Why Northvolt went bankrupt

The dramatic rise and fall of Northvolt, Europe’s one-time battery champion, has many of the elements of a Nordic noir thriller.

Desire for global domination, extreme arrogance and inconsistency, massive amounts of cash, and unexplained deaths: the Swedish startup went through all the steps to file for Chapter 11 bankruptcy on Thursday.

Founded in 2016 with a promise to unshackle Asian companies to battery manufacturing, Northvolt first became a symbol of European ambitions and then failed to find a place in the green transition in the face of heavy subsidies from China and President Joe Biden’s United States.

Now, as it aims to raise a new $1.2 billion in investment on top of the $15 billion it has already received, the question arises as to what Northvolt can salvage.

“At first I had so many commitments, but now everything feels so frustrating. “It really felt like a roller coaster ride.” A former longtime Northvolt executive spoke Friday, shortly after co-founder Peter Carlsson resigned as CEO.

Northvolt is founded by Carlsson and fellow former Tesla executive Paolo Cerruti on the premise of using the Nordic region’s abundant and cheap green energy to challenge companies like China’s CATL and BYD in batteries, a critical technology for the auto industry, which employs nearly 14 million people. It has begun. In Europe.

It soon gained commercial and financial support from Europe’s largest industrial companies. This included automotive groups such as Volkswagen, BMW and Scania, as well as Siemens and ABB. By 2022, Northvolt’s customer orders will be $55 billion, with equity and debt capital and government support reaching $15 billion this year.

What started as plans for a single Swedish factory in the sub-Arctic town of Skellefteå, with production starting in late 2021, quickly expanded. Northvolt was soon planning a second Swedish battery plant, plants in Germany and Canada, an energy storage facility in Poland, and a separate cathode and recycling operation in Sweden.

But the biggest problem was the inability to increase production in Skellefteå. Last year, Skellefteå produced less than 1% of its theoretically acceptable battery capacity.

“We had to pull the brakes earlier on the expansion route to make sure the key engines were moving as planned.” This was Carlsson’s explanation of what went wrong on Friday. This led to him being called “a pebble in the machine.”

According to Carlsson, the major delays were caused by a combination of factors. This included bringing in thousands of new workers from more than 100 different nationalities, getting new processes right, the impact of the coronavirus pandemic on the construction phase, and becoming the first Western customer for Chinese and South Korean equipment manufacturers. The machine worked, but communication with Northvolt staff was difficult as it required constant support from Asia.

A Northvolt aide said Skellefteå’s remote location was problematic. “It’s not easy to attract the right people here. During growth, it is usually easy to steal talent from nearby companies. That’s not the case here.”

“Also, when you start a factory, in a large organization you have the best people available to come and help you. “This is what we’re really missing.”

Current and former Northvolt employees told the Financial Times of other problems including poor safety standards, unnecessary spending and widespread mismanagement. “This is not a single item,” Carlsson acknowledged. “In hindsight, we were overly ambitious about the time frame in which we could achieve that.”

Running a battery factory when not producing at scale is an expensive business. Northvolt, which posted a net loss of $1.2 billion last year, had $2.1 billion in cash at the beginning of this year. But when it filed for bankruptcy Thursday, the company had just $30 million on hand. This is enough to run you for about a week. Debt was $5.8 billion.

The first sign of trouble for the outside world came in tragic circumstances a year ago when an explosion occurred inside the Skellefteå factory, killing a Northvolt employee. Swedish environmental prosecutors later conducted an investigation into serious criminal charges.

Northvolt halted production at the plant in the aftermath of the death, delaying production at its current largest customer, Scania. The startup’s problems worsened when BMW, one of Northvolt’s early shareholders and customers, withdrew from a $2 billion contract in June because it was unsure whether it would receive batteries on time.

In December last year, one construction worker died and another was injured when a fork stand fell while building a concrete foundation for the expansion of the Northbolt factory.

In early 2024, there was an unexplained death of three Northvolt employees while away from the factory. The company said there was no connection between the deaths, but police are investigating.

Northvolt was in the process of negotiating a further large financing round, but talks were halted. Further attempts to raise capital from existing shareholders this year failed, leaving Northvolt seeking emergency funding.

The Swedish government immediately ruled out state aid, unlike Germany and Canada, which had pledged billions of dollars in aid to the factory. “Some investors have lost faith,” a former Northvolt executive said.

A rescue package agreed to earlier this month collapsed just before it was announced, leaving Northvolt with little choice but to file Chapter 11 bankruptcy in the U.S., opening it up to non-U.S. companies operating in the country.

Shareholders have little to say about Northvolt’s management or each other. “Think of the billions of euros Northvolt has received.” One person said: “It’s not just about money for me, but what do I do with it and how do I make sure I don’t run out?”

Others lambasted Volkswagen and Goldman Sachs, the company’s largest shareholders, with 21% and 19% stakes, respectively. “It’s frustrating that Volkswagen and Goldman Sachs can’t agree on what steps to take,” said one longtime shareholder.

Another investor asked, “If Northvolt is so important, why isn’t the Swedish government supporting it?” Many shareholders have already written down the value of their Northvolt investment to zero.

That’s not all to do, as Northvolt and its new leadership hope to exit Chapter 11 protection in the first quarter of 2025. Carlsson said Northvolt needs to raise $1 billion to $1.2 billion in additional financing and is talking to a variety of potential new shareholders. The same goes for existing investors. Scania is already providing $100 million in new financing, and Northvolt has access to $145 million in cash under Chapter 11 proceedings.

Northvolt’s outgoing chief executive said the operating plan was clear. It is selling or finding partners for several businesses, delaying its next plants in Germany and Canada, and trying to sort out its shareholder structure and debt.

“We have to go through this cleanup process in the next few months. Do I think this company has a bright future? It really is,” Carlsson said.

Although there are some uncertainties, the real winners are the established Asian battery manufacturers who are already producing at scale and at increasingly lower costs. BMW has turned to South Korea’s Samsung to fulfill its $2 billion contract. CATL is building plants in Germany and Hungary to serve European customers.

“This is a big fight,” said one Northvolt employee. “If we in Europe are not careful, we will be eaten.”

Additional reporting by Harriet Agnew in London and Patricia Nilsson in Frankfurt.