EU’s largest startup for electric vehicle batteries is in trouble

Northvolt, Europe’s largest climate tech startup, is considering delaying or scaling back its expansion in Germany, Canada and Sweden.   This comes after shareholder BMW pulled a billion-dollar battery order, concerns over worker safety and its most recent losses reached into the billions.

Sweden’s Northvolt has long been the jewel in the European climate tech crown. It’s Europe’s best-capitalised battery manufacturer and was one of the first startups to get institutions like BlackRock, Goldman Sachs and Baillie Gifford to open their wallets and back the next generation of green tech.

Founded in 2015 Northvolt markets its Skellefteå site – located just shy of the Arctic Circle – as “Europe’s first homegrown battery factory.”  Powered by renewable energy from a hydroelectric plant, it is seeking to sell lithium-ion batteries that reportedly have a 90 per cent lower carbon footprint than leading rivals.  It has also pledged to recycle the vast majority of its components and “close the loop” on the rare materials – such as manganese and nickel – used to make batteries.

Simon Moores, chief executive of Benchmark Mineral Intelligence, says the concept of relying on recycled materials was a “big win” for European car brands against Chinese batteries. “The need to be green was paramount to the entire concept of electric cars and gigafactories in Europe,” he says.  But the key barrier is that “making sustainable, quality lithium-ion batteries is hard.”

Northvolt has to date raised $15bn in debt and equity, including a $5bn loan in January – the largest green loan ever raised in Europe.  And it carries the weight of Europe’s domestic battery hopes on its shoulders.

At the end of June,  Shareholder BMW pulled a billion-dollar battery order, citing production delays, and Northvolt was reassessing the viability of one of its factories. On top of that, there are concerns over worker safety after several deaths at the company’s facility in northern Sweden and its most recent losses reached into the billions.

The last week of June was a particularly tough week for Northvolt. Alongside the cancelled BMW order, Swedish media reported that its plans to open a fourth factory, in Borlänge, Sweden had been abandoned.

Northvolt is not the only battery manufacturer to reassess its construction plans. Fellow European upstart Automotive Cells Company (“ACC”), which counts automotive companies Stellantis and Mercedes-Benz, as well as TotalEnergies subsidiary Saft as shareholders, has halted construction on two of its three planned European gigafactories as it weighs up shifting to battery cells that are cheaper to produce.

Across the last 12 months, global battery manufacturing capacity was higher than demand, which makes competition among gigafactories tighter and will squeeze margins.

Predictions from BloombergNEF suggest that supply will continue to outweigh demand across the next few years – though not all of the forecast supply will come to fruition. “The slowdown in EV take-up has also hit demand for batteries,” says David Bailey, a professor who teaches industrial strategy at Birmingham Business School.

It is not just in Sweden where Northvolt has faced hurdles.

In April 2023, the company’s co-founder, Paolo Cerruti, said that Northvolt would soon decide whether to expand into North America.

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