Northvolt: Europe's 'Top Battery Maker May Enter Bankruptcy Countdown'

According to insiders, negotiations to rescue the near-bankrupt Swedish battery manufacturer Northvolt also involve creditor protection under US law. Two sources familiar with the situation revealed that this is one of several options being considered by the company.

One insider stated that despite increasing difficulties in recent weeks, negotiations on the company's financing continue. A Northvolt spokesperson declined to comment on whether the company is considering filing for bankruptcy protection in the US. The lithium-ion battery manufacturer has raised $15 billion since its inception and began a comprehensive strategic review last July. The spokesperson said, "Since the beginning of the strategic review, we have been discussing various options, and this has not changed throughout the process. "Once a solution is found, we will inform the results as soon as possible and continue discussions with shareholders."

Media reports on Thursday evening, citing insiders, stated that Northvolt is considering bankruptcy protection to regain control of its finances. Northvolt is currently in urgent need of funds and has been working with investors for weeks to discuss rescue plans. It was reported that negotiations between investors, lenders, and customer Scania stalled in the past two weeks. According to insiders, investors held new meetings last week.

In recent months, Northvolt has transformed from a leading candidate for the European electric vehicle battery champion to a struggling survival race due to production issues, loss of major customers, and financing difficulties. What caused this?

Flashback to 2011, when Peter Carlsson, a Swedish executive with an impressive resume from top 500 companies like Sony Ericsson, joined Tesla under Elon Musk's leadership, responsible for supply chain management. While earning US dollars, the Nordic executive was deeply influenced by Musk's charisma. After less than five years, Peter left and accumulated an understanding of the battery industry, leading to the idea of founding Northvolt. Its main vision can be summarized as follows:

1. Locally Manufactured Batteries in Europe

At that time, the international power battery market was dominated by China and South Korea. A complacent Europe was filled with anxiety about its inability to produce its own power batteries. Northvolt, emphasizing European manufacturing, challenged companies like CATL, LG, and Tesla. Its goal was to become the preferred brand in the European electric vehicle market and achieve self-sufficiency. The political correctness of this endeavor also lies in reducing dependence on Russian oil and Chinese?batteries.

2. The World's 'Greenest' Batteries

Meanwhile, against the grand backdrop of Europe's net zero carbon emissions goals, Peter set his sights on the cheap clean energy available in northern Sweden (where abundant hydropower and wind resources keep electricity prices at less than one-third of those in continental European countries). If successfully connected to the grid, Northvolt's production energy consumption would naturally be the greenest and most environmentally friendly in the world. This offers ample appeal to upstream automakers, from carbon tax benefits to enhanced corporate image.

3. The Most Environmentally Friendly Batteries with Recycling Capabilities

Northvolt's third ace up its sleeve is its focus on battery pollution and recycling from the very beginning. Not only does it produce green batteries using green energy, but it also provides clear solutions for recycling and reusing batteries after their use. Its partnership with Norway's Hydro to establish Hydrovolt will result in Europe's largest electric vehicle battery recycling plant, capable of processing about 25,000 sets of used batteries annually. This truly exemplifies a strong sense of social responsibility.

Coupled with the Tesla aura of its founding team, Northvolt garnered attention across Europe upon its establishment in 2016.

The Classic Venture Capital Model

Against this backdrop, Northvolt can be said to have gathered the hopes of the entire European village, enjoying immense favor from the outset. First, it was "pampered" by various capital sources, with lead investments from Volkswagen, Goldman Sachs, and Siemens. Corporate giants and investment institutions such as BASF, Renault, BMW, and the European Investment Bank followed suit. Within a few years of its establishment, Northvolt secured more than 10 rounds of financing totaling $15 billion, making it the brightest unicorn in the European venture capital scene, without exception. In 2020, Northvolt ranked 169th on the Hurun Global Unicorn List. By April 2024, Northvolt's enterprise valuation of RMB 143 billion placed it 15th on the global unicorn list.

