Struggling Northvolt stokes fear for Europe's battery future
Northvolt's troubles trigger doubts about its ability to produce enough batteries for Europe
Northvolt to buy cathode active materials from Asian suppliers, source says
Delivery issues triggered BMW contract cancellation, sources says
Northvolt's struggles raise questions about future gigafactories and joint ventures, industry analysts say
By Marie Mannes
STOCKHOLM, Sept 13 (Reuters) -Northvolt's shock decision this week to shrink its operations and cut jobs has sparked fears that Europe's best shot at a home-grown electric vehicle battery champion may stall, sector experts and people familiar with the situation told Reuters.
Struggling with order delays and the loss of a $2 billion BMW contract in June, CEO and ex-Tesla executive Peter Carlsson said on Monday the company he co-founded in 2016 would stop producing cathode active material (CAM) - a crucial battery component - scrap plans for a Swedish facility and seek investors for a plant in Poland.
The Swedish company said it will focus on its core business of making battery cells, the units that store chemical energy.
The decision effectively means Northvolt, Europe's most developed battery player, has stepped back from its original mission to be an all-in-one shop offering everything from material production and battery making to end-of-life recycling.
Coming just as former European Central Bank head Mario Draghi warned of green tech competition from China in a long awaited report, the announcement raises questions about Northvolt's ability to be a major force in Europe's electric mobility push.
"Northvolt was the doyen of European battery industry and if they can't produce (batteries), it really shows that, industrially, Europe is going to be incredibly dependent on Asia going forward," said Andy Leyland, co-founder of supply chain specialist SC Insights.
Benchmark Mineral Intelligence analyst Evan Hartley said the scrapping of cathode active material production will put Europe "at a further disadvantage when it comes to local production".
Northvolt has had problems in manufacturing high-quality batteries in high volumes to meet its ambitious targets while fighting Chinese rivals such as CATL 300750.SZ and BYD 002594.SZ, analysts told Reuters. Northvolt's sprawling business has been a complicating factor, they added.
In its strategic review, the company did not address the issue of delays but said it would focus on being a battery cells leader.
Northvolt will now need to buy its cathode active materials from Chinese or South Korean suppliers, said a person familiar with the matter.
CANCELLED CONTRACTS
The travails of Northvolt, which is still loss-making despite securing orders worth over $50 billion from customers including top investor Volkswagen, underscore Europe's struggle to reduce Western carmakers' reliance on China, which controls 85% of global battery cells production, International Energy Agency data show.
The Swedish player has $15 billion in equity and debt financing from a raft of players including Goldman Sachs and Blackrock, filings show, and has been trying to raise more moneyto fund its expensive ramp-up.
Struggles to produce and deliver batteries triggered a cancellation of BMW's $2 billion order in June, a person familiar with the matter and an industry source told Reuters. This ultimately led to Monday's drastic strategic U-turn.
"The situation got increasingly tricky when customers like BMW canceled order contracts," a third source with direct knowledge of the situation told Reuters.
BMW's decision to axe its contract was the result of Northvolt being two years behind on the batteries for that deal, meaning they would be obsolete by the time they would be delivered, an industry source told Reuters.
Also, VW's Swedish truckmaking unit Scania in May told Swedish Svenska Dagbladet that Northvolt's delivery problems had prevented it from shipping thousands of electric trucks last year, underscoring a widespread issue. Contacted by Reuters, Scania declined to comment on its order situation.
Northvolt's future now looks uncertain.
Its flagship factory in Skelleftea, in northern Sweden, is far from reaching full capacity. Carlsson told a Swedish paper in July that it aimed to reach initial production of 16 gigawatt per hour (GWh) per year by 2026, a delay of three years from the original target according to the paper.
That raises questions on when the plant may be able to run at its full capacity of 60 GWh per year, enough to produce batteries for one million cars annually.
And it puts in doubt the future of three gigafactories planned at Heide, Germany, Quebec, Canada, and Gothenburg, industry analysts said.
Other businesses potentially at risk are the Swedish company's joint venture for a lithium conversion plant with Portugal's Galp Energia GALP.LS, a Swedish battery material recycling business called Revolt Ett as well as Hydrovolt, a battery recycling joint venture with Norsk Hydro NHY.OL.
"They have a recycling project that could be slowed down...there's a potential lithium refinery project they have in Portugal that could be scrapped or postponed," Leyland said.
Northvolt said on Monday it will decide this autumn whether to delay any of its three planned gigafactories, and did not give details about the other projects.
Despite its struggles, Northvolt is still far ahead of such rivals as Norway's Morrow and Freyr, and Stellantis and Mercedes' joint venture Automotive Cells Company (ACC).
But customers have been nervously following the situation, a source at one industry player and an industry expert who spoke to some of Northvolt's customers told Reuters.
When contacted by Reuters, Volvo Cars said its joint venture with Northvolt was still part of its strategy and said it could not add further comment. Volkswagen declined to comment, BMW declined to comment on the Swedish company's latest troubles.
Northvolt's challenges could delay a planned listing to next year or the following one, one source with direct knowledge of the situation told Reuters.
Contacted by Reuters, Northvolt did not respond about BMW's order cancellation, its production target hold-up or its IPO delay.
"Every setback costs money," said Daniel Brandell, a research leader at Uppsala University's battery research group Angstrom Advanced Battery Centre.
Northvolt's factory expansion https://www.reuters.com/graphics/NORTHVOLT-FACTORIES/byprqgrkxve/chart.png
Global auto battery market share https://graphics.reuters.com/SOUTHKOREA-EV/BATTERY/znpnzwmgbpl/chart.png
Reporting by Marie Mannes in Stockholm, 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
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