Northvolt Batteries Need Charging

Europe's first automotive batteries factory is running out of power because of lower demand from car manufacturers. Lower demand is just a temporary issue. But is Europe able to scale new business?

Several car battery factories are now under planning or construction in Europe, but the first one was the pride of all. The EU Commission hailed Northvolt as the embodiment of its new green industry strategy, Volkswagen and other producers in EU invested and expressed their satisfaction that finally there is a strategic and sustainable way out of their dependency on foreign battery producers, mainly Chinese and South Korean. And the Swedish government was very proud that the first of many factories came to be built up in the far North, in Skellefteå, just 200 km from the Polar Circle.

Northvolt Ett battery factory in Skellefteå in northern Sweden. It is struggling to reach its full capacity of battery production for around 300,000 electric cars per year, and has run into financial challenges that may lead to bankruptcy. Photo: Northvolt

There is now open talk that one of the companies that is seen as Europe's great hope in the global battery race against China and the USA and thus an important part of Europe's future, may end up going bankrupt.

Northvolt has 7,000 employees, of which some are already told they will be laid off, mostly unskilled workers. According to Financial Times, mentioned below, Northvolt has raised more capital than any other private group in Europe — more than $15bn in equity, debt, and government support.

The planned production capacity in Skellefteå is up to 300,000 car batteries per year, but it made much less than that in 2023. This year, Northvolt wanted to sell around 17,000 batteries, but it seems not even that goal is going to be achieved. This is caused by a dip in electric car sales in EU and other markets for the European car industry, that has caused Volkswagen to announce closure of factories and termination of agreements with worker’s unions, leading to unrest.

"There is no possibility for the Swedish state stepping in and becoming a shareholder. Right now the ball is in Northvolt's shareholders' court.” Said Ulf Kristersson, the Swedish Prime Minister.

However, Germany is not so shy of openly calling for putting more money into the business, realizing that this is most likely a fight that cannot be lost, not the least for the EU Commission.

The German government wants to "find a solution" to Northvolt's crisis. The German government is in dialogue with all involved parties regarding the crisis-hit Northvolt battery law "to find a solution for this to succeed". This is stated by the German Federal Ministry for Economic Affairs and Climate Action for Dagens Industri, Swedish financial newspaper. Even the Swedish government now says it is working actively "to ensure a viable battery industry in Skellefteå". Northvolt is trying to raise money through a financing round. Among other things, there is talk of a new issue of shares for around 7.5 billion Swedish kroner (747 million US Dollars).

BMW, who also is a co-owner of Northvolt, canceled a two billion dollar (13.4 billion kroner) contract with Northvolt recently because of repeated mishaps and delays in the production at the Skellefteå plant. They have had quality problems, problems with the production line, and even accidents where two workers were unfortunately killed. BMW lost its patience and ordered from Samsung of South Korea. Their batteries are of proven reliability and possibly cheaper, but some are with a simpler technology that gives a shorter range than the slightly more innovative Northvolt technology.

The German government confirms to Dagens Industri that it "is in dialogue with all parties involved to find a solution for this to succeed", so that, among other things, the factory in German Heide can be saved. Federal Chancellor Olaf Scholz attended the start of construction in March this year.

The EU Commission has made the battery sector one of its major priorities, because it is seen as crucial for Europe to free itself from dependence on China in particular, which is already well on its way to establishing itself in the international electric car market to the detriment of the classic European car giants.

Financial Times writes that “Northvolt’s sub-Arctic battery factory in northern Sweden was meant to symbolise Europe’s green fightback against China and the US. Instead, the start-up is in danger of turning into an emblem of the continent’s failure to stay in the race. The Swedish battery company has raised more capital than any other private group in Europe — more than $15bn in equity, debt, and government support.”

What is going on is that EU tries to get its feet into the game, which is about obtaining regional independence in the logistics chain of car production. Both USA and EU have very well positioned carmakers, but electric cars need batteries, which are not easy to produce. Which is exactly what the Swedes have experienced. Meanwhile, Northvolt has to cut down on its plans for expansion by building several more plants in Europe and overseas, leaving a few to be continued. Chancellor Scholz hailed Germany as a strong industrial location as he formally opened construction at the new Northvolt battery cell factory in Heide, in the northern state of Schleswig-Holstein, in March this year. (Government press release)

Getting down to the bottom of the case, there are heavy government subsides involved in batteries production. That goes for all countries, US and China included. In the case of Northvolt, the first was a 350 million euro loan from the European Investment Bank, which is an EU organization. It has also obtained loans from other EU-supported programs connected to the EU green development plans.

In other words, the money is there for European car battery production, but currently there is a lack of demand and perhaps also of skilled, experienced leadership.