Supporting this financing legend is, of course, its impressive performance on the order front. From the very beginning of its entrepreneurship, European automakers such as Volkswagen, BMW, Volvo, and Scania placed orders to lock in production capacity, lining up to await the delivery of the world's greenest batteries produced locally in Europe. These orders, combined, totaled $55 billion. Among them, Volkswagen alone placed a 10-year battery order worth $14 billion. In summary, within just seven years, Northvolt secured at least $15 billion in financing, €1 billion in government subsidies, and $55 billion in orders, setting new records for financing and pre-orders among European startups. In one word, it's simply 'impressive'!

Northvolt's Expansion Plans

With such strong support from investors, governments, and partners, Northvolt is full of confidence and has swiftly moved to establish factories in Europe and make global layouts. In 2019, Northvolt started construction of Europe's first lithium-ion battery factory in Skellefte?, a town of just over 70,000 people located near the Arctic Circle in northern Sweden. By the end of 2021, the factory was officially operational and produced its first battery cell, which was the first battery fully designed, developed, and assembled by a European battery company. According to the plan, the factory will reach its designed capacity of 16GWh in 2023, supplying power batteries for 300,000 electric vehicles.

In 2020, Northvolt and Norway's Hydro each invested 50% in the battery recycling plant Hydrovolt. Northvolt aims to source at least 50% of its production materials from recycled batteries, thereby reducing the need for mineral extraction and mitigating environmental damage.

In 2021, Volvo, controlled by Geely, and Northvolt jointly invested $2.5 billion to establish Novo Energy, a joint venture in Gothenburg, Sweden. Novo's original intention was to achieve seamless collaboration and integration between battery companies and automakers in research, development, and production. The factory plans to employ 3,000 staff and produce enough battery cells to meet the demand of 500,000 vehicles annually, with production commencing in 2025.

In 2022, it was announced that a second super battery factory would be built in northern Germany with a designed annual production capacity of approximately 60GWh. In early 2024, funding of €4.5 billion was secured, and construction of the "super factory" in Germany began.

In August 2023, Northvolt announced the construction of a new battery factory in Canada, with an expected start of production in 2026 and a goal of reaching a capacity of 60GWh by 2028.

In January 2024, Northvolt announced that it had secured a $5 billion "green loan" to expand its factory in Sweden, increasing its planned production capacity to 60GWh. Additionally, Northvolt swiftly established research and development centers in the United States and other locations. Its vision is to achieve a production capacity of 150GWh by 2030 and capture at least 25% of the European market share.

Ideals Are Full, Reality Is Bone-Chilling

Just when people thought a European version of CATL (Contemporary Amperex Technology Co. Limited) was on the horizon, Northvolt, which seemed to have all the right conditions, hit a snag.

According to the plan, Northvolt's first flagship factory was supposed to reach a designed capacity of 16GWh by the end of 2023, supplying power batteries for 300,000 electric vehicles, and increase to 32GWh by the end of 2024, with an ultimate target capacity of 40GWh (with a second phase expansion to 60GWh). However, unsurprisingly, this timeline has been repeatedly pushed back. In September of this year, the Swedish newspaper Dagens Industri revealed that Northvolt's production capacity was approximately 6,000 batteries per week, with an annual capacity of less than 1GWh. This is only about 3% of Northvolt's expected capacity. It can almost be described as a production?standstill.

Founder Peter also publicly stated at a recent forum that Northvolt is only expected to produce a few GWh of batteries in 2025. This indicates that Northvolt is facing extremely severe challenges that will not be resolved in the short term.

There are many reasons for Northvolt's production capacity issues. One of them is yield rates. As an example, Volkswagen, as a significant shareholder, has established a dedicated working group to follow up on the batteries supplied by Northvolt due to concerns about their quality.

According to Northvolt's 2023 financial report, its revenue increased from 107millionlastyearto128 million, while its losses expanded from 284millionto1.167 billion. The issue of losses itself is not significant, but what is most concerning is the current production capacity scale that Northvolt has achieved. With $55 billion in orders in hand, Northvolt can quickly convert them into revenue as long as the production capacity is unleashed. However, Northvolt's dilemma is that it is stuck on production capacity. The failure to increase production capacity at the first factory has forced delays in other projects, leading to a series of domino effects.

