Europes Battery Industry: “Rotten from the Roots”

"Europe has already lagged significantly behind China in the competition for the EV supply chain," commented Emma Nehrenheim, Vice President of Environmental/Sustainable Development at Northvolt, during an interview with the British newspaper Financial Times in September 2022. She further emphasized, "Who controls the processing capabilities will be able to (further) control material sources and conduct transactions."

The related report was published on the Financial Times website on the 20th of the same month. Apart from Northvolt, which has recently gained considerable attention in China, the author also interviewed Francis Wedin, CEO of Vulcan Energy, and Roland Gertrude, CEO of Livista Energy, headquartered in Luxembourg.

The quotes from the latter two were respectively, "(Our company) has a long way to catch up; currently, China is several steps ahead," and "European supply chain companies need to prepare for the soaring demand for EVs, while also preparing to compete with (Chinese) rivals who have led us by two decades and are already profitable."

To put it bluntly, the remarks of these two individuals, along with Ms. Nehrenheim's, all fall into the category of extremely standard and 100% correct but somewhat banal statements. However, their uniqueness lies in the fact that, besides being important supply chain enterprises in the renewable energy industry, these three companies all carry a bright and green emission label.

Vulcan Energy is known for its "zero-carbon lithium," which involves extracting lithium from salt lakes and marine waters using methods that do not produce additional carbon emissions. Livista Energy, as a downstream enterprise of Vulcan Energy, is involved in the refining of lithium raw materials, with "fully traceable carbon footprint" as its core selling point.

As for Northvolt, which has recently gained fame on the Chinese internet, as everyone knows, its main business is the production of battery cells for EVs, with some pack production as well, but cells (cell) are its primary product. Of course, the environmental theme is also its core selling point—production energy mainly comes from renewable sources, with a fully controllable process, and so on.

Even to highlight its green label, this battery producer has set up its production base in the picturesque city of Skellefteå in northern Norway, where the entire region has a population of only about 70,000.

Undoubtedly, the interviewees were carefully selected. They cover the entire process from lithium mining development, lithium refining, to cell production, all glowing with a green light and emphasizing complete harmony with nature. Although the interviewees all used somewhat formal and difficult language, their constant mentions of "China" seemed to indicate that Europe would soon catch up with its eastern rival based on its own values in the renewable energy race?

However, with Northvolt's bankruptcy and reorganization more than two years later, the outcome is presumably already known to everyone.

HOW DARE YOU!

According to Directive 2003/87/EC of the European Union, the European Union Emissions Trading System (EU ETS) was officially launched on January 1, 2005, heralding the dawn of the carbon economy.

Unlike the environmental protection concepts of the last century, the concept of carbon emissions aims to combat large-scale global climate change and reduce the impact of human activities on the Earth's ecosystem. Since its inception, it has borne the heavy responsibility for the future of the globe, declaring a commitment to the well-being of all humanity and future generations.

To this day, related concepts and theoretical foundations remain controversial. Among the criticisms faced by European countries that pioneered this concept, many insist that it is a clever strategy devised by established developed countries to maintain their advantages in global competition and ensure European dominance in industries including automotive manufacturing.

Here, we will not delve into topics such as whether climate issues themselves contain political motives, as that would inevitably deviate from the main topic. Instead, we will focus solely on the transition to renewable energy and the issues facing the European new energy vehicle supply chain.

Historical experience suggests that driving a fundamental transformation in society's energy model is a costly and lengthy endeavor. Regardless of the immense benefits it may ultimately yield, one must endure high initial investments and relatively low returns. In other words, under modern capitalist logic, it is almost impossible for anyone to take the initiative unless a grand narrative is employed to convince society of its transcendent value.

Of course, the promotional process naturally involves the "incubation" model of internet celebrities that aligns with the characteristics of the new generation. And soon, we witnessed the following scene:

On December 12, 2018, the 24th Conference of the Parties to the United Nations Framework Convention on Climate Change invited a special guest: Greta Thunberg, a 15-year-old girl born in Sweden.

During her speech, Greta criticized the inaction of global governments on environmental protection issues and lambasted the delegates gathered there to "formulate rules for implementing the 2015 Paris Agreement" but who had "abandoned future generations."

In her passionate delivery, she even left behind this "classic phrase" and corresponding memes for the global internet subculture: "HOW DARE YOU!"

By constructing grand narratives and instilling in the public a sense of transcendent value, and through a series of continuous marketing performances by internet celebrities, audiences are constantly brainwashed with the original sin of modern life while being directed through other channels to methods of "atonement" by adopting various new energy products.

