Northvolt’s ambition was to become a European battery maker to rival Chinese battery behemoths like CATL and BYD. They wanted to offer a homegrown supply chain to western automakers. But in November, the company announced its bankruptcy.
So what went wrong?
In this episode, Shayle talks to Sam Jaffe, principal at 1019 Technologies. They walk through Northvolt’s timeline from founding to bankruptcy, including the loss of a $2-billion deal with BMW. They discuss lessons learned and cover topics like:
- What went well — from fundraising billions of dollars to securing major off-takers
- What didn’t go well — like trying to build multiple types of batteries, in multiple factories, on multiple continents
- How venture capital investors may have pushed the company to be too ambitious
- The tradeoffs of choosing NMC over LFP
- Challenges with their equipment supplier Wuxi LEAD
- The upside: Sam’s belief that Northvolt’s factory will ultimately make batteries
Recommended resources
- Latitude Media: What Northvolt’s bankruptcy means for Europe’s battery ambitions
- Intercalation: Battery production is genuinely difficult
- Bloomberg: Northvolt Has Major Obstacles Ahead Even With Bailout In Reach
Catalyst is brought to you by EnergyHub. EnergyHub is working with more than 70 utilities across North America to help scale VPP programs to manage load growth, maximize the value of renewables, and deliver flexibility at every level of the grid. To learn more about their Edge DERMS platform and services, go to energyhub.com.
Transcript
Tag: Latitude Media, podcasts at the frontier of climate technology.
Shayle Kann: I’m Shayle Kann, and this is Catalyst.
Sam Jaffe: Their investors wanted them to be huge. They wanted them not to build one factory, but to build six gigafactories simultaneously, which is just an impossible task to handle.
Shayle Kann: Coming up, Sam Jaffe and I try to make sense of what went wrong at Northvolt.
I’m Shayle Kann. I invest in revolutionary climate technologies at Energy Impact Partners. Welcome. All right. The Northvolt bankruptcy. You’ve heard of it, I’m sure. If you’re a battery technology entrepreneur, you know how big a deal it is. If you’re in Europe, you probably know how big a deal it is. If you’re an investor in battery technology, or in climate tech in general, you probably also know how big a deal it is.
But having talked to many people about it over the past few weeks, I’ve found two things. First, many folks even in climate tech don’t realize exactly why it’s important. And second, there’s so many competing visions of what actually happened, what went wrong, what could the company have done differently if anything, and what it means about the market. But suffice it to say, it is a big deal.
Northvolt was among the highest funded private companies in Europe overall. Public reports have said they raised something like 15 billion Euros. In reality, that wasn’t all actually awarded already, and some of it was debt. But that’s real money, and it was definitely in the billions. Northvolt was also viewed as Europe’s great hope for homegrown EV battery manufacturing to counter the rising tide coming from Asia, and from China in particular in recent years. And of course, this reinforces a lesson that many companies have learned the hard way, which is that making batteries is really frigging hard.
Anyway, I think it’s worth a deep dive, both to tease out the actual story, the history of what happened with Northvolt. But probably more importantly, the lessons that we should and should not take from it, as far as the future of battery manufacturing and venture capital for hard tech things. That’s what we’re doing this week.
I had Sam Jaffe join me. Sam’s been on this podcast a number of times before, but he’s a close watcher of the battery industry. These days, he’s a principal at 1019 Technologies. Here’s Sam.
Sam, welcome back.
Sam Jaffe: Thank you. Thank you very much.
Shayle Kann: So, Northvolt. All right, there’s a lot to talk about here. We should start with neither you nor I have particularly inside information here. We’re going to be talking about stuff that’s in the public domain for the most part. But there’s so much to unpack, I think. From what I’ve seen, a lot of, I don’t know, misguided public thought about both what happened and what it means. Let’s see if we could tease it out.
I want to start with just going through the history of how Northvolt got to where it is today. Take me back, I guess, to start, to the founding, 2016. Or earlier, if you want to go there. Give me the beginnings of Northvolt.