Crisis

The true crisis started in June 2024, BMW canceled a $2.2 billion order and redirected it to Samsung in South Korea. At the same time, Northvolt's delays also impacted the delivery of thousands of electric trucks by Scania last year.

To cut costs, in September 2024, Northvolt announced the layoff of 1,600 employees, which is 25% of its total workforce. Simultaneously, Northvolt announced the closure of its research and development center in California, USA, and the transfer of some tasks to Sweden, resulting in the dismissal of 200 American employees.

Norway's Hydro confirmed its absolute controlling stake in Hydrovolt and will only participate in supporting battery recycling projects in the future. Volvo also announced that since Northvolt has stopped injecting funds into their jointly held company NOVO, Volvo plans to take over all of NOVO's shares.

Worse still, this year, a slew of European automakers have slowed down their electrification efforts, dimming Northvolt's market prospects compared to previously. Facing huge losses, Northvolt's stance has shifted from a challenger to a survivor struggling to stay afloat.

Last week, on November 11th (local time), Northvolt announced that Sven Fuhrmann, a director representing Volkswagen AG, would be leaving Northvolt. Northvolt is currently mired in a funding shortage, and Fuhrmann's departure has heightened market concerns about the company's future prospects. Volkswagen AG is currently Northvolt's largest shareholder and an important customer, although Volkswagen has stated that its shareholding will not be affected, the market may interpret this differently.

Moreover, on November 18th, according to insiders, negotiations to rescue the near-bankrupt Swedish battery manufacturer Northvolt also involved creditor protection under U.S. law. According to two sources familiar with the situation, this is one of several options for the company.

Chapter 11 of the U.S. Bankruptcy Code

Chapter 11 of the U.S. Bankruptcy Code is a crucial chapter on corporate reorganization. It provides a legal framework for financially troubled businesses to undergo debt restructuring and business reorganization, potentially avoiding bankruptcy liquidation. Below is an interpretation of this chapter, along with an analysis of the potential benefits Northvolt could gain by filing for bankruptcy under this chapter, using specific cases (such as American Airlines) as examples.

1. Applicable Entities:

* Chapter 11 applies to all types of entities, including corporations, partnerships, sole proprietorships, and individuals.

2. Purpose:

* It aims to provide businesses with an opportunity to restore financial health through debt restructuring and business reorganization, thereby avoiding bankruptcy liquidation.

3. Procedures:

* The business or its creditors can file for bankruptcy protection in federal bankruptcy court.

* Upon approval of the application, the business enters bankruptcy protection proceedings and is subject to court supervision and guidance.

* The business needs to propose a reorganization plan that details how to restructure debts, adjust business structures, and restore profitability.

* The reorganization plan needs to be voted on by creditors and confirmed by the court.

4. Privileges:

* Once Chapter 11 bankruptcy protection proceedings are initiated, the business has the right to temporarily suspend debt payments. Unless prior approval is obtained from the bankruptcy court, all creditors are prohibited from taking any action against the business applying for bankruptcy protection.

* The business can negotiate with creditors to modify or rearrange debts.

* The business can also renegotiate contract terms with suppliers and, if necessary, modify or reject collective bargaining agreements signed with unions.

If Northvolt chooses to file for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, it will gain a series of legal protections and reorganization opportunities. These benefits can help the company find a way out of its financial difficulties and restore operational stability. Below is a detailed explanation of these benefits, along with a specific analysis using the successful reorganization of American Airlines as an example.

Firstly, by filing for bankruptcy under Chapter 11, Northvolt will be able to temporarily suspend debt payments. This "automatic stay" privilege will buy the company valuable time to formulate and implement a comprehensive reorganization plan. During this period, all creditors are prohibited from taking any coercive measures against Northvolt, which will help the company avoid being forced into immediate liquidation due to debt issues. This privilege is crucial for Northvolt, which is currently facing severe funding shortages and needs time to adjust its financial structure and business operations.

Secondly, Chapter 11 also allows Northvolt to renegotiate with creditors, suppliers, and other contractual parties. This means Northvolt can attempt to reduce raw material costs, adjust labor costs, optimize the supply chain, etc., to ease its financial burden and improve operational efficiency. This opportunity for renegotiation is particularly important for Northvolt, as it has been struggling to increase production at its factory in Skellefte?, northern Sweden, and has failed to meet its internal targets. By renegotiating with various parties, Northvolt has the potential to obtain more favorable contract terms, thereby improving its financial situation.

