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Northvolt: the Swedish start-up charging Europe’s battery ambitions

Deep in a dense, sub-Arctic pine forest in northern Sweden, a flat grey structure blends into both the snow and the overcast horizon. This improbable location is the birthplace of one of the most important industrial projects in Europe: its first homegrown battery factory.

The first phase of this gigafactory, built by Swedish start-up Northvolt, will be the same size as 70 football pitches. It is designed to take on rivals in Asia and the US in a sector crucial to the green transition.

There has been no shortage of scepticism about the idea of dropping a factory, built by a company only founded in 2017, in the middle of a wilderness just below the Arctic. Known once for its gold mines, Skellefteå had been in decline for decades before its bountiful cheap energy turned it into a boom town.

“There were people who questioned whether it would come off for a very long time,” says Northvolt’s chief executive Peter Carlsson, who adds: “We can’t afford to have doubts.”

So far, Northvolt has consistently proven its detractors wrong. The factory is up and running, churning out batteries even as construction continues to make it bigger and bigger. It is in talks about a stock market listing with bankers at a valuation of about $20bn, probably next year.

But with customer impatience for batteries growing after delays of several months due to the Covid-19 pandemic, logistics and supply chain issues as well as a whole series of projects under development, this is a decisive year for Europe’s biggest industrial start-up. “2023 will be the big examination of us,” says Carlsson.

The success, or not, of Northvolt matters deeply for Europe. The continent has long prided itself on its capabilities in green technologies such as wind power or energy efficiency. But the dominance of Chinese companies, coupled with the huge subsidies suddenly on offer from the US through its Inflation Reduction Act (IRA), is leading to existential angst in Europe. Nowhere is this more so than in battery making, which European officials long touted as an area where the continent could compete with Asia and the US.

A decision on where to put Northvolt’s third factory — in the US or Germany — is eagerly awaited on both sides of the Atlantic for signs of who has the upper hand in a green technology subsidy war.

“Europe needs to be self-sufficient in this. Europe needs it own battery production companies and green ones at that. This is the biggest European player,” says Jim Hagemann Snabe, the chair of industrial giant Siemens and ex-chair of Maersk who now heads Northvolt’s board.

All of this evinces the sheer scale of Northvolt’s aims. In Skellefteå, production is meant to increase rapidly this year even as construction to get the factory to produce enough batteries for 1mn cars annually carries on until at least 2025; next door, Europe’s first large-scale battery recycling facility will start operating later this year; work will soon begin on a second gigafactory in Gothenburg together with partner Volvo Cars and at a giant cathode material factory in central Sweden; a battery recycling facility in Norway and battery systems factory in Poland for energy storage will boost production; and a new factory in Germany or the US that will be decided upon.

The question facing Northvolt is: can it handle all this complexity and help develop a European battery industry to stop the likes of China’s CATL from dominating the sector?

“It’s all very impressive,” says one carmaker customer. “But what I really care about is: when can I get my batteries? And preferably I want them yesterday.”

Building a battery behemoth

When Carlsson and another former Tesla executive Paolo Cerruti unveiled Northvolt in 2017, some in the industry did not give them a chance. “$4bn to build a factory in Sweden? The Chinese will eat them alive,” was the reaction of one carmaker executive at the time.

Financing was once their biggest worry, but it has not yet been an issue. Northvolt has raised $8bn in equity and debt so far, making it the best-funded start-up in Europe of any type. An early masterstroke was to get large customers such as BMW, Volkswagen and truckmaker Scania to become investors along with more traditional financial investors such as Goldman Sachs, Baillie Gifford, pension funds AMF and ATP, and the European Investment Bank.

“We have the benefit of having built very good customer relationships, and built these partnerships that give us the right order book,” says Carlsson, pointing to $55bn of orders on hand. And it is not just carmakers: industrial groups such as Siemens, ABB, Vattenfall, Epiroc and Vestas are all big customers or partners of Northvolt.

Building the factory in Skellefteå during a pandemic has been more complicated. Insiders say Northvolt is “multiple months” behind schedule while one investor says it could easily end up being a year later than originally planned. “Covid has been a wet blanket on this project,” says Fredrik Hedlund, head of the Skellefteå plant. “We never had a stop. But logistics was a nightmare.”

The site was forest until June 2018 and construction began on the cleared site in October 2019, shortly before Covid brought much of the world to a stop. “At times, I was the only passenger on the SAS [Scandinavian Airlines] flight up here — it was like a corporate jet. It certainly was not the easiest time to run a mega-project,” says Carlsson.

Northvolt kept its promise to produce its first battery cell in 2021 by just three days; the first commercial deliveries were made in May 2022. The company is hoping to make deliveries of “several” gigawatt hours this year — each GWh is equivalent to enough batteries to power about 17,000 electric cars.

Recruitment is the latest headache. Northvolt has 1,600 workers in Skellefteå and will need another 2,400. “Workforce is probably the number one limiting factor. Earlier, I would have said energy. Energy we can sort out,” says Carlsson, referring to the manufacturer’s deals with municipal power companies.

The massive inflow of workers, not just from Northvolt but all the suppliers springing up around its factory, means that Skellefteå’s population — after decades of decline common in the north of Scandinavia — is set to increase from 75,000 to 90,000 by the end of this decade. “It’s an extraordinary transformation — 10 years ago we were declining. It has never happened in Sweden before that the growth has been so fast,” says Kristina Sundin Jonsson, the town’s municipal director. That rapid growth has brought new problems around availability and rising cost of housing and the need for new infrastructure. Some people have even had to sleep in converted shipping containers.

