Bloomberg: EU battery hopes become a symbol of the electric vehicle industry's collapse

Stockholm, September 26 (CTK/Bloomberg) – Swedish company Northvolt was supposed to become Europe’s answer to the success of companies such as Tesla and fast-growing Chinese electric vehicle makers. Instead, the electric vehicle battery manufacturer is fighting for survival. The company is facing a liquidity crisis, and creditors will meet on Friday to decide whether to release funds crucial to its survival. Bloomberg reported.

The company announced this week that it would lay off a fifth of its employees and pause the expansion of its main factory in northern Sweden. More problems may follow.

„Demand will not be high enough to absorb supply, and Northvolt may well become the first casualty of the current market correction,“ said Fredrik Erixon, director of the independent European Centre for International Political Economy (ECIPE).

At stake is the EU’s effort to build an important industry currently dominated by Chinese companies, particularly Contemporary Amperex Technology and BYD. They sell batteries and electric vehicles at unbeatable prices. Northvolt’s difficulties also cast doubt on the EU’s ambitious drive to build a self-sufficient green economy.

The current situation is a major turnaround for a company that less than a year ago was enticing investors with a planned initial public offering that would have valued it at USD 20 billion (more than CZK 450 billion). It was the first recipient of so-called green aid from the EU, which was intended to prevent companies from being lured by incentives offered under the US Inflation Reduction Act. It also promised to build large-scale factories in the EU and North America.

Like some other companies in the industry, such as Rivian Automotive, Northvolt tried to do too much too quickly. The company says it had teams that were not always qualified to operate at scale. As a result, it was unable to supply enough batteries to customers such as German automaker BMW. At one point, it also failed to meet deadlines for other customers, including Scania.

Northvolt’s financing was backed by orders worth more than USD 55 billion from companies such as Volkswagen and BMW. But production problems and falling demand for electric vehicles deprived the company of much-needed revenue and left it facing cascading financial problems. Last year, wages and employees’ social security contributions were more than three times higher than revenue from customer orders. The company was left short of cash less than a year after securing a so-called green loan of USD 5 billion, which took its total debt and equity commitments to more than USD 13 billion.

Northvolt has hired Teneo to advise it on restructuring, including contingency planning in case it fails to agree with creditors on revised debt terms. A company spokesperson said significant progress had been made in financing talks in recent weeks, but declined to provide details.

The company’s problems have been building for some time. In May, it postponed plans for an initial public offering, and in July it announced that its operating loss had more than tripled last year to USD 1.03 billion, even as revenue edged up to USD 128 million. It also said it had to push back the start of production at its four plants. In August, it announced that it would close its research division in California, and this month it mothballed production at one Swedish plant and shut down production at another.

„The industry is under pressure from several fronts, including slower global demand, falling prices and a race to develop next-generation technologies,“ said Bloomberg Intelligence analyst Joanna Chen.

„Competition in Europe is intensifying as Chinese battery makers such as CATL expand their local factories,“ she added.

Northvolt was founded by two former Tesla executives in 2016, when money was practically free and inflation was a distant memory of a bygone era. The company grew rapidly in its early years and had three factories under construction by 2019. Its first lithium-ion battery cell was assembled in December 2021. It aimed to have a total production capacity of 230 gigawatt-hours by 2030, enough batteries for about 3.8 million vehicles. Its plant near the Swedish city of Skellefteå currently has a capacity of 16 gigawatt-hours. Northvolt’s investors include German automaker Volkswagen and US investment bank Goldman Sachs.

Northvolt was held back by serious quality problems, including a high number of defective cells that could not be used, and its inability to ramp up mass production quickly, which drove up costs and limited output. In June, BMW cancelled an order worth EUR 2 billion, citing quality problems. Scania, part of the Volkswagen Group, had also previously complained about slow deliveries. Volkswagen nevertheless said it continued to support Northvolt’s development. BMW, meanwhile, left the door open to Northvolt becoming a supplier of its next-generation cells.

Northvolt co-founder Peter Carlsson said from the outset that the company’s biggest challenge would be finding specialists. In 2021, he said it was „incredibly difficult to find great cell engineers and people with extensive experience building these types of factories“.

As the company tackles its problems, the Swedish government has made clear that it will not bail it out. Germany says it is in „constant contact“ with the company. Analysts say the EU could be forced to act and might even consider introducing tariffs on batteries.

Some observers, however, see it as a losing battle. „This is a market that will undergo seismic changes over the next twenty years, and I don’t see European companies leading it,“ Erixon said.