Northvolt Has Major Obstacles Ahead Even With Bailout In Reach

(Bloomberg) -- With a $300 million bailout in its sights, Northvolt AB appears to have dodged a major threat to its existence. Yet longer term prospects for the debt-laden battery maker remain fraught.

Talks for an emergency funding package, sewn together with contributions from shareholders, lenders and customers, are in the final stages, Bloomberg News reported on Thursday, citing people familiar with the matter. The rescue could still fall apart, they cautioned. 

The stopgap infusion would only buy time for the troubled electric-vehicle supplier to fix its many challenges. Chief among them are securing a much larger, more-permanent financing package, and improving operations that ate up about $1.67 billion in cash over the last two calendar years, according to the company’s 2023 annual report. 

“While this is a significant amount of funding, Northvolt will need to spend it wisely and rebuild the confidence of customers such as BMW who cancelled a $2 billion deal in June,” said Andy Leach, an associate at BloombergNEF.  

Northvolt has had trouble producing enough battery cells that meet acceptable quality standards, an issue BMW AG cited when it pulled its contract earlier this year. 

Truckmaker Scania CV AB, a major customer, complained about slow deliveries earlier this year. Luxury carmaker brand Audi has enough battery supplies and has withdrawn its Northvolt order for the time being, Germany’s Manager Magazine reported on Friday. Both are units of Volkswagen AG, Northvolt’s biggest shareholder.

For all its challenges, the Swedish company remains “at least two years ahead of other European battery ventures,” Swedish financier Harald Mix, who founded the battery maker, wrote in a newspaper op-ed this week. 

That’s important because Northvolt, which has received about $10 billion in debt and equity funding since its founding in 2017, is up against established Chinese competitors have had years to master the challenge of making battery cells and have much lower costs.

More-focused public policy is needed in Europe for its companies to compete, according to BNEF’s Leach.

“The goalposts have moved for Northvolt since they first started this project,” he said by phone. “The Chinese companies have pushed the boundaries on battery costs and production scale, making it difficult for the Swedish company to compete.”

An EV slowdown has also hurt demand, compounding Northvolt’s pain. Nevertheless, the company’s importance in creating an independent European supply chain for EVs has been echoed by officials in Sweden, Germany and Brussels. 

“We firmly believe the green companies will be the winners of tomorrow,” Agate Freimane, general partner at Northvolt investor Norrsken VC, said in a Bloomberg TV interview on Friday. “We are still extremely optimistic about Europe’s chance to compete.”

In recent weeks, Northvolt has begun the heavy lifting that will be required to pull it out of its mess. The company replaced the boss of its main plant near the Arctic Circle and shelved an expansion there, putting the unit overseeing the project into bankruptcy. It also said it will lay off 20% of its staff, affecting 1,600 in Sweden.

Other initiatives, including plants being built in Germany and in Canada, remain in limbo. The Swedish company has quieted a push into producing battery components such as cathode materials.

Details of the funding package in the works may provide a window into Northvolt’s longer-term outlook. The company had earlier been targeting about €200 million ($217 million), according to several media reports. Goldman Sachs Asset Management, its second-largest shareholder, was considering joining the rescue, Bloomberg News reported this week.

Volkswagen has said it will help Northvolt scale up battery-cell production but provided little detail. Scania, which relies on Northvolt cells, could provide financial aid, people familiar with the matter have said.

“We are in close dialog but we cannot comment beyond that,” a representative for the Swedish truckmaker said Thursday. 

Any delay to Northvolt’s progress — whether on the funding or the operational side — only increases the degree of difficulty of the task ahead.  

“Things are moving very rapidly, and for every year that you don’t deliver, that has financial as well as commercial implications, because everyone else is doing it,” said Hans Eric Melin, Managing Director at Circular Energy Storage, a consultancy and research firm. 

“When you have successful Japanese, Korean and Chinese battery companies that develop, deliver and generate cash flow to put into research, the gap increases day by day,” he added.

©2024 Bloomberg L.P.