Major change of direction at Northvolt | What fate for Quebec?

Still in deficit, Northvolt is going back to the drawing board. It is pulling the plug on a project in Sweden and refocusing its strategy on a single market segment. The company assures that manufacturing battery cells in Quebec is still in the plans, without guaranteeing the other aspects of its megaproject.

What future for Quebec?

Northvolt is celebrating its first anniversary in Quebec amid uncertainty. One wonders whether its $7 billion mega-factory planned for Montreal’s South Shore will actually resemble what was announced with great fanfare a year ago.

However, Northvolt announced on Monday a global restructuring of its operations, which indefinitely puts on ice the production of cathode materials in Europe – the positive pole of a lithium-ion battery.

Is this important part of the Quebec project, which also focuses on cell manufacturing and battery recycling, in jeopardy? The press release from the young Swedish company does not answer this question. The company assures that the manufacturing of battery cells in Quebec remains at the heart of its ambitions.

“In the state of the industry, and from a point of view [global]”It’s not surprising to see this type of restructuring,” says Yan Cimon, full professor of strategy at the Faculty of Administrative Sciences at Laval University.

Nothing is ruled out as a possible adaptation, the specialist emphasizes: “It would not be surprising to see adjustments to the project in terms of production, production capacity or technological choices.” In other words, producing less in Quebec facilities.

Uncertainty at Northvolt adds to the delay in the Quebec project, information revealed by The Press on August 31. Then Minister of Economy, Innovation and Energy, Pierre Fitzgibbon had suggested that the delay could reach 18 months.

The company has not confirmed timelines and says details regarding timelines will come later in the fall.

How much has Quebec invested?

Quebec and Ottawa have loosened the purse strings to convince the Swedish company to set up on the South Shore. The two levels of government have promised $2.74 billion to finance the construction of the plant in addition to agreeing to subsidize the production of battery cells to the tune of $4.6 billion to replicate what was offered by the United States.

The money is far from being paid in full. At this point, Quebec has paid out $440 million, essentially to help Northvolt buy the huge piece of land that will house its factory, in addition to acquiring a stake in the company.

The rest of the money will be disbursed as the work progresses. In an “apocalyptic scenario,” the losses would be “relatively low,” assured the former Minister of Economy, Innovation and Energy, Pierre Fitzgibbon, recalling that Quebec would take over the land.

Her successor, Christine Fréchette, does not seem worried. “Northvolt assures us that their factory project in Quebec is in no way called into question and that it remains a priority,” her office indicated, a few hours after the announcement of the global restructuring. The minister intends to follow the file closely.

The Caisse de dépôt et placement du Québec must also keep an eye on the situation. The nest egg of Quebecers lent 200 million to the Swedish multinational.

Why restructure?

After having announced a series of megaprojects in recent years, the Swedish manufacturer must face the facts: the current trajectory has become unsustainable. A change of direction was necessary and it will leave its mark.

“We need to take tough steps to secure Northvolt’s foundations, improve our financial stability and strengthen our performance,” said the Swedish startup’s co-founder and CEO, Peter Carlsson, on Monday, announcing in a press release the first decisions of the strategic review announced last July.

Northvolt is struggling to increase its production rate at its main plant – essential to its profitability – and demand from car manufacturers is less vigorous than anticipated.

In concrete terms, the refocusing is the end of the planned cathode plant – the positive pole of a lithium-ion battery – in Borlänge, Sweden. At Northvolt’s flagship complex in Skellefteå, in the north of the country, where more than 3,000 people work, the production of cathodes is being put on hold. The focus will now be on the production of battery cells and their recycling.

Significant layoffs are expected, but the company must negotiate with unions to try to minimize the impact.

Finally, the company is looking for a partner to save an assembly site for energy storage batteries for industrial purposes in Poland.

Where is Northvolt going?

Although it is considered the most funded young European company in Europe with a fundraising of 15 billion US dollars, Northvolt no longer has the financial strength to finance its current business model. In the hope of keeping its head above water, it will focus on the manufacture of battery cells, the last step before assembly. In the medium term, it no longer intends to be present in all phases of the production chain.

The diet comes two months after Mr Carlsson publicly admitted in a series of interviews that Northvolt had been “a little too aggressive” in its plans. The manufacturer is struggling to ramp up production of battery cells at its Swedish megafactory.

“Now is the time for us to focus on our core business, learn from our experiences and ramp up to meet our customers’ expectations,” Carlsson said in an emailed statement.

The evolution of the electric vehicle market is not unrelated to Northvolt’s readjustment. A drop in sales growth of these vehicles in recent months is leading major manufacturers to review their development strategy for the sector and reduce their production rate.