My Next Life-Changing Stock Pick? I Think So..

What happens to batteries from phones, electric vehicles, power tools, etc. at the end of their life? Up until 2017, virtually nobody was recycling or recovering the precious metals found in end-of-life lithium ion batteries. Instead, companies paid huge dumping fees to convert these batteries to waste. In a world where the materials needed to create batteries are scarce and in high demand, this makes no sense. Fortunately, companies like Li-Cycle (NYSE:PDAC) identified this problem and got to work.

Despite being told they were 'too early' to the industry, Li-Cycle took the opportunity to become North America's largest lithium ion battery recycler. What they realized that others didn't, is that it takes time to develop technology, build facilities, file and own patents, and build an intellectual property (IP) portfolio. Thanks to these trade secrets and patents, Li-Cycle has developed an industry leading 95% recycling efficiency rate. To put this in perspective, the vast majority of the industry is stuck with, at best, 50% recycling efficiency rates. The reason for this is the majority of other lithium ion battery recyclers use thermal and smelting processes to break down the battery. Not only is this process less efficient, but it's less economically feasible, less environmentally friendly, and less safe than the process Li-Cycle uses.

Li-Cycle is quickly growing, hiring new employees almost daily. Currently the employee count stands at around 120 employees. The company only has 2 operational 'spokes' today, but they have plans to grow this number to 20 by 2025. In addition to this, Li-Cycle is currently developing its first large-scale 'hub' in New York. By 2025, the company wants to have 4 operational hubs.

Spoke

The spoke is the first stage in the battery recycling process for Li-Cycle, using a neutralizing solution and shredding batteries. Once shredded, Li-Cycle sells the plastics, aluminum, and copper back into the market. However, plastics, aluminum, and copper aren't necessarily in 'high demand' compared to the lithium, cobalt, nickel, and other materials found in batteries. These other materials are formed into a 'black mass,' which Li-Cycle is currently turning around and selling to its offtake partner. Going forward, this 'black mass' will be transported to Li-Cycle's 'hub' facilities.

Hub

The hub is where the magic happens. After transporting black mass to the hub, Li-Cycle uses a patented process to break down the black mass into the individual chemicals that are in such high demand for battery manufacturing. The company will then sell these minerals and chemicals individually back to the supply chain.

Thanks to Li-Cycle's existing facilities, efficiency, cleanliness, and early head start on the industry, they've been able to secure the vast majority of contracts thrown their way. Recently, Li-Cycle formed it's most important partnership to-date with Ultium Cells, who has a joint venture and partnership with General Motors (GM) and LG Chem. Located in Lordstown, Ohio, their first facility is roughly 2.8 million-square-feet large. More importantly, Ultium is already planning for 2 additional facilities of similar stature.

Looking forward, Li-Cycle's success will depend on the price of the materials they're recycling, how quickly they build out their business, and how many tonnes of material they recycle. The company is forecasting just $12 million in revenue this year. However, by 2025 they're forecasting $958 million in revenue (which I believe is extremely conservative). The company is also already forecasting EBITDA breakeven in 2022. Li-Cycle is currently debt-free and will have enough cash to fully fund its business rollout plan.

Because there's so much to discuss regarding Li-Cycle, please refer to the video linked above for additional information. It's impossible to condense the 17 minute, due diligence packed video into one article.

*I have never been offered, and never will accept compensation from a company for spotlighting their business and stock. These are my own thoughts, opinions, and ideas. This article should not be interpreted as financial advice.