The battery recycling sector is facing a major shakeup, with 100 companies forced out of the market.

On August 26, at the series themed press conference "15th Five-Year Plan: A Promising Start" held by the State Council Information Office, Xin Guobin, Vice Minister of the Ministry of Industry and Information Technology (MIIT), set the tone for power battery recycling: by 2030, the comprehensive utilization volume of retired power batteries will strive to reach over one million tons, and the "digital ID for power batteries" management system will be implemented to realize "traceable sources and trackable destinations".

This is the second heavyweight regulatory measure introduced by the authorities in nearly a month.

On July 30, MIIT released the 2026 Announcement No. 20, repealing the relevant clauses on "echelon utilization" in the "Industry Specification Conditions for Comprehensive Utilization of New Energy Vehicle Retired Power Batteries (2024 Version)", removing 100 echelon utilization enterprises from the compliance list.

By cleaning up non-compliant entities, rolling out digital IDs, and fostering a million-ton-scale market, regulators are using a combination of measures to rectify the industry.

Chen Kai, head of the power battery recycling business of a leading enterprise focusing on power battery recycling, revealed that many mainstream automakers he is cooperating with are re-screening the shortlist of recycling service providers. In the past month, the company has received a double-digit month-on-month growth in targeted entrusted recycling orders from automakers, and the compliance capacity utilization rate of its six national bases has increased by 8 to 12 percentage points compared with the second quarter.

But the accounts have not yet been balanced.

China Automotive Strategy and Policy Research Center predicts that the retired volume of power batteries in 2026 will be about 43 GWh, equivalent to 280,000 to 300,000 tons in weight, and will increase to 171 GWh in 2030, equivalent to about 1.1 million tons in weight.

Who can capture this market is the next question in this rectification campaign.

From Market Cleanup to Traceability: New Regulatory Approaches

The "market cleanup" under the above new policy on July 30 is the starting point of this set of combined measures.

This round of cleanup has clear boundaries.

What is removed is the special announcement qualification for "echelon utilization", which does not involve the qualification for recycling and regeneration.

Chen Kai said: "In the past, in order to pass the extended producer responsibility assessment, automakers would cooperate with two types of partners for echelon utilization and regeneration at the same time; now that these 100 enterprises no longer have the policy-level compliance qualification for echelon utilization, the internal risk control systems of automakers and battery manufacturers have tightened immediately, and they no longer dare to hand over battery packs and modules to these entities."

Market cleanup is followed by traceability management.

The "digital ID for power batteries" management system finalized at the State Council Information Office press conference on August 26 requires "traceable sources and trackable destinations". According to Chen Kai, the essence of this change is that the digital ID essentially pushes the recycling industry from ex-post reporting to full-link mandatory trace recording, which will reconstruct the entire business logic of sorting, warehousing, ledger management and settlement for recycling enterprises.

For example, Chen Kai said that in the past, his enterprise would create files for batteries after receiving them, and a lot of data such as historical operating conditions and cycle counts were missing. After the implementation of the digital ID, each cell will be bound with a unique code right after leaving the factory, and every step including vehicle installation, maintenance, replacement, retirement, circulation, disassembly and material regeneration must leave a record on the national traceability platform.

At present, Chen Kai's enterprise has deployed battery code identification terminals in its national bases, and the internal ERP (Enterprise Resource Planning) system can connect to the interface of the national traceability platform.

However, stock batteries still remain a problem for the industry. A large number of in-operation vehicles manufactured before 2026 have not yet had their battery codes included in the mandatory trace record of the unified national traceability platform. Many batteries collected from scattered social sources have undergone maintenance and part replacement, leading to the situation that "the pack code does not match the cell code".

The regulatory logic goes far beyond issuing IDs.

Zhao Xiaobing, a local government official in the Yangtze River Delta region, analyzed that the repeal of the echelon utilization announcement and the launch of the digital ID mark a major shift in the domestic regulatory logic for power battery recycling, which means the management has shifted from the past qualification access management to full life cycle flow control, and from selecting which enterprises are qualified to carry out echelon utilization to tracking where every single battery ends up.

Zhao Xiaobing said: "In the past, regulation answered the question of who is qualified to do this business, but now regulation needs to answer where this battery comes from, who it has passed through, and what materials it finally turns into."

Who Can Capture the Million-Ton-Scale Market

The volume of retired power batteries is increasing, but the absorption capacity of formal channels has not kept up.

Zhao Xiaobing analyzed that nominally, the total disassembly capacity of the industry has reached a considerable scale, but the overall capacity utilization rate is relatively low. Leading compliant enterprises maintain a rate of 30% to 50%, while the operating rate of a large number of small and medium-sized regeneration enterprises is less than 30%. The root cause is that a large number of retired batteries have not entered formal channels.

Zhao Xiaobing said: "If traceability management and law enforcement are fully implemented, a large number of batteries that originally flowed into the gray market will return to the formal system, resulting in a large gap in effective capacity."

Who can get a share of the incremental market?

According to Chen Kai, the million-ton-scale market in 2030 will eventually form a tripartite pattern of mutual cooperation.

Chen Kai pointed out that the first category is battery manufacturer-affiliated recycling platforms, represented by Brunp Recycling under CATL. Their advantages lie in deep integration with the battery production end and smooth material closed loop; their shortcoming is that the social scattered battery recycling network is relatively weak.

The second category is independent third-party professional recycling leaders. Their advantage is that they have a national recycling network and cooperate with multiple automakers and battery manufacturers at the same time; their disadvantage is that the regenerated materials need to be sold externally, leading to greater profit fluctuations.

Chen Kai further said that the third category is the self-built recycling system of automakers. Most automakers will not build large-scale smelting and disassembly factories, but focus more on the front end, build recycling service outlets, take charge of battery collection and traceability data management, and entrust the collected batteries to qualified professional enterprises for subsequent disassembly and smelting.

Chen Kai said: "In the future, it is very likely that automakers will be responsible for front-end collection and source digital ID coding, battery manufacturer-affiliated recycling enterprises will take over the batteries in their own closed loop, and third-party recycling leaders will take over cross-brand and socially scattered retired batteries. The three types of entities are not in a zero-sum game, but more about division of labor and collaboration."

The pattern is highly affected by the implementation intensity of policies. If the digital ID and joint law enforcement are fully implemented, compliant enterprises will benefit greatly; if the implementation is discounted, the gray market will continue to divert battery sources, and the expansion pace of leading enterprises will also be restricted.

Zhao Xiaobing added that the core competitiveness of third-party professional recycling enterprises in the future is to expand the compliant disassembly capacity on the one hand, and fully connect multi-dimensional recycling channels of automakers, maintenance services and end-of-life vehicles on the other. But in his view, the bottleneck is not hardware.

Zhao Xiaobing said: "If we rank the bottlenecks, the first one is channel and battery source acquisition, the second is the flexible disassembly technology for production lines, and the last one is hardware capacity construction."

This article is from the WeChat Official Account "Economic Observer", written by WANG Yajie, and authorized for release by 36Kr.