Sam Jaffe: Yeah. I guess it goes back to, as so many things in the battery industry, it goes back to Tesla. Peter Carlsson was a Tesla battery guy. He was one of the people that helped to build the original gigafactory. He left Tesla, and just was trying to figure out what to do next. One of those options was to build a battery company in Europe. Amazingly, he did that. I’m sure several other people had that spreadsheet, but he followed through on it. That was the birth of Northvolt.
The concept was build a battery, a major battery player that’s located and headquartered in Europe, that is able to supply the European automotive and energy storage industries. And able to be on an equal footing with the Asian giants that dominate the battery industry.
Shayle Kann: Yeah. Maybe contextualize. Back when Northvolt was getting founded, 2016 or thereabouts, who were the dominant players in the lithium-ion battery market then, and how does that compare to today?
Sam Jaffe: I think it’s close to today, what it was 10 years ago. With the exception that the clear leaders were the Koreans and Panasonic. By the Koreans, I mean LG. At that time, it was called LG Chem. Now it’s called LGES. And Samsung SDI. And to a lesser extent, SK, which is now referred to as SK On. Then, Panasonic of course had the Tesla contract, and was probably at that point because the gigafactory had been built and was up-and-running, they might have been the number one producer at that point. The Chinese were there. CATL was producing in large amounts, and BYD.
I think the biggest change in the industry today is that there were probably close to 100 Chinese battery manufacturers. Today, there’s 10 that matter and that do it scale. Really, there’s two that completely dominate the industry, and that’s BYD and CATL. China was definitely producing batteries, was definitely part of the overall competitive mix, but it was a little bit different landscape at the time.
Shayle Kann: My suspicion is that the founding principle, the founding idea with Northvolt probably predicted the rise of China. We’ve seen this happen in solar, for example. There were lots of European solar companies that rose and fell. I’ve heard a lot of talk about, “Okay, we’re going to do it differently in the batteries this time. We’re going to have a homegrown battery manufacturer. We’re going to support it with public funding, and with procurement, and all that kind of stuff. We’re going to make sure that the whole supply chain doesn’t ultimately shift to China,” as it basically did in the solar context.
My guess is that even back then, they were foreseeing what you described has happened since then with the rise of CATL and BYD. And saying, “Okay, Northvolt, and a few others, but really mostly Northvolt is the answer to that.”
Sam Jaffe: Yeah. I think that China’s rise to dominance in the battery industry was just about the least disguised, or most poorly hid story of the last 10 years. It was clearly going to happen. It happened essentially according to the same rule book as what happened in solar, and in other industries, and is today happening with cars.
I think that the emergence of CATL, which was essentially a company that was really invented in the back rooms of the industrial governmental complex in China about 12 years ago. Essentially, it followed the plan perfectly, and is now the largest producer in the world.
Shayle Kann: Okay. That’s the premise upon which Northvolt was based. We said homegrown battery manufacturer. Do you know how vertically integrated they intended to be? We’re going to talk about how much they ended up trying to do. But were they going to be a cell supplier? Or were they just going to make packs? Were they going to do it all? Do we know?
Sam Jaffe: Yeah. Northvolt was going to, and they do produce cells today. It was essentially a large battery cell factory. They also make them into packs and modules. But I think their main business was to be a cell producer.
Shayle Kann: Okay. Let’s walk through the history, then. They found the company with this idea, “We’re going to build the Europe homegrown battery supplier to feed this growing industry.” What did they do over the intervening eight years?
Sam Jaffe: They raised a lot of money. They were very successful at that. I think that’s the sign that the venture capital model is capable of raising that level of money. By that amount, it’s essentially about $14 billion in total, including money, actual capital raised. Essentially, people saying, “We will contribute this amount in the future to future raises.” And tax credits, which were a large part of that 14 billion.
Shayle Kann: And some debt we should say, too.
Sam Jaffe: Yeah.
Shayle Kann: It’s a mix of equity and debt.
Sam Jaffe: Right, and debt. Right. I think that the issue is not does the Western, European, North American venture model, is it capable of raising that level of money. It is. The question is what are the strings attached to it? I think it’s good to go back to look at how it’s done in China. There are definitely strings attached to capital raising in China. But it’s more of a back room negotiation, where it’s not necessarily something laid out on paper.
Within the venture community and venture investors, when they contribute that amount of money, they expect go big or go home. In this case, they went home.