As the concept of "environmental protection" once again becomes the forefront of the trend of the times, the core idea of this wave revolves around carbon emissions. Even after Trump announced the United States' withdrawal from the Kyoto Protocol in June 2017, economic and commercial concepts centered around carbon trading within European and American capital circles remained a focal point of capital attention. This has also become the core of Europe's new energy industry in a new round of development.

At that time, Tesla had clearly taken the lead in the most commercially closed-loop potential product: new energy vehicles. As for China's followers, such as NIO, XPeng, and Li Auto, they also launched their first-generation products within the year from late 2017 to late 2018.

In this regard, European companies cannot be said to have made no achievements. For example, BMW had the i3 model, which sold decently. However, overall, they did not have products comparable to the aforementioned companies.

Regarding the upstream supply chain, by 2018, Chinese companies had become very well-established thanks to 9 years of continuous policy support. As for the United States, although Boston-Power, which had the largest capacity at that time, only deployed its capacity in China, Tesla's Gigafactory could still ensure a considerable proportion of self-sufficiency in battery supply and continuously updated its battery products based on new concepts and technologies.

In a comparison among the three parties, Europe may still be able to supply its own motors and electric controls within the upstream supply chain system for new energy vehicles. There is also hope for catching up in intelligent cockpits and autonomous driving through collaboration between automakers and IT companies. However, the gap in the battery segment is like a missing piece in the puzzle.

Overly Successful Marketing

Before joining Tesla, Peter Carlsson served as the Chief Production Officer (CPO) at NXP Semiconductors, where he was responsible for procurement and outsourcing projects. According to his resume, his main achievement at NXP was organizing a dispersed procurement system effectively and building a reliable global procurement system for the company. Earlier in his career, he worked at Sony Ericsson Mobile Communications as a CPO.

Given his area of expertise, he continued to hold executive positions related to global procurement and supply chains during his tenure at Tesla. Even when Lei Jun first visited Tesla in 2013, it was Carlsson who was responsible for receiving him.

After 2016, Carlsson, along with his subordinate at Tesla, Paolo Cerruti, resigned together and founded SGF Energy in Stockholm, Sweden. According to news reports from that time, the company was established with high ambitions, vowing to "produce the most environmentally friendly batteries on Earth and compete with China and the United States."

In May 2018, NorthVolt received an investment of up to 10 million euros from the renowned Siemens company. In the same year, perhaps to align with the company's Nordic and new energy identity, it was renamed NorthVolt.

With the roar of "HOW DARE YOU" echoing at the end of 2018 and changes in the political environment, European and global capital began to pay close attention to battery production outside traditional investment areas in East Asia. NorthVolt, almost the sole representative of Europe in this field, immediately became the brightest and most favored capital darling under the spotlight.

Throughout 2019, NorthVolt received a total of three investments. Besides the 11.931 million euros in Series A funding at the beginning of the year, it also received a corporate and debt financing round in June. The former amounted to $600 million and was funded by Volkswagen; the latter was $400 million, provided by the European Investment Bank.

Volkswagen subsequently injected billions of dollars into NorthVolt at least three times over the next two years, becoming the company's largest investor and thus acquiring a stake close to 21%.

As of the end of 2023, NorthVolt had publicly disclosed a total of thirteen funding rounds, with disclosed amounts totaling $8.95 billion and approximately 1.022 billion euros. The intensity of funding in the battery sector was unprecedented.

With funds gradually becoming more abundant, NorthVolt seemed to plan to fulfill its promises. In mid-2019, the construction of NorthVolt Ett battery factory officially began in Skelleftea, northern Sweden. It's worth noting that "Ett" means the number one in Swedish. Considering that one leads to two, this seemed to represent the company's "ambitions."

The first phase of the project had an annual capacity of 16 GWh. With the official start of the project, almost all European automakers rushed to sign letters of intent with NorthVolt. According to various public news reports, as of early 2020, NorthVolt had received a total of 150 GWh in letters of intent, equivalent to $13 billion, which would take at least nine years to deliver based on its designed capacity. Subsequently, the "pie" of capacity was enlarged further, with plans to reach an annual capacity of 32 GWh by the end of 2023.

Skelleftea is just over 200 kilometers from the Arctic Circle, making it quite close. The city is a popular destination for Nordic polar tourism along the Baltic Sea coast. Due to its proximity to the Arctic Circle, more than half of the year, the day-night cycle here presents an abnormal state that is unacceptable to people living in low-latitude areas.

The direct reason for choosing this location to set up the factory was based on the Swedish government's tax incentive policies. Of course, this small city is also part of Sweden's attempt to establish a model city for new energy, so it is logical to locate related industries together.

Up to this point, NorthVolt's overall development can be considered extremely successful—early layout, taking off on the trend, and being regarded as a hope by most European customers and clients, securing investments of billions of dollars, and having orders for the next nine years before the factory started construction.

