Battery Giant Falls: Blow to European Electrification

The path to autonomous vehicle manufacturing in Europe has hit another obstacle. Northvolt, often referred to as the "European version of CATL," has filed for Chapter 11 bankruptcy protection in the United States. The company is left with only $30 million in cash while burdened with $5.8 billion in debt. Once hailed as Europe’s largest battery manufacturer and a beacon of hope, Northvolt was expected to reduce the continent's reliance on Chinese battery manufacturers. However, this plan has faced a severe setback.

Capacity Shortfalls

Founded in 2017, Northvolt was once regarded as the biggest hope for establishing a homegrown battery industry in Europe. Established by two former Tesla executives and backed by top investors like Volkswagen, Goldman Sachs, BlackRock, and Siemens, the company received over $10 billion in funding and was widely seen as a promising endeavor.

With the slogan "Make oil history," Northvolt aimed to reduce Europe's dependence on Chinese battery supplies through independent research and the establishment of local production bases. From the onset, the company set an ambitious goal of mass-producing high-quality batteries and aimed to supply power batteries for European automakers like BMW and Volkswagen. This ambition became a symbol of Europe's revival in the battery industry.

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In September of this year, when Northvolt publicly acknowledged its operational crisis for the first time, it revealed signs of total collapse. Obstacles in production capacity, limitations in technology, and lost orders resulted in a profound trust crisis for this so-called "strongest" battery company in Europe.

However, delving into the origins and development of Northvolt, it becomes evident that its rapid decline may signify more than just the "Waterloo" of a power battery enterprise; it represents the awkward situation faced by supply chain companies during Europe's overall electrification transformation.

As a power battery startup with only a few hundred employees, Northvolt initially saw its financing and order volume expand continuously. By 2019, before its first factory was even completed, the company had already secured $13 billion worth of orders, with production capacity booked until 2030. Consequently, one of its founders, Paolo Cerruti, even claimed, “We've sold everything, and we haven't even produced a single cell yet.”

The company's factory in northern Sweden was touted as a model for advanced battery manufacturing worldwide. However, after its completion, this factory has consistently underperformed, achieving less than 1% of its planned capacity. Nevertheless, Northvolt announced plans to expand the factory's scale fourfold and establish multiple new plants in Europe and North America. Such overly ambitious expansion plans have sown the seeds for the financial troubles that followed.

According to interviews with ten current and former employees, Northvolt’s pursuit of multiple goals at an excessively rapid pace has led to a barrage of issues. A former senior executive remarked, “Manufacturing batteries is incredibly challenging. We tried to do almost everything simultaneously, and the problems kept accumulating.”

Uncertain Prospects

Reuters reported that Northvolt's bankruptcy protection application signifies a setback for Europe’s aspirations to have its battery industry. Current information reveals that over 70% of lithium batteries are produced in China. Northvolt was once seen as a hope for establishing an independent electric vehicle supply chain in Europe and countering the dominance of Asian battery manufacturers. Under Northvolt's guidance, many European startups invested hundreds of billions to produce batteries, yet demand has not surged as quickly as some industry insiders predicted.

Northvolt symbolizes more than just a company; it embodies Europe’s green ambitions. Its bankruptcy filing has a significant impact on the green transition in Europe, striking a heavy blow to the aspirations of developing a domestic battery industry.

Beyond Northvolt, many battery projects in Europe are also shrouded in uncertainty. For instance, ACC, a battery company formed by a joint venture between Mercedes-Benz and Stellantis, suspended construction at its factories in Germany and Italy in June. According to a study by the Fraunhofer Institute for Systems and Innovation Research, the battery production capacity publicly announced in Europe is equivalent to that of about 70 large factories. Researchers believe that over a quarter of these projects face issues, meaning around 20 planned factories may not come to fruition.

In lithium battery manufacturing, Asian countries hold an absolute leading position. All of the top ten companies in the global new energy vehicle power battery market hail from China, South Korea, and Japan, with CATL holding approximately 37.5% market share. European battery firms, led by Northvolt, ambitiously attempt to disrupt this landscape but now confront unexpected adversities.

Wolfgang Bernhardt, an expert from Roland Berger, stated that Western battery manufacturers lag behind their Asian counterparts in technology and operations. He urged the industry to adopt a more realistic outlook for the future: “European manufacturers should be more open to collaborating with Asian companies.”

A Polar Reversal

Through restructuring, Northvolt plans to secure approximately $245 million in new financing. The company claims that this restructuring will assist in realizing its long-term mission of establishing a Western battery production industrial base. During the bankruptcy period, Northvolt will continue delivering products to customers and making payments to key suppliers.

As Northvolt's largest shareholder, Volkswagen, which holds 21% of the company, acknowledged its awareness of the bankruptcy application but refrained from commenting on the potential impacts on its business. Key stakeholders, including the Swedish government and Volkswagen, have expressed hopes for Northvolt's revival. Swedish Deputy Prime Minister Ebba Busch stated on social media platform X that the government will continue to support the new energy vehicle battery industry, hoping the restructuring will help reverse Northvolt's fortunes. However, Busch previously mentioned that the Swedish government does not plan to acquire a stake in Northvolt.

According to a report on the 24th, Goldman Sachs’ private equity fund, Northvolt's second-largest shareholder, plans to write down its $896 million investment to zero by the end of the year. An anonymous fund representative remarked that they were shocked by Northvolt's pace of spending. Analysts from Swedish commercial banks noted that while the bankruptcy application might provide Northvolt with short-term breathing room, they also pointed out that the company has not yet found investors or raised the funds needed for restructuring.

Celina Mikolajczak, a former Tesla executive and Chief Battery Technology Officer of Lyten, pointed out the significant challenges in battery manufacturing, which must be done in a dust-free environment using highly processed metals and chemicals. Even minor impurities can ruin entire batches of batteries, leading to multimillion-dollar losses for the company.

She added that the cost to build a battery factory runs into billions, and engineers with the necessary technical expertise are in short supply. If anyone wishes to establish themselves in the battery industry, they must bring something new to the table rather than merely following in others' footsteps.

Shareholders seemingly have run out of patience with Northvolt's management, with some directing their ire towards Volkswagen and Goldman Sachs, claiming that disagreements between these two major shareholders have exacerbated Northvolt's predicament. According to Tom Johnstone, Northvolt's interim chairman, the bankruptcy process will help the company regain funding and restructure to continue its battery manufacturing operations. However, it's clear to everyone that Northvolt is no longer the shining beacon of Europe it once was.