Shayle Kann: But if you set aside the venture investor mindset there, is there a version … Well, let’s talk about what going big meant for Northvolt. I don’t know whether this was the venture investors pushing this, or whether this was management pushing this. But going big, I think we should clarify. I think what you mean is not build a big factory, because they had to build a big factory. There are economies of scale that are hard to escape in battery manufacturing. That part seems inevitable to me.
My suspicion is what you mean is they did a lot of things that weren’t just building a big factory. Assuming I’m right about what you mean there, let’s talk through all the things over the years that Northvolt decided to do to go above-and-beyond just, “We’re going to build a battery factory in Europe.”
Sam Jaffe: Yeah. That’s a great point, because it really comes down to the definition of big. In other words, their investors wanted them to be huge. They wanted them not to build one factory, but to build … What they ended up trying to do was essentially build six gigafactories simultaneously, which is just an impossible task to handle.
I think that the concept of build, perfect, and then repeat was not applied. They tried to do everything at once.
Shayle Kann: Yeah. What were those six gigafactories supposed to do? They weren’t all replicas of each other, they were doing different things, at least some of them. Let’s just walk through what the portfolio of Northvolt, prior to failure and bankruptcy, before things started to turn south. At the peak, what was the portfolio of what they were trying to do?
Sam Jaffe: Yeah. First of all, they were working on establishing a second factory in Germany that would directly produce for the German automotive industry. Then, they were essentially doing the same thing in Eastern Europe. And then, the IRA happened and all of the subsidies available to building factories in the US happened. They said, “Okay, we’re going to do that in North America.” Right there, that’s a total of four factories.
Additionally, they bought a next generation battery startup called Cuberg, which made lithium metal batteries. Or was developing lithium metal batteries. The goal was to establish a factory that would build those types of batteries, also in the US. They had a very large R&D facility in California, also.
Shayle Kann: Right. Which lithium metal, potentially super-high energy density, could be for aviation batteries or just much higher energy density. But earlier stage, for sure. Not the scale the gigafactory with known technology idea.
Sam Jaffe: Right. When they purchased Cuberg, Cuberg was specifically an aviation battery company. They full-on stated, “We are developing futuristic batteries for future applications.”
Then there was also a sodium-ion battery that they were developing, and they were planning to build a factory for that, also. Three different types of batteries, different generations of batteries, different continents. It was extremely ambitious.
Shayle Kann: Yeah. I want to come back to the supply chain bit. From everything that I have learned, and speaking to a few people, that actually does seem to be a critical mistake, or a critical failing ultimately.
But before we get to what went wrong, we should say there were strong indications that, if they could build it, if you build it, they will come. They did have strong indications of demand. Their output, should they have been able to produce it, seemed like it was going to be spoken for.
Sam Jaffe: Yeah, they had a lot of traction with car-makers, especially the European car-makers. They had very realistic purchase orders from European car-makers. Including VW, including BMW, and others. That’s exactly what you need, and exactly what you want. But that’s, again, it takes a long time to build a battery factory, and you can get a purchase order. You don’t show up, and those batteries never get made or delivered.
Shayle Kann: We’ve got this company, they raised a ton of money. They’re trying to do a bunch of things at once, clearly. But the main thing, the first thing, the thing, as you said, they had not yet perfected is they’ve got this gigafactory in Sweden that is supposed to be ramping up, and rolling off the line high-quality, high-throughput, reasonable cost lithium-ion batteries. It started to become clear I think, what, earlier this year that, at least publicly, that production was not anywhere near where it was supposed to be.
Sam Jaffe: Yeah. I think it happened even last year in 2023, where there were publicly acknowledged signs that things were not going smoothly.
If you can imagine the complexity of battery manufacturing, it is not one factory. It is 18 mini-factories doing separate things to end up with a battery. All of which have to be choreographed, and perfectly timed with each other, to make it work and to optimize it. It’s chemistry. It’s hard science to make that work right. It’s definitely not … Every battery factory that I’ve been familiar with has had significant problems with ramping up.