Furthermore, Chapter 11 bankruptcy reorganization can also help Northvolt protect its assets from direct claims by creditors. During the bankruptcy protection period, Northvolt's assets will be protected by the court, which will help ensure that the company can maintain the necessary operational capabilities and asset value during the reorganization process. This is also important for Northvolt, as it needs to maintain a certain level of operational capability to continue producing batteries and meet its customers' demands.

American Airlines successfully utilized Chapter 11 of the U.S. Bankruptcy Code to undergo bankruptcy reorganization. During the reorganization process, American Airlines restored profitability by reducing labor costs, renegotiating supplier contracts, and formulating a comprehensive business reorganization plan. These measures not only helped American Airlines reduce operating costs but also improved its operational efficiency and market competitiveness. Ultimately, American Airlines successfully exited the bankruptcy process and achieved significant growth in its stock price.

For Northvolt, although the challenges it faces are different from those of American Airlines, the successful case of American Airlines still provides some valuable lessons. Northvolt can learn from American Airlines' experience and seek opportunities for debt restructuring and business reorganization through Chapter 11 bankruptcy reorganization. During the reorganization process, Northvolt needs to formulate a clear strategic plan, effectively communicate with creditors, suppliers, and other stakeholders, and seek support and cooperation from all parties. At the same time, Northvolt also needs to strengthen internal management and improve operational efficiency to ensure the smooth implementation of the reorganization plan and the company's long-term development.

Expensive Lessons

The reasons behind Northvolt's current predicament are quite complex, and while we may not grasp all the details, we can attempt to provide a preliminary interpretation from several perspectives.

1. Systematic Deficiencies in Europe's Lithium-ion Battery Industry Chain

Europe's power battery industry is generally weak, lacking in supporting technologies, talent, and infrastructure. The lithium-ion battery industry chain is highly complex. Take upstream mineral materials and battery materials as an example: Europe has small and scattered reserves, and development progress is severely lagging. Europe's largest lithium mine, located in Serbia, has a planned production capacity of 58,000 tons. However, this lithium mine was halted by environmental protests in 2022. In terms of battery materials, including cathode and anode materials, electrolytes, and separators, Europe's local suppliers are almost nonexistent. Battery production is not a standalone project; without the support of an industry chain, it is difficult for Northvolt to overcome its systematic predicament. This stands in stark contrast to the systematic advantages of China's lithium-ion battery industry ecosystem, serving as a vivid example illustrating the systemic strengths of China as a manufacturing hub.

2. Fatal Flaws in Design and Craftsmanship

From the historical evolution of Europe's battery technology pathway, it is evident that its battery companies lag behind in electrochemistry and related side reactions, making their product designs prone to defects. The cathode active material is a crucial component of lithium-ion batteries, and Northvolt found that the quality of the material it produced was not sufficient. The decision to suspend production and switch to external procurement resulted in significant time delays, posing a direct blow to its vision of achieving European manufacturing. During an interview with the media, Zeng Yuqun from Contemporary Amperex Technology Co. Limited (CATL) also expressed his belief that European battery companies have flawed designs, erroneous processes, and problematic equipment. Some initially dismissed this as a strategic underestimation of competitors by CATL, but now it appears to be a profound insight.

3. Talent and Workforce

It's no secret that Europe is weak in battery technology. However, it would be unfair to say that Peter and his startup team didn't pay enough attention to recruiting talent. Northvolt currently has a team of about 7,000 people from over 100 countries worldwide, bringing together experts and skills from countless top companies such as Tesla. Obviously, this is not a perfect recipe for overcoming difficulties.

