Why Nvidia just invested in a battery recycling company

As Nvidia’s value has soared—becoming the first public company to hit $4 trillion in market capitalization earlier this year—it’s been pouring money into AI startups. Its venture arm, NVentures, is also backing less expected bets. The latest: Redwood Materials, the EV battery recycling company, which just raised $350 million in a new funding round.

Redwood launched in 2017 with the aim to build a U.S. supply chain for critical metals by pulling materials like cobalt and lithium from used EV batteries. But the company spun up another major business this year—using secondhand EV batteries as a low-cost form of energy storage at data centers.

[Photo: Redwood Materials]

“I think people misname them as a recycling company,” says Joe Fath, a partner at Eclipse, which led Redwood’s new Series E round. “Recycling is really just the wedge.” The company is a recycling giant, and currently processes around 90% of the lithium-ion batteries that are recycled in North America. But their energy storage business is equally important, and can help solve one of the biggest challenges for the AI industry right now: how to source the energy that data centers need.

“Power generation, storage, and cost to drive those GPUs is increasingly becoming a bottleneck,” says Patrick Moorhead, CEO and chief analyst at Moor Insights & Strategy. For a company like Nvidia, which makes the energy-intensive hardware used in data centers, helping scale up energy storage for its customers helps its own business continue to quickly expand. (Nvidia declined to comment, saying that it doesn’t discuss its investments.)

[Photo: Redwood Materials]

In some cases, data centers can use batteries to help them go completely off the grid, as in a solar-and-battery-powered project that Redwood built with Crusoe this year. Some customers also plan to use the company’s batteries to store energy produced with natural gas. Redwood makes both the battery hardware and the software and electronics to run the system.

“Speed to energy is paramount,” says Redwood Materials CEO JB Straubel. “By using storage—and in particular a very modular, flexible approach like we’re doing—people are able to bypass some of the very long interconnection queues to get electricity sourced directly from the traditional grid.” In other cases, the batteries can connect to the grid and pull electricity from it when it’s cheapest. They also provide resilience if the grid goes down.

[Photo: Redwood Materials]

The approach also saves money. “Cost is probably the leading advantage, because we’re refurbishing and using assets that were previously deployed in a different application. For the most part, we’re able to dramatically reduce our deployment costs,” Straubel says.

Nvidia has also invested in other energy companies, including participating in a $863 million funding round for Commonwealth Fusion Systems, a startup that aims to put fusion power on the grid by the 2030s. But Redwood’s technology is ready for use now.

“Redwood is a leader in this market, and Nvidia is planting a flag in the sand on this key market,” says Dan Ives, global head of tech research at Wedbush Securities. “Nvidia is focused on building a vertical ecosystem, and Redwood investment is a perfect fit.”