The most famous, of course, is the first Tesla gigafactory. Which apparently, they had close to half of their cells that they produced in the first year of that factory’s production had to be discarded because they weren’t getting the quality right. They fixed that, and they ended up doing it very efficiently. It was very painful.
It’s something that everybody goes through, but they were having an especially bad time. I think a lot of that leads to their equipment supplier choice, and their relationship with that equipment supplier.
Shayle Kann: Yeah. That seems to be the crux, what I was referring to earlier. I want to get to that in one second. Yeah, the result of that, at least from what became public.
Steve LeVine at The Information reported earlier this year that Northvolt, that factory was operating at about 80 megawatt-hour capacity, which is one-200th of nameplate capacity, basically. It got bad enough at one point, not just that they weren’t producing enough, but that there were enough quality issues, that then I think the thing that really seemed to make the slope of the downturn for the company accelerate a lot was BMW canceling this big $2 billion order. Because of quality issues, as far as I understand it.
Sam Jaffe: I think there’s another element, not just to the BMW cancellation alone, but to the entire automotive industry and to the Northvolt story. Which is they made a chemistry choice, NMC, high nickel content cathode material, that turned out to be not wrong, but not as much of a no-brainer as was expected. In other words, LFP reemerged, lithium iron phosphate reemerged in 2018, 2019. The car-makers realized, “We don’t necessarily have to make these cars with high nickel content cobalt containing very energy dense batteries. There’s a way to do it with LFP, the Chinese have shown that.” But, Northvolt had committed to NMC. You can’t just turn around and change the cathode, and make the batteries exactly the same way at the battery factory.
I think that was one element of it. In addition to the, I don’t want to call it a lowering of demand for EVs, but there’s certainly been a slowdown in the demand for EVs in Europe, which led to this. There was also a decision, I think by the car manufacturers in Europe saying, “Let’s reassess our chemistry choices,” which leaves a 40-gigawatt hour plant in Sweden to be especially exposed when they can’t really change their chemistry.
Shayle Kann: Okay, so all these things going on. But let’s get to I think what seems to be the heart of the challenge, which you alluded to. Which is the relationship between choice of equipment supplier that Northvolt made. Talk to me about Northvolt’s equipment supplier, and what you’ve seen as where things went wrong there?
Sam Jaffe: They chose, as their main equipment supplier, a Chinese company called Wuxi LEAD. There’s a conundrum when building a battery factory, which is that there’s very few companies that produce … As I mentioned, there’s essentially 18 stages, each with its own different types of equipment. There’s very few companies that make every one of those pieces of equipment. Especially, there’s very few non-Chinese companies that you can essentially go and say, “I want everything.” In China, Wuxi is one of the few that you can do that. They chose Wuxi.
Essentially, they’re providing most of the equipment for the factory. And they’re essentially in charge of making the equipment, installing it at the factory, and then making sure it works right. Somewhere in that three-step process, things broke down. Probably the third part, making sure it works right.
Shayle Kann: Yeah. I reached out to a couple friends of mine who have as much battery manufacturing experience as anybody in the world about this. Universally, they all really dialed in on this equipment supplier relationship. There’s some public information on this, too. There was a Northvolt employee who wrote a blog post in Swedish, but it got translated a while back, laying out their view of the challenges and this was at the heart of it. As well, it seems like there were quite a few components of why this ended up being a challenge, this relationship between Wuxi LEAD and Northvolt.
But I’ll read you a quote from one of my friends and get your reaction on it. He said, “You need flexible, responsive equipment suppliers who want to work with you, preferably who speak your language. Then you need a focused team that is only trying to make one version of one product ramp in a first factory.” There’s a bunch of things embedded in there. Was Wuxi LEAD incentivized properly to learn alongside Northvolt and try to work out the kinks? Was there a language divide? Which is the type of thing you don’t think about often as being a real challenge. But it turns out, given how hard it is to make batteries, actually it does become a thing. And then, there’s a focus question all embedded within there.
Does that align, more or less, with how you see that challenge?
Sam Jaffe: Yeah. Although, I would make the assumption that the reference to language there is an abstract concept of language. There’s obviously-
Shayle Kann: No, I think it’s literal actually.
Sam Jaffe: There is no Swedish battery equipment provider.
Shayle Kann: Well, but that’s a challenge, right?