Firstly, such a large-scale, high-risk technology venture project is an extremely complex systematic endeavor. A team of several thousand people may possess sufficient intelligence, but the integrity of their design and the synergy of their decision-making are not formed overnight. Secondly, investment institutions are both essential and often poisonous for such mega-projects with ultra-high funding needs. This is because they have extremely stringent requirements for project budgets, timelines, and returns. Under such pressure, the project team may be forced to make immature or even wrong decisions, and they may be indirectly encouraged to downplay issues to attract more follow-up investments. By the time problems explode, the golden opportunity for review and correction is often missed. Lastly, we often see founders and their development teams being overly confident, believing that seizing opportunities and telling good stories will naturally lead to successful project delivery, even if they lack sufficient experience. A rational team needs to give enough space to the most suitable team to truly undertake the project's engineering design and delivery work at the appropriate time.

Besides talent, it's necessary to mention that today's European and American labor markets are also a very serious fundamental issue. Countries in Northwestern Europe face enormous challenges in bringing back traditional manufacturing. Even if they supplement their workforce from Eastern Europe and outside the EU, there are many systematic obstacles, such as workforce stability, language and culture, skills, labor protection, and more. To paraphrase Marx, population is the primary productive force. This essentially determines that Europe and the United States are at different stages of the economic cycle compared to developing countries.

4. High Latitude Climate Challenges and Production Safety in Hazardous Environments

The town of Skelleftea, located at 64° north latitude and close to the Arctic Circle, experiences temperatures that can drop below -40°C in winter. Setting up a factory and constructing it under such extreme cold conditions is a significant challenge in itself. There is also limited reliable historical data and experience to refer to, posing a huge challenge to the timely delivery of the project. This is a typical example of the cost of being a first mover.

To make matters worse, in January of this year, a 33-year-old young employee of Northvolt was found dead at home after work in an unusual manner. A month later, another 19-year-old employee was found dead with similar symptoms. In June, a third employee, over 60 years old, was found dead on his balcony after work. The Swedish police have announced an in-depth investigation into these puzzling causes of death, and no conclusions have been reached yet.

Meanwhile, concerns about potential hazards in the company's work environment have begun to circulate in the media. For example, there are reports of employees being forced to handle toxic waste and emissions without adequate safety protection, and some employees experiencing unexplained continuous nosebleeds. Local media has reported at least 26 serious accidents since 2019. Such a safety performance is unprecedented in a high-standard country like Nordic countries.

The Future of Northvolt

After burning through approximately $15?billion, Northvolt's capital chain is nearing collapse, with rumors of bankruptcy swirling around. In October 2024, Scottish Mortgage Investment Trust announced a write-down of its holding in Northvolt by 85%, almost to zero.

Northvolt is urgently in need of financing to stay afloat. But who can save it now? Both the Swedish and German governments have denied any plans to provide financial support to Northvolt. The only hope for saving Northvolt lies with Goldman Sachs. Recently, it was reported that Goldman Sachs, along with several other institutions, will provide Northvolt with a bridge loan of approximately $300 million. Even if the agreement is reached, this amount will not be enough to help Northvolt weather the storm.

Of course, there is another possibility. Imagine if Chinese, Japanese, or Korean companies step in to inject capital or acquire Northvolt. It would be extremely ironic for Northvolt's initial goal of localizing battery production. However, we believe the likelihood of other companies being interested in Northvolt's assets is slim. Calm Chinese and Korean companies have already made far-reaching layouts in more cost-effective Eastern Europe and Korea. Moreover, according to recent disclosures, the production capacity of CATL's German factory is still ramping up and is expected to reach break-even within the year; its first phase of the Hungarian factory is progressing steadily as planned, with an expected launch in 2025; and the production capacities of Chinese companies such as Sunwoda, Gotion Hi-Tech, EVE Energy, AESC, and CALB are also advancing steadily. By then, the combined production capacity of Chinese battery manufacturers and Korean Maufacturers like Sk On, LGES, and Samsung SDI will exceed 250GWh. Given the current declining demand for EVs in Europe, the window of opportunity for Northvolt to recover may be short.

Just a few months ago, Northvolt was the chosen one, shining brightly. Now, it has entered a critical moment of survival, which is hard to accept no matter how you look at it. If Northvolt ultimately goes bankrupt, the impact and ripple effects will be far-reaching, not only for the investors and customers who once firmly supported it, but also for the EU's grand vision of achieving local manufacturing and carbon neutrality.