(Bloomberg) -- Europe’s ambitions to lead the world in green technologies risk fizzling out in the face of China’s dominance. The outlook is especially bleak when it comes to electric vehicle batteries, an important driver of the low-carbon economy.
Sweden’s Northvolt AB was long seen as a potential European rival to the giant Chinese companies that make most of the world’s electric vehicle power cells. Now the business is fighting for its survival after a series of operational blunders wrecked its growth plans.
How did Northvolt’s plans unravel?
If it was going to have a chance of competing with Contemporary Amperex Technology Co. and other Chinese battery giants, Northvolt needed to grow fast.
The company amassed billions of dollars in debt and equity, secured using $55 billion of contracts from some of Europe’s biggest car and truck makers. In early 2022, before its first site in Sweden had even begun commercial production, Northvolt managers were already planning a new factory in Germany. A further plant in Canada was announced the following year.
Making this high-stakes strategy pay off would require flawless execution. Instead, the flagship Swedish factory was plagued by operational setbacks and challenges in trying to ramp up production while keeping a lid on costs.
After selling its first battery cells in 2022, Northvolt’s losses tripled in 2023 to $1.03 billion. The company tried to woo investors that year with plans for a stock-market listing at a $20 billion valuation. But its growth strategy was already coming apart.
This year, to stave off a financing crunch, Northvolt announced a retrenchment, scrapping two cathode material production facilities in Sweden, shuttering a research and development subsidiary in California and seeking out new investors for a project in Poland.
This wasn’t enough to reassure its investors. Two weeks later, the company said it was laying off 20% of its workforce — affecting 1,600 employees in Sweden — and further scaling back R&D. It also cut into its core, revenue-generating business by pausing an expansion at the flagship Swedish plant and sending that unit into bankruptcy. The German and Canadian plants also face delays.
How did it go so wrong?
The decision to grow aggressively in a range of battery technologies threw up a breathtaking number of operational hurdles. The plans encompassed not just a rapid scale-up of complex cell manufacturing, but the production of components such as cathode materials, the construction of new factories and a joint-venture with carmaker Volvo Car AB. Northvolt was even developing lithium-metal batteries for electric aircraft.
Bad luck played a part: There were reports of problems with machinery imported from China. And by moving so fast, the company appears to have compromised on quality, leading to a high number of faulty cells that couldn’t be used. In June, BMW AG canceled a €2 billion ($2.2 billion) order due to quality problems. Volkswagen AG’s truckmaking arm, Scania CV AB, complained about slow deliveries from Northvolt at the start of 2024.
Northvolt has also faced a string of health and safety issues, including worker injuries and reports of toxic chemical leaks.
Are Northvolt’s managers entirely at fault?
While this was arguably a crisis of Northvolt’s own making, Chief Executive Officer Peter Carlsson has blamed the state of the wider industry.
There’s certainly global overcapacity in the sector: Companies have announced $1.1 trillion in investments in battery cell and component production between 2024 and 2030, analysts at BloombergNEF said in June. That’s more than four times the $242 billion needed to meet expected demand.
The mismatch signals a prolonged period of low prices that will favor suppliers with the lowest cost base. The excess of manufacturing capacity is driving record-low prices in the Chinese domestic market, where lithium iron phosphate (LFP) battery cells can be bought for close half the average global price of $95 per kilowatt hour. There’s also a supply glut in battery materials.
Why is Northvolt so important for European industrial policy?
The European Union’s Net Zero Industry Act aims for the region to be producing 550 GWh of batteries by 2030, up from 110 GWh in 2023.
Northvolt isn’t the only battery producer in Europe. South Korean and Chinese companies also have factories to serve European assembly plants being retooled to make EVs. But European leaders have made clear they want the region to be a hub for clean technologies, not a manufacturing outpost for companies that repatriate the profits to Seoul and Shanghai.
Northvolt has been their best shot at building a big, thriving EV battery business headquartered in Europe.
Were the company to fail, ongoing progress in battery technology could make it even harder for another European company to attempt the same feat. China’s CATL employs 21,000 engineers in R&D alone — a figure three times greater than Northvolt’s entire workforce.
China supplies about 80% of the world’s lithium-ion batteries, and is home to six of the world’s 10 largest EV battery makers, according to Bloomberg Intelligence. Chinese companies are even more dominant in battery components, such as cathodes, anodes, separators and electrolytes.
And China isn’t Europe’s only problem: The US, Canada, Japan, South Korea, India and Indonesia are also looking to lure investments to develop their battery industries.
What about other European EV battery makers?
It’s not Northvolt alone that is struggling. The entire industry faces a delicate moment after governments began to scale back the financial incentives they doled out to encourage drivers to buy their first EV.
As a result, EV sales growth is slowing and the auto industry is having second thoughts about some of the investment plans predicated on a rapid shift to electric.
UK battery startup Britishvolt Ltd. fell into administration in 2023 before it could open a planned £3.8 billion ($5.1 billion) site. Italy recently cut funding for a battery-plant project backed by Stellantis NV and Mercedes-Benz Group AG due to the recent softening of EV demand.
If Northvolt can’t turn it around, EU governments would come under pressure to effectively admit defeat and open the door for Chinese players to establish more factories in Europe in order to keep the region’s EV transition alive.
©2024 Bloomberg L.P.