Research on lightweight products for transportation industry, to address fuel efficiency and lower carbon footprint, has attracted great attention due to public environmental awareness. Polymer composites containing carbon fiber are boosted by automotive original equipment manufacturers (OEMs) as a replacement for steel. However, their high cost has generated interest to find cost-effective alternatives. In this report, a recycled carbon fiber and an elastomer are introduced to polypropylene impact copolymers to modify matrix properties in terms of strength and toughness. Fractography analysis is carried out to elucidate the failure mechanisms governing the mechanical performance of the compatibilized carbon fiber reinforced thermoplastic polyolefin (TPO) composites. The results suggest that for the TPO composites, toughened by an ethylene-1-octene copolymer, the complex interplay of intrinsic and extrinsic toughnesses in impact resistance is predominantly governed by the presence of the fibers. Incorporating 20 wt% recycled carbon fibers into the matrix resulted in an improvement of the heat distortion temperature (HDT) by 100 degrees C, and similar to 3.5 and similar to 11.5 times enhancements in tensile strength and stiffness, respectively. Moreover, microcellular foams with expansion ratios higher than 11 and 5 were achieved for the neat samples and reinforced composites, respectively, confirming the foamability of composites with such a high carbon fiber content.