Sam Jaffe: Yeah. Yeah, it is.
Shayle Kann: Maybe that language is English, people in Sweden speak good English. But the point being I actually think it is a literal reference to their having been a language challenge. To your point, if the primary thing that ended up being the struggle was not the provisioning of equipment, but getting it to work, working out the kinks and work-shopping it, that’s a nuanced thing. I don’t know, I can see how language actually does become a challenge there.
Sam Jaffe: Yeah. Also, culture. I’m not talking about broad Chinese culture versus broad Swedish culture, but it’s the business culture in China. If you think of what’s been going on in China in the last 30 years, is everybody has been building enormous factories that make everything constantly, and they’re doing it quickly and they’re making it work. Everybody is essentially calibrated to that process and that focus, as you said.
Then, I think there’s also an element within China, within Chinese business culture, of promising the moon, and delivering what you can. But everybody understood in the first place that you were promising too much probably, anyway. Let’s call it the Elon Musk approach to business communications.
For that to work … I’ve been involved in factory development where I’ve seen this firsthand, which is the equipment suppliers are embedded in that factory for between one and two years. The factory owner is married to those people. They become the most critical people in the success of the company. Just like in marriage, if you’re not paying 100% of your focus on making that relationship work, bad things happen. I’m sure that that had something to do with it. People working on different motivations, on different schedules, on different set of expectations on the two sides and not communicating. Whether it was a language issue or a cultural issue, or just bad management, they weren’t communicating clearly from the reports that I’ve seen.
Shayle Kann: I wonder what you think about the institutional knowledge challenge. That’s another thing that I’ve heard a few times now. Where obviously there’s not a ton of … There are not that many people in the world who really know how to make batteries at scale. Prior to Northvolt, very few of them were in Sweden one would assume, so they had to import that institutional knowledge.
You can hope that your equipment supplier delivers some of it. But one point somebody made to me is, “Look, equipment suppliers actually don’t know how to make batteries. They know how to operate their piece of equipment, their pieces of equipment. The institutional knowledge on how to make batteries sits in the OEMs for the most part.” You have to marry that experience in operating, in setting up and operating equipment, with the bigger picture. As you said, it’s 18 separate sub-factories combining together and working in perfect concert.
We’ll get to the question in a minute, of what lessons we should and shouldn’t take here. How do you think about this challenge of if you’re building a Dinovo gigascale battery facility, how do you get the institutional knowledge that you need such that you don’t repeat mistakes that somebody else made?
Sam Jaffe: Yeah. That’s a really interesting point, because keep in mind, that until the Tesla gigafactory was built, nobody … That was back in 2014, 2015 when it was being built. Nobody knew how to build a battery factory of this scale. There was no institutional knowledge. It had to be invented. There definitely is some now, especially in China and in Korea. We’re building them in the US today, and there are other enormous factories being built in Europe, also.
It would be easy to criticize the Silicon Valley venture capital model and say, “Oh, the fake it until you make it approach doesn’t work if you fail while you’re faking it.” But at some point, you have to invent that institutional knowledge. That’s okay.
The problem is the investors of the company have to interpret the goal and the focus of that company correctly. If their goal and focus, and their investors had pushed them very hard to get that one factory to work right, “Do anything you can to get that one factory to work right, and then we’ll figure out everything else later.” I think it could have worked.
Think of the fusion industry. There’s so many fusion startups that are collecting enormous amounts of investment, venture capital investment. Again, you definitely have to invent institutional knowledge. There is no such thing as a functioning ongoing fusion reactor today. I think that the Silicon Valley mindset is probably the right way to do that, the right way to invest and to shepherd those companies, at least one or two of those companies, to success. But you have to keep things focused. When those amounts of money are involved, it’s hard to do that.
Shayle Kann: All right. Let’s talk about the lessons here. I’ve seen so many articles since Northvolt filed for bankruptcy, offering various lessons about what does this mean. About everything from the venture capital model, as you said, to what battery manufacturing outside Asia, et cetera, et cetera.
Let’s start with what you think the wrong lesson is, and then we can talk about what we think the right lesson is.
