Janna Jiang, WECC Content Team
To my bemusement, my Dad is what you would call a Tesla-fanatic. Having purchased a Model Y earlier this year, he now provides me frequent updates on what new features have been released; what the latest FSD complaints are on the Tesla Facebook groups; why he has stopped driving to go fishing after 11 PM to ensure a lower Tesla insurance premium. When I was home in Houston recently for the holidays, we chatted about the latest feature release while Tesla’s Santa Mode played in the background. I asked when he would need to replace its battery – to which he replied that the typical warranty period was 8 years. I then followed up – “Where does the battery go then?” and was met with a blank stare. “That’s so far off in the future, I guess no one’s really thinking about that right now,” he finally replied.
Where Do the Batteries Go?
While perhaps not the central question being discussed in Tesla owner Facebook groups, it’s an important one in today’s energy landscape. Tesla vehicle deliveries peaked in 2023, with roughly two million vehicles sold globally. An eight-year battery lifecycle implies that well over 200 GWh of battery capacity from that year’s Tesla vehicles alone will begin exiting automotive service around the early 2030s – before even accounting for other leading OEMs. Where should all of those batteries go?
Perhaps the best answer is also the most obvious: keep using them.
When used in a vehicle, EV batteries are routinely discharged at high power and depth (especially considering aggressive Texas drivers). When combined with elevated thermal stress under the hood and stringent safety / performance requirements, batteries are often decommissioned from vehicle use when still having 60-80% of their original energy capacity – more than sufficient for stationary applications. You can no longer push these batteries as hard as you would in a vehicle, but you can operate them safely at lower capacity rates, using the remaining energy capacity over longer discharge windows. As Volts podcast host David Roberts once put it, this process is akin to “putting sheep out to pasture.” Dozens or even hundreds of used EV battery packs can be aggregated behind power electronics and software, forming what we now call second-life battery energy storage systems (BESS). While still requiring some technological maneuvering on the integration end, this application is far easier than the alternative circular use case of recycling. Lithium-ion battery packs are notoriously difficult to disassemble and recover materials from without significant energy input, safety risk, and yield loss, and breakthroughs in disassembly / sorting technology have been somewhat offset as pack designs become more integrated and bespoke. On the other hand, more and more 2L companies claim to be able to use the packs as-is without disassembly.
The Business Case
From a macro lens, the tailwinds for the second-life storage use case is clear: rising load growth and an aging grid have pushed utilities to prioritize two things: reliable capacity and reduced peak strain. While utility-scale hybrid generation-plus-storage projects are increasing, demand for storage continues to far outpace supply, particularly for hyperscalers who are being told that they can jump the interconnection queue with “bring your own” storage / generation initiatives. Behind-the-meter BESS deployments can help provide this necessary stopgap in the coming years while grid-scale infrastructure seeks to catch up to demand. Among behind-the-meter BESS solutions, second-life BESS is particularly well-positioned: the unit economics have an implicit advantage through the waste feedstock (though logistics are likely to represent a material % of cost stack) providing better price / performance for hyperscalers, and perhaps more importantly, the time to deploy is fast. After a successful pilot in their home state of Nevada, Redwood Materials CTO recently stated that they expect to be able to go from ’empty field to full installation’ within 4-6 months.
We can construct a simplified top-down market size for 2030: Anchoring on IEA estimates of approximately 800 GWh of global lithium-ion battery production in 2022, and assuming an eight-year average first-life duration, we can estimate the pool of batteries exiting automotive use around 2030. Subtracting roughly 10% already diverted to first-life stationary storage, and assuming a representative four-hour discharge duration, this yields approximately 150–200 GW of second-life storage capacity available to monetize globally. Then taking simplifying assumptions on monetization through system transfer vs. tolling fees as well as current pricing, we arrive at a global second-life BESS TAM of ~$20B in 2030. Applying conservative assumptions on battery capture, usability, and fleet contractability, this provides a 2030 SAM of ~$5B.
While not without open risks (discussed below), this is clearly a market to watch over the next three to five years. Perhaps the strongest signal is the aforementioned Redwoods’ recent October 2025 Series E raise. After more than a decade focused primarily on materials recovery, the company raised capital at an eye-catching $6 billion valuation (roughly a $1 billion step-up from its Series D ~2 years ago) – raised largely on the back of its new second-life storage business, “Redwood Energy”. While it may seem that this is Redwood’s market to lose given their headstart & established feedstock collection channels, the company’s relational advantage is still largely concentrated in North America. With battery ownership / end of life handling regulation remaining highly regional, I believe at least 3-4 companies will emerge as winners with regional segmentation (NA, EU, China).
Further Considerations
Plenty of open questions remain. Perhaps the most common first question when something feels a bit too good to be true – “why hasn’t this been done before?”. One answer could be a version of the one my Dad gave – the scale of batteries being decommissioned needed to make this market interesting just hasn’t been there yet. Another answer is that investors perhaps expected battery recycling / materials recovery to fall faster down the cost curve than they have in actuality. There are likely other answers that could represent roadblocks the 2L market will face in coming years. Additional open questions on my mind include:
- Technology differentiability – Several startups are starting to emerge in this market, and despite having multiple conversations with investors / industry participants, it’s still not clear to me how companies can create an IP moat – how hard is the receiver technology?; can you differentiate in integration speed or perhaps degradation modeling?; who is ultimately best positioned to reverse-logistic a battery they didn’t create?
- Feedstock market capture – EV batteries are heavy. It’s not easy for my dad to ship it off in an Amazon return box (though Redwood is trying to allow customers to do just that). Feedstock is limited, so who can win the game of relationships in a messy network of OEM’s (e.g., fleet recalls), auto-shops, distributors, regional recyclers? This, combined with the policy landscape discussed below, is why I believe market winners will be regionally segmented, at least for the time being.
- Policy complications – While 2L BESS might be newer, end-of-life handling is not. Each country / region has their own regulation on how EV batteries must be treated at the end-of-life and who is responsible; what are the implications of extended producer responsibility (as in the EU) on 2L producers – could it represent a differentiator or major roadblock?
- Which application will win – While we have been talking mostly about large-scale stationary storage to support behind-the-meter or utility-scale applications, some companies have begun to specialize more in mobile storage (e.g., Amp’d Energy – targeting remote construction; Allye Energy – finding success with entertainment & film sets). Which market’s combination of customer appetite / purchasing timelines and unit economics will win? Which business model – asset transfer or storage PPA – will win?
Where will the batteries go? In 8 years and likely much sooner, I suspect my Dad will have a better answer to my question. Companies might even be fighting to pay him top rates, or perhaps there will be a marketplace where he can browse for the best option for unloading his Tesla battery. For now, I’m just pretty happy to have a new topic at the rare intersection between the interests of my parents and me, an MBA student working in clean energy.
