VW helps Swedish battery cell company Northvolt to fund expansion

Volkswagen Group helped Swedish battery cell partner Northvolt to raise $600 million in fresh equity to fund Northvolt’s growth plan.

As the first leading European entry in the battery cell market, Northvolt has become a standard bearer of the European Union’s push to reduce the reliance of the region’s automakers on Asian battery cell producers.

The European Commission estimates that a complete European battery value chain — including processing materials, manufacturing cells and recycling metals — can reach a total annual value of 250 billion euros and provide up to 4 million jobs across the bloc.

The supplier is also important to VW Group, which forecasts it will need an annual supply of cells amounting to 150 gigawatt hours for Europe alone from 2025. By then the group will have invested 33 billion euros over five years in its EV model range.

VW said in June 2019 it would therefore acquire a 20 percent stake in Northvolt as part of its plan to invest with Northvolt in a gigafactory in Salzgitter near VW’s Wolfsburg headquarters.  

The plant, Northvolt’s second, is expected to produce 16 GWh in its first expansion phase when it starts production at the end of 2023.

“We maintained the size of our stake,” a VW spokesperson said.

Other investors in the Northvolt financing round also included Swedish truck maker

Scania, Spotify co-founder Daniel Ek and the IMAS Foundation, an investment arm of the company that operates IKEA. 

Peter Carlsson, co-founder and CEO of Northvolt, said his company needed the funds to be able to scale up more quickly than rivals to have a competitive edge.

“We are in the middle of a race to establish manufacturing capacity in Europe,” he said in a statement.

Northvolt’s first gigafatory, the Ett in Sweden, with a planned annual capacity of 40 GWh, is scheduled to start production next year and the company envisions eventually an output of 150 GWh in Europe by 2030.

The supplier is the first flagship European startup that owns and operates an EV battery cell manufacturing plant on the continent. It counts BMW along with Volkswagen as customer.

The issue of battery cell supply has become an acutely political one in Europe, which aims by 2030 to lower CO2 emissions by 55 percent compared with its 1990 levels under new proposals tabled by the EU Commission.

Already in 2017, a year after Northvolt was founded by two former Tesla employees, Brussels established a battery alliance with the strategic goal of minimizing dependence on Asia’s battery cell manufacturers.

Late last year the EU approved a 5-billion-euro project for two gigafactories to be operated by PSA Group and Saft Battery, a subsidiary of French oil giant Total. A quarter of the investments will be financed by French and German taxpayers.

“Europe has also seen the most rapid growth of any region in planned lithium ion battery production capacity, with its global share set to reach 14.7 percent by 2024, overtaking the United States and Asia (when) excluding China,” said Maros Sefcovic, EU Commission Vice-President, in May. The Slovak national coordinates the battery alliance personally.

The issue has taken on even greater significance after the coronavirus pandemic highlighted a gradual breakdown in the multilateral system. Countries were prepared to risk deaths elsewhere if it meant protecting their own citizens.

Examples of this include the U.S., which was accused of attempting to gain exclusive rights to a potential vaccine developed in Germany. Other key pharmaceuticals were only produced by certain countries.

“One of the lessons of the COVID-19 crisis is the need to reduce dependency and strengthen diversity and security of supply,” the Commission stated earlier this month after placing lithium on its list of 30 critical raw materials that also includes cobalt.

Northvolt is not just competing for leadership among Asian cell manufacturers like China’s CATL or LG Chem of South Korean — many of whom are investing in local European production sites to meet expected demand.

EV pioneer Tesla said last week at its Battery Day event that it aims to increase the share of cells it manufactures directly to 3,000 GWh annually by 2030 from a projected 100 GWh (partly for stationary storage applications) in 2022 to reduce its own dependence on Asian suppliers including Panasonic and develop its own proprietary cell technology.

Tesla confirmed in the process that its planned German assembly plant in Gruenheide near Berlin will also manufacture EV battery cells.

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