Rover; several U.K. research institutions or consortiums; Connected Energy, which repurposes electric car batteries; and uRecycle, “which will develop the U.K.’s first commercial-scale recycling facility for automotive battery packs.”
The project states its aim is to “provide a standardized and reliable route for recycling and repurposing lithium-ion car batteries at a scale that can cope with the expected sales of electric vehicles in the U.K.” At the end of the project, the partners say they expect a circular battery supply chain will operate commercially.
“We would suggest that was the very purpose of [buying Green Bean], to acquire expertise and skilled personnel and put an early stake in the ground to be appropriately positioned for the long and slow gradual transition of the 280 million-plus United States automotive sector to vehicles such as hybrids and EVs,” Hoffman says.
Why should LKQ make an acquisition while EVs still make up a tiny percentage of the scrapped vehicle stream?
LKQ’s Green Bean purchase could make it attractive as a partner in wider efforts to establish a commercial circular battery supply chain, or it could allow the company to chart an independent course.
“Battery reconditioning represents a natural extension of our current powertrain remanufacturing operations,” Hoffman says. “This acquisition reinforces [LKQ’s] commitment to expand their parts and services offerings to meet the demands and opportunities that arise from technological changes in the automobile industry,” he adds.
Which battery or alternative energy technologies will gain market share remains an open question. But Hoffman says LKQ’s proactive approach is the right way to behave when change is afoot.
“There is no doubt in our view Green Bean is just a starting point,” he says, adding that LKQ already “offers a healthy mix of hybrid and EV aftermarket parts, both in Europe and North America.”
Hoffman adds, “We suspect, like it did with remanufactured engines and transmissions, LKQ put its foot in the water to gain knowledge and expertise to further seek opportunities to grow the hybrid and EV line of business.”