Christopher Gorelczenko, one of Northvolt’s senior executives and a former employee of both Tesla and Jeff Bezos’ Blue Origin space company, moved to Skellefteå with his wife and five children and praises both the quality of life and different working culture.

“If there are problems in Sweden, you fix them and move on. In the US, you fire somebody,” he says. Working at Northvolt, he adds, is about solving all sorts of problems: “You can’t walk into a start-up style company and say I’m here to do this, and only this. Launching a battery factory where you don’t have all the history and knowledge, it becomes a planning process.”

Skellefteå Kraft, a local energy supplier, was key to attracting Northvolt to the region. The company had a huge energy surplus from its hydropower and wind turbines, all green power central to the start-up’s boast to produce the most environmentally-friendly batteries currently possible. Net electricity demand has increased six-fold since Northvolt came to town; its gigafactory will eventually consume 1.5 per cent of all of Sweden’s current electricity production.

“It’s a boom town,” says Joachim Nordin, chief executive of the power company. “When we talk about having a lot of renewable energy, it’s not worth anything if you can’t use it. It created a possibility very specifically in Skellefteå.”

Yun Lee is one of the newcomers to Sweden’s far north. He moved with his wife and teenage children in 2021 to set up a factory for Dongjin, a South Korean company, to produce carbon nanotube slurry needed in the production of batteries. The company had previously focused solely on Asia and sectors such as mobile and TV displays as well as semiconductors. Skellefteå offers the group a fresh opportunity.

“It’s exciting. Firstly, because it gives us a future. Northvolt has really big plans. If we do very well with this factory, we have more chance to co-operate in other countries too,” says Lee, who moved from one of Dongjin’s 14 factories in China. The Korean group found it easier to break into batteries in Sweden than Asia.

“China is very advanced in batteries. But it’s a closed system, it’s hard to join this network,” he adds. “Sweden is like a seed for us. If we take care of this, batteries in Europe could increase by 10 or 100 times.”

A question of scale

For all the challenges with Covid and logistics, the issue for Northvolt now is to take what they have learnt in northern Sweden and replicate it, better and more efficiently, elsewhere.

“Northvolt has succeeded with the most difficult tasks so far. Now it’s all about scale,” says Snabe. “We have the blueprint. Now we have to scale to get to the €50bn [order book], and even more.” Carlsson has a similar message: “It’s an incredibly competitive industry, which is also exciting. For us, it’s still: we have the capital we need, we have the customers we need; not that we don’t want more. It’s very much up to us, and our ability to scale.”

This ambition will be achieved by new factories. Northvolt’s factory in Skellefteå is being built in five blocks, each containing several production lines. Carlsson says: “That is a lot of building blocks. It’s like Ikea, in a factory.”

Northvolt’s second site will also be in Sweden, as part of a joint venture with Volvo in Gothenburg. But its third is the subject of transatlantic machinations.

The Swedish group is likely to build a factory in both the US and Germany eventually. But which one it favours first, in an announcement that could come in April, will say much about the subsidy war currently raging between the US and Europe.

The plan all along was to have its third factory in Germany. But finding enough renewable energy and concerns around permitting have raised question marks over how fast it can open a factory there, just as the IRA builds momentum for US battery plants. Northvolt has told EU officials that US support could be worth more than €8bn per factory over its lifetime. The biggest subsidy is help with operating expenses worth $35 per kWh of cells produced. Battery experts say it costs about $80-100 per kWh to produce an average cell, revealing the scale of the US support. The European Battery Alliance, an umbrella group of policymakers and companies, has suggested support of $14/kWh for production only of the greenest batteries, executives say.

For many in the sector, now is a critical moment for Europe to show it is serious about protecting and developing its homegrown battery industry.

“Europe has done well on batteries so far. But if it doesn’t protect the sector now, the impact could ripple across the whole green transition. I understand there’s a philosophical debate about how much support the EU wants to give,” says an executive from a different European battery maker. “But given the battery sector’s importance for the energy transition and the early choices made in China, it can be considered an exceptional sector. What is done for batteries doesn’t have to be done for other industries.”

The EU will this week unveil its response to the IRA but battery executives have so far been underwhelmed by leaks of the draft text. VW put plans for a battery plant in eastern Europe on hold and has chosen Canada as its first facility outside Europe, where it will benefit from “Made in North America” incentives.

Northvolt could do the same if the EU fails to deliver enough support.

“There’s a risk to the whole ecosystem here. That suppliers set up in the US and export back to Europe. There’s a risk of an investment vacuum in the EU. And that could be filled by other actors like the Chinese moving in,” says another European battery executive.

Northvolt could soon have other things to worry about as well. It is discussing with banks such as Goldman Sachs, Morgan Stanley and JPMorgan a possible stock market listing, most likely for next year. It has almost constant capital needs because of its ambitious expansion plans so is likely to raise more in the coming months to finance all its activity.

Carlsson concedes that “it is a challenge” with the sheer number of things that Northvolt has going on. He has focused much of his energy on keeping the culture, efficiency and productivity of Northvolt intact even as it scales. He is open about the “bottlenecks” the company faces — where once it was financing, it is now talent and raw material supply with very little lithium processing in Europe. And the external pressure, Carlsson adds, is ever-increasing: “Customers are pushing for more volumes.”

But the chief executive adds that Northvolt has got better at each stage of the industrial process from financing, design and permitting to construction, recruitment and execution. “It is a little like the way you eat an elephant,” he says. “You need to take these things step by step.”

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