Northvolt — a poster child of European climate tech which has raised €11bn since it was founded in 2016 — has hit troubled waters in recent months, and is now in urgent need of fresh capital.
The Swedish battery maker had its eyes on a further $1.2bn, but is now trying to raise half that amount, according to Swedish media Dagens Industri.
Last week, as the first part of a strategic review, the company also announced job cuts and the closure of two sites, and plans to double down on production from its main site in the north of Sweden after a period in which it has suffered from production delays and cancelled orders.
A lawyer with insight into the company tells me its response to the strategic review can be seen as a way to cut costs as well as making it look more favourable to investors. Others, including investors, experts and Swedish media, are asking whether Northvolt will be able to turn things around.
Who could save Northvolt’s financial situation?
Northvolt’s largest shareholder, according to its annual report for 2023, is German car manufacturer Volkswagen, which owns 21% of the battery maker. VW is facing its own challenges caused in part by falling demand for EVs in Europe. It recently announced that it’s considering closing factories and quit a labour agreement that protected workers from layoffs. As Germany’s largest private employer, and the politics involved with strong unions, it’ll be difficult politically to invest more capital in the Swedish gigafactory, one banker with knowledge of the situation tells me, saying that “VW’s hands are tied.”
VW hasn’t disclosed if it’ll put more money into Northvolt, but it did tell Bloomberg on Monday that it supports "the industrial ramp-up of the existing production.”
As well as being a major shareholder, VW is also Northvolt’s largest offtaker: it ordered $14bn worth of battery cells in 2021 to be delivered across a 10-year period. Earlier this year, Sifted asked Northvolt and Volkswagen how many cells should have been produced as part of that deal by mid-2024 and how many had actually been produced, but did not receive comment on the matter from either company. In the first nine months of 2023, Northvolt produced 79.8 MWh worth of battery cells, compared to the total capacity of its plant, some roughly 16k MWh (16 GWh) per year, according to documents seen by Swedish Di.
Northvolt’s other major shareholder, Goldman Sachs, holds a 19% stake in Northvolt, according to the company’s cap table. Like VW, Goldman has not disclosed whether it’ll inject fresh capital into the struggling company.
Harald Mix’s investment company Vargas is also on the cap table with Northvolt cofounder and CEO Peter Carlsson: together they own 13.9% of the company. Vargas, also a company builder, and Carlsson, an individual, are unlikely to be able to inject the capital to save the situation — but as my banker contact tells me, "It could be solved if, for example, Harald Mix used his network to get someone to step in at last minute."
Will the state step in?
On Monday, the Swedish Prime Minister Ulf Kristersson ruled out rescuing the company. “There is no question of the Swedish state going in and becoming a shareholder. Right now, the ball is in the court of Northvolt’s shareholders,” he said at a press conference. “We don’t involve ourselves in the business plans of individual companies but we do want to be a good place for this kind of industry.”
Germany had €902m worth of state aid approved by the EU earlier in the year to support the construction of a Northvolt gigafactory in Heide. Yesterday, a German minister told Dagens Industri that the German government is in dialogue with Northvolt, “to find a solution for it to succeed,” however, they didn’t answer whether the government is open to additional support in the current crisis.
Without the consent of the EU though, it’s not that easy to do, Bo Becker, head of the finance department at the Stockholm School of Economics, tells Sifted. Instead of EU member countries investing directly in companies, the EU would be the one to offer financing in terms of a loan, he says.
The European Investment Bank (EIB) already agreed earlier this year to finance Northvolt’s gigafactory in Northern Sweden, with a total lending package of around $1bn.
Sweden's media frenzy
Northvolt has long been a media darling in Sweden, but since reports of deaths at its Norrsken factory last year as well as the challenges it’s faced this year, there has been a 180-degree turnaround in the tone of reporting.
In the last week, headlines of the threat of insolvency at Northvolt have been widespread and experts and editorial opinion pieces are questioning whether anyone can step in to save Northvolt at this stage.
As one lawyer tells me, if someone came in it would likely be with a long list of demands and added security for the investment, which may make some other shareholders uneasy. As one banker close to the dealings tells me: “The shareholders are driven by different interests, and at the moment, they are putting sticks in each other's wheels."
Carlsson asked employees in a team wide meeting last week not to speak to reporters, according to a video recording shared with local media. He also said: “the road ahead will also be a turbulent one for Northvolt. We have to make further decisions that are painful, to secure the long-term viability of the company”.
Northvolt’s woes show the huge challenge faced by Europe’s infrastructure companies: a new breed of startup far more capital-intensive than the rest of the tech ecosystem. The companies have to convince the world’s deepest-pocketed investors to back them, all in the face of mounting competition from a heavily-subsidised battery supply chain in China.
Northvolt, as Europe’s best-funded climate tech, carries a lot of the continent’s climate ambitions on its shoulders — and the latest turns accentuate the difficulties of doing something for the first time, and how important it is to manage the expectations regarding production.
— Mimi
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