To The Moon

$Volkswagen AG(VWAGY)$ $Goldman Sachs(GS)$ $Bayerische Motoren Werke AG(BMWYY)$ $Volvo AB(VOLVF)$

Northvolt is a Swedish company specializing in the production of sustainable lithium-ion batteries for electric vehicles (EVs) and energy storage systems. Founded in 2016 by Peter Carlsson and Paolo Cerruti, both former Tesla executives, Northvolt has quickly positioned itself as a leader in the European battery manufacturing industry. Its mission is to support the transition to renewable energy and reduce carbon emissions through high-performance, environmentally friendly battery solutions.

Fundamental Overview

Northvolt quickly secured the support of some of Europe’s largest industrial players, including automotive giants Volkswagen, BMW, and Scania, as well as engineering leaders like Siemens and ABB. By 2022, the company had amassed $55 billion in customer orders and, by this year, had raised $15 billion in equity, debt, and government funding.

Initially focused on building a single factory in Skellefteå, Sweden—a sub-Arctic town where production began in late 2021—Northvolt’s ambitions rapidly expanded. Plans were set for a second Swedish factory, additional plants in Germany and Canada, an energy storage facility in Poland, and dedicated cathode and recycling operations in Sweden.

Key Partnerships:

Northvolt collaborates with major automotive manufacturers and energy companies, including BMW, Volkswagen, Volvo, and Scania. These partnerships often involve long-term supply agreements and co-development projects.

R&D and Innovation:

The company invests heavily in research and development, focusing on improving battery efficiency, longevity, and sustainability.Northvolt operates a research facility in Västerås, Sweden, for advanced battery technology development.

Funding and Growth:

Northvolt has raised significant capital, surpassing $8 billion from investors such as Goldman Sachs, Volkswagen, and the European Investment Bank.The company plans to increase production capacity to meet the growing demand for batteries, especially in the EV market.

Market sentiment

Northvolt has sharply deteriorated following its recent filing for Chapter 11 bankruptcy in the United States. Once a beacon of hope for Europe’s ambitions to establish a competitive EV battery industry, Northvolt's financial troubles have highlighted significant challenges within the European clean-tech sector.

Investors and industry analysts see Northvolt's struggles as a reflection of deeper systemic issues, including the region's inability to compete with China's dominance in battery technology and manufacturing. China currently controls 85% of global battery cell production, and European startups, including Northvolt, have faced difficulties scaling operations effectively. Northvolt produced less than 1% of its theoretical capacity at its flagship plant in Skellefteå, Sweden, a factor that compounded its financial instability.

Challenges

Operational Shortcomings:

• Northvolt struggled to scale production effectively. At its flagship Skellefteå facility, production was reportedly less than 1% of its theoretical capacity.

• The company faced significant delays and safety incidents, which undermined its ability to meet customer orders and retain contracts, including a high-profile $2.1 billion deal with BMW.

Cash Burn and Over expansion:

• Northvolt pursued multiple projects simultaneously, including factories in several countries and ventures in battery recycling and new technologies like sodium-ion batteries. This spread its resources too thin.

• The rapid cash burn left Northvolt with only $30 million in operating funds—a week’s worth of expenses—when it filed for bankruptcy.

Dependence on External Suppliers:

• Political agenda to avoid Chinese raw materials, ironically Northvolt relied heavily on Chinese equipment and expertise. This dependency led to inefficiencies and miscommunication, compounding its operational struggles.

The Collapse Begin

Northvolt struggled to scale up production at its Skellefteå plant. In 2022, the facility produced less than 1% of its theoretical capacity, highlighting significant operational challenges.

Northvolt's financial collapse has raised concerns about the future of Europe's ambitions to establish its own battery industry to power electric vehicles (EVs). The Swedish company, considered Europe's leading hope for an EV battery champion, filed for bankruptcy in the U.S. after funding negotiations with investors and creditors, including Volkswagen and Goldman Sachs, failed.

Despite receiving over $1 billion in equity, debt, and public financing since its founding in 2016, Northvolt announced it needed an additional $1.2 billion to proceed with its restructuring process, which it aims to complete by the end of March. In recent months, the company has downsized its operations and reduced its workforce to stabilize its finances. However, it has faced challenges, including difficulties producing high-quality batteries at scale and the loss of a $2.1 billion contract with BMW in June.

This setback has left Europe's goal of building a competitive battery industry increasingly uncertain. Northvolt had been at the forefront of a wave of European startups that collectively invested tens of billions of dollars to support the continent’s automakers in transitioning to EVs. However, slower-than-expected growth in EV demand and China’s dominance in the sector have posed significant challenges. China now accounts for 85% of global battery cell production, and its technological edge is estimated to be at least a decade ahead of the West.

Battery manufacturing, a highly intricate process, has proven challenging to scale effectively. Northvolt has missed internal production targets and reduced output at its plant in northern Sweden. These struggles come amid a broader slowdown in European EV battery initiatives, with at least eight companies postponing or canceling projects this year. Analysts warn that without stronger support and investment, Europe’s ambitions to compete in the global battery market may remain out of reach.

Wave of Finger-Pointing

Leadership and Management:

• Critics argue that Northvolt's leadership overreached by pursuing too many ambitious projects simultaneously. This includes expanding into multiple regions with plans for factories in Germany, Canada, and Poland, in addition to its recycling and cathode businesses in Sweden. These efforts strained the company’s resources.

• Operational inefficiencies, such as producing less than 1% of capacity at its Skellefteå plant, have been attributed to poor execution and leadership missteps.

Government and Policy Frameworks:

• European policymakers are facing criticism for not doing enough to support domestic battery production. Comparisons to China's heavily subsidized and strategically coordinated battery industry highlight the lack of similar robust frameworks in Europe.

• The slow pace of permitting and regulatory approvals in Europe has also been cited as a barrier to scaling operations quickly.

Industry Dynamics and Market Realities:

• Northvolt struggled to compete against China, which dominates 85% of global battery cell production. Critics note that Europe's battery market was overly optimistic about its ability to catch up, underestimating China's technological and manufacturing lead​.

Damage to EU automobile industry

Supply Chain Vulnerability:

• Northvolt was seen as a cornerstone of Europe's strategy to reduce reliance on Chinese battery manufacturers, who dominate 85% of the global market​. Its failure leaves automakers more dependent on imports, which could increase costs and lead times.

Loss of Localized Production:

• Northvolt's plans to establish a network of European factories were critical to creating a regional EV battery supply chain. The bankruptcy undermines these efforts, slowing progress toward self-sufficiency and leaving Europe at a disadvantage in the global EV race.

• The failure also erodes confidence in European startups' ability to compete in this sector, which may deter future investments

Impact on Green Transition Goals:

• The European Union has ambitious climate goals that rely heavily on the widespread adoption of EVs. Northvolt's financial collapse complicates these plans by disrupting the supply of locally produced batteries, a key component of the green transition.

Conclusion

While some stakeholders express hope that Northvolt’s restructuring could stabilize its operations, the immediate fallout underscores the fragility of Europe’s efforts to build a competitive battery industry. The automotive sector will likely need to adapt quickly to mitigate these risks and ensure continuity in EV production.