China’s electric vehicle (EV) boom will generate an unprecedented volume of battery waste, yet over 70% of end-of-life EV batteries currently flow to informal recyclers operating outside regulated channels. Low market entry barriers, high profit margins, and weak regulatory enforcement enable these informal operators to outcompete licensed enterprises, posing a major obstacle to China’s sustainable energy transition. By coupling the Global Change Analysis Model with dynamic material flow analysis, we project that retired EV battery volumes will reach 22.39 million tons by 2040 under the carbon neutrality scenario, representing 112-fold increases from the 2020 level. To address this escalating crisis, we urge coordinated actions among all stakeholders, including legislating extended producer responsibility, classifying end-of-life batteries as hazardous waste, raising market entry thresholds, supporting research and development for low-cost recycling technologies, and implementing ownership-based classification of retired batteries.