Northvolt’s difficulties are not particularly original.

A flagship project of the Legault government’s new industrial policy, the Northvolt project has largely been justified by the international economic context. It is this same context, much more than the fault of the Swedish company, which is plunging it into uncertainty today.

Criticism is growing increasingly harsh towards the government and its plans for a mega factory of battery cells for automobiles, the French daily reported on Monday. The World. Originally presented as an unmissable opportunity to position itself at the heart of the green economic revolution, the project now appears threatened by the difficulties of the Swedish parent company, which have forced it to lay off one in five employees and delay its projects abroad. Northvolt had been attracted by the abundant green energy produced by wind turbines, but also by the 902 million euros in subsidies.

How? No, there is no mistake. It was abundant wind energy and 902 million euros (1.4 billion Canadian dollars) that the German federal government and the state of Schleswig-Holstein offered to convince the Swedish company to come and set up a 4.5 billion euro battery factory there, creating 3,000 jobs in the long term. It was in Quebec that the Canadian and Quebec governments charmed Northvolt by dangling abundant hydroelectricity and 7.3 billion Canadian dollars in public aid — including 2.7 billion for construction and 4.6 billion for production by 2033 — for a 7 billion factory and 3,000 jobs.

As in Quebec, the German authorities saw it as a way to position themselves in relation to the inevitable green transition and the economy of the future. It was also a matter of not remaining passive in the face of the American and Chinese giants, who did not hesitate to intervene more and more heavily in favour of this type of future sector on their own territory. There was a particular reaction to Joe Biden’s new industrial policy, as the so-called Inflation Reduction Actwhich threatened to lure all interesting projects to the United States with billions in subsidies and trade barriers.

An ideal candidate

Sweden’s Northvolt seemed like exactly the kind of company that was being sought. Quickly seen as Europe’s best (if not only) chance to have at least one major battery manufacturer in a sector that is 80% dominated by China and Korea, the company immediately became the darling of the business world. It has attracted US$15 billion in private investment since its creation in 2017—a European record for a start-up—and has multiplied supply contracts, including with all the major European carmakers.

We tried to do too much too quickly and too much at once, the company admitted on Monday, claiming to be able to handle all stages of production – from transforming raw materials into cathodes to recycling batteries and manufacturing them.

It is particularly criticized for the slow pace at which its first large factory, in northern Sweden, is increasing its production capacity, which is supposed to be able to equip around a million electric cars per year by 2030. The quality of production has not been up to scratch either, it is deplored, with a very high rejection rate. Having run out of patience, the German manufacturer BMW cancelled the two billion contract it had with the Swedish company this summer to turn instead to the Korean conglomerate Samsung.

These difficulties for Northvolt at the start should not surprise anyone, experts told the economic daily at the beginning of the summer. The Echoes. Battery manufacturing is a delicate art that takes time to perfect. It is not uncommon for even new factories of very experienced companies in South Korea to have a rejection rate of around 30% and even 50% in the first year. It usually takes two years to reduce this rate to 10% before eventually reaching 5%.

Delivery issues aren’t the only reason investors are holding back from continuing to pour fresh money into Northvolt while its production gets back up to speed. It’s also because demand for electric cars — and, by extension, batteries — has waned.

The general context

It is nothing extraordinary that supply and demand are struggling to be in perfect harmony in manufacturing, as we recalled this summer The Economist. Finding this balance is particularly difficult in a new industry or in a sector undergoing rapid technological change, such as battery production.

And then, we thought that the climate emergency and government subsidies for the production and purchase of electric cars, carbon taxes and the tightening of environmental rules would continue to propel this market, he continued The EconomistHowever, government policies in this area are, even today, far from being as clear and as energetic as had been anticipated.

The slowdown in electric car sales is also due to the fact that major Western carmakers have focused on the more lucrative, but also more limited, market of more luxurious electric cars with longer battery ranges, allowing their Chinese competitors to build a solid lead in the market for more affordable cars with a shorter range.

Around half of the battery factory projects announced in Europe are thus at risk of being underused or completely abandoned by 2030, reported the Financial Times in July. This proportion should be half as high in the United States and China due to more muscular protectionist measures.

A hard blow for Olaf

In Germany, all this has translated, in recent weeks, into a series of bad news for Chancellor Olaf Scholz’s government, already struggling in the polls. In addition to Northvolt’s woes, there have been reports of the freezing of another battery plant project and the postponement of two microprocessor plant projects, one of which – that of the American giant Intel – had been called the largest foreign investment in the country since World War II and will have to wait at least two years.

“These setbacks show that the billions of German taxpayers’ money spent on attracting large foreign investments are of little use if market conditions are unfavourable,” he observed on Tuesday. The World. Some say this is evidence that government subsidies would have been better spent if the money had gone instead to developing national production infrastructure and technological research.

“We should not panic either, because in the medium or long term, the prospects are there,” noted the Duty Tuesday, professor at the John Molson School of Business at Concordia University, Michel Magnan, about the Quebec component of Northvolt and the electrification of transportation, which will inevitably lead to significant needs in this sector of activity.

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