Stockholm-headquartered battery manufacturer Northvolt has filed for bankruptcy in Sweden, with the decline in prices for second-hand electric vehicles one of the factors – however, patient investors who take a long-term view are still optimistic about the prospects for European battery manufacturing
While Europe is making a gallant attempt to compete with Chinese battery manufacturers, the signs are that it will be some considerable time before the continent makes the market inroads it desires. The latest blow to the European battery manufacturing dream came last week when the board of directors of Stockholm-headquartered Northvolt announced that the company had filed for bankruptcy in Sweden. The warning signs regarding Northvolt had been visible for some time – back in November last year, the company announced that it had voluntarily filed for Chapter 11 bankruptcy in the US. At the time, Northvolt said the process would enable it to access new sources of funding, including approximately $145 million in cash collateral. In addition, the company said that one of its existing customers had committed to provide $100 million in new financing to support Northvolt’s business operations in the form of debtor-in-possession (DIP) financing, which is a specialised type of financing for businesses that are restructuring through a Chapter 11 process.
However, it was acknowledged last week that the Chapter 11 process in the US had not delivered the impact Northvolt needed to get the company back on track. Indeed, the company said that, despite “liquidity support” from lenders and key counterparties, Northvolt had experienced a series of challenges that had compounded to erode its “financial position” – these challenges included rising capital costs, supply chain disruptions caused by geopolitical instability and changes in market demand. The latter was a reference to a decline in demand for electric vehicles (EVs), an industry that represents one of the biggest markets for batteries.
EV demand falling
Why is EV demand in decline? One of the main reasons is declining prices for used EVs, which has the effect of deterring buyers from acquiring them brand new. Sata suggests that prices for some used EVs dropped by around 30 per cent over a six-month period in 2023. Meanwhile, as Goldman Sachs has highlighted, elections in a number of countries has “decreased visibility on potential changes to government policies affecting the EV industry”.
Consequently, European battery manufacturers are having to factor into their projections the considerable uncertainty that is facing the electric vehicle industry, one of their key markets. Northvolt is not the only company that has found the going tough. In 2023, Britishvolt, the UK battery start-up, collapsed into administration, having previously asked the government to advance £30 million of a promised £100 million in support (this was ultimately refused as the company had not hit agreed construction milestones to access the funds). Meanwhile, Italvolt last year abandoned plans for a gigafactory in Italy, and instead announced plans to build one in the UAE, where, according to the company’s founder, there is less bureaucracy and shorter permitting times.
‘Overcapacity of battery cells from China’
Also last year, Freyr, now rebranded as T1 Energy, announced it would be making redundancies and putting battery cell production at its plant in northern Norway on hold. The company’s CEO Tom Einar Jensen was quoted as saying: “There’s a considerable overcapacity of battery cells from China that makes prices fall so much that we have to go back to the drawing board.” Meanwhile, even Chinese-headquartered battery manufacturers are abandoning plans to build gigafactories in Europe. In October last year, Chinese battery maker SVOLT announced it was abandoning proposals to build two factories in Saarland, western Germany. In addition, it said it would be shutting down its European operations entirely. Last year also saw ACC – a battery joint venture involving carmakers Stellantis and Mercedes – pause work on factories in Germany and Italy, with the companies shifting their focus to lower cost batteries due to declining demand for electric vehicles.
However, despite the turmoil, there is belief that patience will pay-off when it comes to developing a competitive European battery manufacturing industry. Even in the midst of the turmoil of bankruptcy, Northvolt executives are adamant that the company made important steps that will help to advance the battery manufacturing sector in Europe. These steps include production line improvements that helped customers to bring electric vehicles to market more quickly. It seems clear that what the sector needs is more up-front investment, in addition to investors prepared to take a longer-term view. This is obviously easier said than done. However, there are still many who refuse to give up on the European battery manufacturing dream.
European battery manufacturing sector refusing to give up
Last month, it was reported that Volklec, a UK start-up backed by former Britishvolt investors, would be collaborating with a Chinese supplier to establish a 10GWh gigafactory in the UK with an investment of approximately £1 billion. Volkec believes its strategy will prove more successful than that adopted by previous such ventures in that it plans to secure customers and batteries first, before moving to the gigafactory’s construction phase. As part of the initiative, Volklec has signed an exclusive license agreement with Asian battery supplier, Far East Battery (FEB). Volkec says the proposed gigafactory will create more than 1,000 highly skilled jobs by the end of the decade.
Meanwhile, last year, Morrow Batteries opened a lithium iron phosphate battery gigafactory in Arendal in southern Norway. Morrow claimed the plant would be able to produce up to 3 million battery cells annually, or 1 GWh of capacity. Elsewhere, Chinese battery manufacturer CATL is to start producing battery cells this year at a gigafactory in Debrecen, Hungary’s second-largest city – the factory will have an annual capacity of 100GW. Hungary is among the leading European nations in terms of proposed gigafactories – however, Turkey and Germany are the two countries leading the way, as data compiled by the Volta Foundation (see image below) shows. Spain, France, the UK and Norway also show up as proposed Gigafactory hotbeds. Despite the high-profile struggles of some companies planning to establish gigafactories in Europe, there are clearly many investors that are prepared to play the long game in the hope that the tide will turn for the European battery manufacturing industry.
Source: Volta Foundation
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