Bold approach: Enviro JV, Michelin partnership essential for growth, sustainability

GOTHENBERG, Sweden—Big ideas don't stay ideas for very long.

Big ideas become big innovations. And big innovations require giant leaps forward. Especially when those innovations help to create more sustainable industries and products.

And it turns out, Scandinavian Enviro Systems A.B. has one of those kinds of innovations.

The company, established in 1994, is built on pyrolysis technology, which in the grand scheme of things isn't anything new. But CEO Thomas Sorensson contends Enviro's technology is a different kind of process, one that allows the tire recycler to better control the quality of the recycled materials it produces.

"We have developed it within Enviro to be a batch technology, which means that we can keep the consistency and quality control," Sorensson said of the pyrolysis Enviro employs. "As long as you can control the quality of the output of the material, that has a significant value."

Significant value, yes. Especially to the tire industry it serves.

Because the tire industry is eager to find new and innovative ways to bring more recycled and renewable content to its products. So demand for materials like recycled carbon blacks and pyrolysis oils is growing. Quickly.

And to meet that demand, Enviro is scaling up. Exponentially.

The Swedish firm announced March 30 that it was establishing a joint venture with Antin Infrastructure Partners to commercially scale its technology and output over the next seven years. The aim, the partners said in a news release, is to establish tire recycling infrastructure across Europe that is capable of recycling 1 million metric tons of end-of-life tires annually by 2030. That would equal roughly one-third of all tires disposed of each year in Europe.

And it's a vision that Michelin has thrown its full support behind. The French tire maker—which also happens to be Enviro's largest shareholder—has committed to a multi-year supply agreement that includes delivery of recovered carbon black and tire pyrolysis oil.

In the initial stage of the JV, Sorensson said, Antin will finance 100 percent of the project, but Enviro will have the opportunity to finance as much as 30 percent of the ownership throughout the first 24 months.

"For a small company like us to really participate and, of course, create long-term value for our shareholders as well through the joint venture (is valuable)," Sorensson said.

Michelin, he added, also will be included in the process as it unfolds and particularly as production facilities scale up.

"Michelin will step-by-step enter into the joint venture as we open plants," Sorensson said. "At each financial investment decision for new plants, they will be let into the joint venture as well."

For Enviro, the partnership with Antin is a critical one.

Because Antin brings to the table experience that is simultaneously focused, broad and deep.

"They understand how infrastructure is built and created, and how to get value from infrastructure," Sorensson said. "So instead of finding investors who are interested in one plant or two plants, here we have somebody that understands the value is building the complete infrastructure and is taking a strong position from the beginning and putting in the resources to scale that (process) in an industrial way from the beginning."

The investment firm—with roots in Paris, London and New York, among others—has experience in building infrastructure across a range of industries. And it has worked to bring emerging technologies to commercial scale on numerous occasions, Sorensson said, pointing to solar, electrification and charging stations as examples.

And the process works, he said, because the focus is on growing into the future.

In fact, it's that insightful long-term vision that provides common ground for all three partners.

"I said to the team this morning, if you had a clean sheet and you could select anybody you would like as partners to make this happen, I think we would have landed on somebody like Antin with the experience and position within the market with their capability and somebody like Michelin," Sorensson said.

For now, the Enviro-Antin-Michelin JV will focus solely on Europe and growing ELT recycling capacity across the continent.

Plans for construction of the JV's first full-scale commercial plant are taking shape in Uddevalla, Sweden. Construction on that facility is set to begin in the first half of this year and it is expected to have an annual capacity of to recycle around 34,500 ELTs—enough to account for about 40 percent of Sweden's annually discarded tires.

That plant should be operational sometime in 2025.

In the years that follow, capacity for more ELT recycling will be added—in Sweden and locations across Europe.

"The thing is that our technology is modular based," Sorensson said. "So we can scale up in modules step-by-step. … We don't need a (certain) number of plants, it can be adjusted based on the market and situation."

From that perspective, the JV's project is not framed by how many plants would be needed to achieve its annual capacity aim of 1 million tons of ELTs. It's framed by the infrastructure needs.

That said, there will be multiple facilities built across Europe. But the final number has not been determined. Nor have all the locations been chosen. All of that, Sorensson said, will be driven by demand and dictated by logistics.

