Struggling Northvolt raises fears for Europe’s battery future

By Marie Mannes

STOCKHOLM (Reuters) – Northvolt’s surprise decision this week to scale back operations and cut jobs has raised fears that Europe’s best chance to become the local champion of electric vehicle batteries is running out of steam, industry experts and people familiar with the situation told Reuters.

Struggling with order delays and the loss of a $2 billion contract with BMW in June, Tesla CEO and former executive Peter Carlsson said Monday that the company he co-founded in 2016 would stop producing cathode active material (CAM) — a crucial battery component — and abandon plans for a Swedish factory and seek investors for a plant in Poland.

The Swedish company said it would focus on its core business of making battery cells, the units that store chemical energy.

The move effectively means that Northvolt, Europe’s largest battery player, has moved away from its original mission of being a one-stop shop offering everything from materials production and battery manufacturing to end-of-life recycling.

Coming just as former European Central Bank chief Mario Draghi warned of competition from Chinese green technologies in a highly anticipated report, the announcement raises questions about Northvolt’s ability to be a major force in promoting electric mobility in Europe.

“Northvolt was the doyen of the European battery industry and if they can’t produce (batteries) it really shows that, industrially, Europe is going to be incredibly dependent on Asia in the future,” said Andy Leyland, co-founder of supply chain specialist SC Insights.

Evan Hartley, an analyst at Benchmark Mineral Intelligence, said abandoning production of active cathode materials would put Europe “at an even greater disadvantage in terms of local production.”

Northvolt has struggled to produce high-quality batteries in large quantities to meet its ambitious targets while battling Chinese rivals such as CATL and BYD, analysts told Reuters. Northvolt’s expanding operations have been a complicating factor, they added.

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In its strategic review, the company did not address the delays, but said it would focus on its leadership role in battery cells.

Northvolt will now have to buy its cathode active materials from Chinese or South Korean suppliers, a person familiar with the matter said.

CONTRACTS CANCELLED

The struggles at Northvolt, which is still loss-making despite orders worth more than $50 billion from customers including major investor Volkswagen, underscore Europe’s struggle to reduce Western automakers’ reliance on China, which controls 85% of global battery cell production, according to data from the International Energy Agency.

The Swedish player has $15 billion in equity and debt funding from a host of players including Goldman Sachs and Blackrock, according to filings, and has been trying to raise more money to finance its costly ramp-up.

Battery production and delivery difficulties led to the cancellation of a $2 billion order from BMW in June, a person familiar with the matter and an industry source told Reuters. That ultimately led to Monday’s drastic strategic shift.

“The situation became increasingly delicate as customers like BMW cancelled order contracts,” a third source with direct knowledge of the situation told Reuters.

BMW’s decision to end its contract was because Northvolt was two years behind on batteries for the deal, meaning they would be obsolete by the time they were delivered, an industry source told Reuters.

Scania, VW’s Swedish truck subsidiary, told Swedish newspaper Svenska Dagbladet in May that Northvolt’s delivery problems had prevented it from shipping thousands of electric trucks last year, highlighting a widespread problem. Scania declined to comment on its order status when contacted by Reuters.

Northvolt’s future now seems uncertain.

Its flagship plant in Skelleftea, northern Sweden, is far from reaching full capacity. Carlsson told a Swedish newspaper in July that it aims to reach initial output of 16 gigawatt hours (GWh) per year by 2026, three years behind the original target, the newspaper said.

This raises questions about when the plant will be able to operate at its full capacity of 60 GWh per year, enough to produce batteries for a million cars a year.

And that puts into doubt the future of three planned gigafactories in Heide, Germany, Quebec, Canada, and Gothenburg, industry analysts said.

Other companies potentially at risk are the Swedish company’s joint venture for a lithium conversion plant with Portuguese company Galp Energia, a Swedish battery materials recycling company called Revolt Ett, and Hydrovolt, a battery recycling joint venture with Norsk Hydro.

“They have a recycling project that could be slowed down… there is a potential lithium refinery project in Portugal that could be abandoned or postponed,” Leyland said.

Northvolt said Monday it would decide this fall whether to delay any of its three planned gigantic factories, and did not provide details on other projects.

Despite its difficulties, Northvolt remains far ahead of rivals such as Norway’s Morrow and Freyr, as well as the Automotive Cells Company (ACC) joint venture of Stellantis and Mercedes.

But customers are watching the situation nervously, an industry source and an industry expert who has spoken to some of Northvolt’s customers told Reuters.

Contacted by Reuters, Volvo Cars said its joint venture with Northvolt was still part of its strategy and that it could not comment further. Volkswagen declined to comment, as did BMW, on the Swedish carmaker’s latest troubles.

Northvolt’s difficulties could delay a planned listing until next year or the year after, a source with direct knowledge of the situation told Reuters.

Contacted by Reuters, Northvolt did not respond to questions about the cancellation of the BMW order, the postponement of its production target or the delay of its IPO.

“Every failure costs money,” said Daniel Brandell, a research leader at Uppsala University’s Angstrom Advanced Battery Centre battery research group.

(Reporting by Marie Mannes in Stockholm, with additional reporting by Christina Amann in Berlin, Akash Sriram in Bengaluru, Emma-Victoria Farr and Victoria Waldersee in Frankfurt; Editing by Ben Klayman and Lisa Jucca)