Should we be worried about Northvolt’s future? Of course. News is mounting that the company is navigating troubled waters.
But in my opinion, the sums advanced by the financiers are too great and the stakes for Europe too important for the company to simply close its doors. The Quebec project of 7 billion, however, is at risk.
Northvolt is not yet an ordinary company, which manufactures products and sells them at a price that allows it to make a profit. In fact, Northvolt has never yet made a profit since its launch in 2016, even losing tens, if not hundreds of millions each year.
Northvolt is more of a fast-growing organization, with real big profits coming in a few years.
Until then, the company is mainly looking to build megafactories and invade the market to become one of the essential players. A bit like it was with Tesla 10-15 years ago, or like the cell phone companies, in the 1990s.
To grow so quickly, however, Northvolt needs a mountain of capital, year after year. And it is this access to capital that is currently causing it problems.
Over the past three years, the company has needed US$1.8 billion in cash (cash flow) each year, on average, to build its factories or support its current operations. The information can be found in the annual financial statements for the years ending December 31, 2022 and 2023, published on the company’s website.
Everything went well as long as the financial partners advanced the money. But the inflows of funds have constantly decreased over three years, from 3.3 billion in 2021 to 2 billion in 2022 and then to 1.6 billion in 2023.
So much so that at the end of 2023, there was only 2.1 billion left in the company’s coffers, an amount barely enough to support a year of development, in a period when, however, Northvolt started two megaprojects, those in Quebec and Germany.
Both projects are as large (60 gigawatt hours or GWh) as the one the company has partially completed in northern Sweden, 800 kilometers from the capital Stockholm, called Northvolt ETT.
The situation would not be so difficult if the completed plant in Sweden did not continue to siphon off funds.
However, the Skellefteå plant is struggling to reach the rate that would allow it to gradually wean itself off external funds. It produces only a few GWh out of the targeted 60 GWh. Clearly, quality and productivity are not yet up to scratch.1.
True, Northvolt managed to conclude, at the beginning of January, a new debt financing of 3.4 billion US, but according to the available press release, the money must be devoted to the expansion of Northvolt ETT (cells, cathodes and recycling), and therefore not to the German and Quebec projects.
And in any case, there are few details about the conditions under which these funds were used. The money was lent by 23 commercial banks, in addition to two state banks: the European Investment Bank – the financial arm of the European Union – and the Nordic Investment Bank, a public institution owned by the five Nordic countries and three Baltic countries.
It’s hard to get a more accurate picture of the situation, because the company doesn’t publish quarterly financial statements, which would have provided more recent data. Perhaps we should have been concerned, in July, about the resignation of Northvolt’s chairman, Jim Hagemann Snabe, which went unnoticed here?
Apparently, the facts suggest that Northvolt is gradually exhausting the available funds. A Swedish media outlet suggested that Northvolt needs some US$730 million quickly.
This explains why Northvolt announced the slowdown of German and Quebec projects, in addition to putting the development of cathodes in Sweden on hold and wanting to sell part of its module factory in Poland.
This also explains why the company’s lenders have just hired the firm PJT Partners, of New York, according to the Bloomberg agency. The agency’s sources specify that Northvolt would not be in restructuring, an expression usually used when a company resorts to the courts to avoid bankruptcy.
As I understand it, intense negotiations are taking place between the lenders and the company. Northvolth shareholders are likely to be invited, including Volkswagen (21%), Goldman Sachs (19.2%) and the Swedish funds Vargas Holding (7.2%) and Rocarma Consulting (6.7%).
But who will want to extend funds, in a context where the market for electric cars has slowed considerably? And under what conditions? Will we sell to a third party?
Given Northvolt’s strategic importance in Europe for automotive development and the parties involved, I find it hard to believe that the company will kick the bucket.
It is not impossible, however, that Quebec will suffer the repercussions. Will the project here be sacrificed, postponed, deflated? Will trees have been cut down for nothing?
Northvolt negotiators will likely argue to financiers that the advantages offered by Quebec and the federal government for the project are unique, clearly surpassing those of European projects.2. But will it be enough? To be continued.
1. In 2023, operating activities, including the Skellefteå plant, absorbed US$792 million of the US$2.1 billion in cash spent.
2. Here, Northvolt benefited from the same generous production subsidies as those offered in the United States (per battery produced), among others, which was not done in Europe. In addition, the Caisse de dépôt lent $200 million to the parent company Northvolt and the Quebec government invested $200 million in the Swedish parent company, in addition to having lent $240 million for the purchase of the land on the South Shore, secured by a mortgage. Northvolt also obtained 354 MW from Hydro-Québec at the low L rate.