Sam Jaffe: I think the one that I’ve heard repeatedly is, “Well, you can’t build batteries in Europe.” Or, outside of China. Or, anywhere except for China. That is definitely not true. Europe has closed to 100-gigawatt hours of battery manufacturing today. The US will, in the next few years, have close to 300-gigawatt hours. It is possible. Yes, the labor costs will be higher, probably energy costs will be higher. The cost of capital will be higher. But all of that, that’s the nature of commerce is it costs more to do things, but often it can be done better, and it can be done appropriately in Europe and in North America. I think that’s the most important misguided lesson to be learned. It is possible and it is being done.
Shayle Kann: Okay. In your mind, what is the right lesson?
Sam Jaffe: Again, it goes to the venture capital model. I think there’s so much to be celebrated about the venture capital model. Venture capital is high risk, high reward. By high reward, you mean in this case, their investors said, “Don’t be a 40-gigawatt hour battery company, be a 150-gigawatt hour battery company. Build six factories at the same time. Whatever it takes.” That’s what I think was the fundamental problem.
Shayle Kann: I won’t disagree with you about what happened. I will say, I don’t think that is inherent to the venture capital model. I would separate out what Northvolt tried to do from … Now, it is true, in venture capital, as a venture capitalist, I’ll defend my kind. Our job is to take big swings, but that doesn’t inherently mean we’re trying to push companies to do too many things all at once.
I think there’s an alternate version of events, wherein with the exact same investment and the same investors, Northvolt could have done the thing that you said would have made more sense. Which seems like clearly, in retrospect, the right thing. Which is build the factory, get it working, prove it, and then scale from there. Do it again, get into another technology, et cetera. But build from a foundational base of, “We know how to make batteries.” They clearly thought that they had that in-hand much sooner than they actually did, and that gave them the confidence to branch out into a variety of things that distracted them, and dispersed their resources elsewhere.
I don’t think that inherent to the venture capital model is what I’m saying. There’s lots of companies that can raise that kind of capital, and do the one thing right before really kicking off the bunch of things. For me, that’s the right lesson. It’s not about the venture capital model. It’s about in battery manufacturing in particular, this is true of lots of places, but it’s especially true. The truism is that battery manufacturing is hard. It is. It seems to be. And thus, if you’re going to do something, the more novel it is for whatever reason, either because it’s novel technology, or because you’re building the first-ever gigafactory in Sweden or something. Focus, at least in the early days, seems to be the key component that, if you lose, you’re just subject to a bunch of risk. Eventually, as things started to go south for Northvolt, I think they tried to re-trench back to that.
Sam Jaffe: Yeah. Yeah, I think so. I was also involved with a company called Better Place, that raised 800 million back in 2010, 2011.
Shayle Kann: 2010.
Sam Jaffe: Yeah.
Shayle Kann: Then it went south in 2012 or something.
Sam Jaffe: Yeah. It was a very similar story. I guess I’m not necessarily saying that the venture capital doesn’t work. I’m saying at those levels, its weaknesses start to be exposed in terms of shareholder expectations and what winning means.
The other thing I would say about Northvolt is the executives and the current shareholders, I think they have exited stage left. But that factory, I believe strongly, is going to be making batteries. Somebody else is going to own it, and they are going to be making batteries. In the end, they’ll say, “Yeah, poor guys that lost their money on it.” In the end, they built a battery factory that will be, I think, producing batteries.
Shayle Kann: Well, that’s a good high note to end on. For this whole story, this whole saga, hopefully we’ll get a Swedish gigafactory operating at full capacity, and making lithium-ion batteries that go into vehicles and on the grid.
Sam, thank you so much for the time, as always, and helping me walk through this story.
Sam Jaffe: All right. Thanks very much, Shayle.
Shayle Kann: Sam Jaffe is a principal at 1019 Technologies. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today’s topics.
Latitude is supported by Prelude Ventures. Prelude backs visionaries accelerating climate innovation that will reshape the global economy for the betterment of people and planet. Learn more at preludeventures.com. This episode was produced by Daniel Woldorff. Mixing by Roy Campanella and Sean Marquand. Theme song by Sean Marquand. Stephen Lacey is our executive editor. I’m Shayle Kann, and this is Catalyst.