"We have already started to prepare for other locations in Europe as well, evaluated end markets and so on, but it is not something that we are willing to reveal at this point," Sorensson said. "There is, of course, a plan for that. But there is no fixed number of plants that will be decided as we go and the market develops."

But for now, Sorensson said the JV will focus its efforts on serving Europe.

"Our customers are normally globally situated. Like Michelin and other tire companies, they already have a global footprint, and they are now demanding volumes to locations other than Europe," Sorensson said. "So it will be very natural for us (Enviro) to expand into other geographical locations as well, further down the line. But this joint venture is established with a focus on Europe."

It seems like a big endeavor for a small company to grow so much in a short time. Or even to join forces with the world's largest tire maker and an infrastructure investment firm with the scope and expertise of Antin.

But not necessarily for Enviro.

The company has undercurrents of boldness and maybe even a scrappy reputation for pushing to take its technologies to new heights.

But when you operate in this space—the sustainability space—you have no choice but to be bold with your vision, Sorensson said.

"We talk about that internally quite often: Is it aggressive or not?" Sorensson said of Enviro's vision for growth. "Of course, as a smaller company, it might seem very aggressive. But looking at the tire industry demand for this type of material, it is not aggressive."

Indeed, demand for renewable, recycled and recyclable materials is surging, particularly as major players across the tire industry look to bring to market 100-percent sustainable materials tires by 2050, if not sooner. Those aims are driving innovation across material R&D and it's intensifying the focus on recycled carbon blacks and pyrolysis oils in particular.

And that's a focus the tire industry is collaborating to hone.

Take the world's two largest tire makers for instance. In 2021, Michelin and Bridgestone joined forces to create a coalition of stakeholders that would "accelerate progress" with the aim of increasing the supply of rCB.

And all things considered, the tire makers said, the industry is going to need a lot of recycled carbon black.

A ton of recycled carbon black.

Well, more like 1 million metric tons by 2030.

And that's where Enviro comes in.

"In order for them to be able to reach that, they need technologies like ours to grow very rapidly," Sorensson said. "… And that leads us and our competitors to grow fast because otherwise we would not be able to close that gap."

Ultimately, Sorensson said, Enviro is just doing what it should be doing—scaling as quickly as possible to meet demand for its products. And given that the products it offers are sustainable, the imperative to grow in line with demand is greater.

There is an undeniable connection between Enviro and Michelin. And for Sorensson at least, Michelin has been there from the start.

"When I started, my first customer visit was actually to Michelin," Sorensson said. "So we brought a couple of kilos of rCB down to Clermont-Ferrand to the R&D center. They were actually quite interested at that point to begin exploring the material, and we got a pretty positive response early on.

"And then they had followed us a little bit from a distance for a couple of years until 2017 or 2018, and then they intensified the collaboration. They wanted to test more material, they visited a plant, and we started creating more of a common understanding that there is a potential for collaboration here."

Potential, yes. For Michelin, for Enviro and the industry overall.

Ultimately, the collaboration between the two companies would lead to the French tire maker to take a 20 percent stake in Enviro. That move, which came in 2020, made Michelin Enviro's largest shareholder.

And their partnership would lead Michelin to make some investments of its own in an effort to grow its supply of recovered carbon black. Most notable is the planned tire recycling plant in Chile, which will employ Enviro's ELT expertise for the production of rCB, oil and steel, among other materials.

And Michelin, of course, is a partner in the newly established Enviro JV.

Still, Sorensson said the relationship between Enviro and Michelin is much more nuanced. Because for both companies the commitment to sustainability is bigger than an exclusive partnership. It has to be if the tire industry is going to move forward.

Moreover, it just makes good business sense to ensure that Enviro's technologies are available globally to tire makers and rubber product manufacturers alike.

"We are working with (Michelin) on the R&D side, from a customer-supplier relation, but also as our largest owner and also as a part of the joint venture step-by-step," Sorensson said. "On the other hand, we have been clear from the beginning—and their ambition has also been to make sure—that we are not exclusive to Michelin.

"We have to work with other customers and be able to grow as a company and grow their assets. It is important that we are not locked in in that sense, that we offer and continue to offer collaboration with everybody."