However, what happens next? This is actually a company without technology. In other words, it knows how to write proposals, excel at marketing, and knows how to please investors, but it is a blank slate in terms of specific product production and manufacturing. So when the project officially kicks off, that's when the real problems begin.

The Tragedy of Capitalism

The two founders of NorthVolt, both seasoned supply chain experts, were also, in a sense, pioneers in project outsourcing. This background made them exceptionally familiar with outsourcing work.

On the evening of January 29, 2019, LEAD Intelligent, a listed company headquartered in Wuxi, Jiangsu Province, announced that it had signed the "General Terms and Framework Agreement for Equipment Design, Production, Installation, and Commissioning" for lithium battery production equipment with NorthVolt. Both parties also established a cooperative relationship in the lithium battery production equipment business, planning to conduct approximately RMB 1.939 billion worth of business cooperation in the future.

Considering the time required for negotiations and contacts, it is evident that the two parties must have initiated contact no later than the end of 2018. Clearly, Peter and Paul, the two founders, had plans in place. Then, on October 29 of the same year, LEAD Intelligent announced again that "to further expand its overseas market and meet the strategic development needs of the company, the company plans to invest and establish a wholly-owned subsidiary in Sweden with its own funds."

These two announcements reveal how NorthVolt ensured the implementation of its business. Moreover, merely obtaining equipment and technology from China was insufficient; this important partner also had to be responsible for establishing a company in Sweden to promptly and efficiently address after-sales service issues, possibly including human resources as well.

Of course, such a significant European unicorn enterprise in the power battery industry would not have only one partner. Several domestic suppliers were known, such as Shenzhen Star Source Material Co., Ltd., which supplied separator materials, as well as relevant service providers and suppliers from South Korea.

Due to the global impact of the COVID-19 pandemic, the Ett factory, unsurprisingly, was delayed and only announced its completion and opening in 2021. Then, towards the end of the year, it released news that excited almost the entire European automotive industry - production had officially started, and the first battery cell had been produced.

This seemed to indicate that a years-long marathon had reached its destination. In the future, NorthVolt would gradually begin to increase production capacity and deliver orders that took years to fulfill. Simply put, it seemed like it was just a matter of time before they started counting the money.

Thinking like this would be a big mistake. As Chinese people, anyone reading this article should avoid projecting their own experiences onto others. Because subsequent facts proved that this was a "shoddy setup." The Ett factory was able to complete and even enter the production stage solely due to the utmost efforts of the Chinese service provider to keep it afloat.

The locally recruited workers were never up to standard, and many even exhibited comprehensive traits of poor education and skills. Even workers in China who had not completed nine years of compulsory education, after receiving necessary training and discipline, would not behave as poorly.

Not long ago, insiders revealed online that NorthVolt not only lacked technology but also had a chaotic internal management system. Not only was it chaotic but it was also expanding blindly. For example, after nearly three years of struggle to finally produce the first battery cell, just three months later, NorthVolt's shareholders planned to expand. They had their eyes on a shuttered paper mill in Sweden, announcing plans to convert it into a facility for producing cathode active materials and other battery components, and to increase battery production capacity as necessary. This demonstrated a remarkably high level of blind confidence in their abilities.

In addition, during exchanges with netizens, another insider further exposed numerous astonishing details, such as the ignorance and wanton disregard for basic production management norms by the European workers employed at NorthVolt's Ett factory.

The other insider, in his exchanges with netizens, further exposed numerous astonishing details, such as the ignorance and wanton disregard for basic production management norms displayed by the European workers employed at the Ett factory of Northvolt.

The domestic parent company of its service enterprise supplied Northvolt with a batch of battery formation equipment from China. This is a core piece of equipment in the production of power batteries. It is an integrated charging, discharging, and storage equipment used to activate the active substances inside the battery through charging and discharging after the individual battery cells have been produced, thereby improving the battery's charging and discharging performance. According to regulations, the battery cells transported out by the logistics line should be placed in this equipment to complete the corresponding process.

One day, personnel at the Ett factory called and lambasted their supplier, claiming that a equipment malfunction had caused the entire logistics line to report an error and demanding immediate resolution. The Swedish company responsible for after-sales immediately dispatched a project manager, who, in a panic, led a group of technicians to rush to Skelleftea. However, upon arriving at the scene, they were utterly confused as they pulled out a pile of sundries, including laptops, from within the partitions of the formation equipment. It was these foreign objects that the system had detected, causing it to continuously report errors. And for such a low-level issue, the local workers at Ett were actually worried about how they should store their sundries in the future.

In fact, the 2 explosion accidents at the Ett factory in the latter half of 2023 that resulted in casualties were also caused by similarly low-level and ridiculous reasons.

One incident occurred when a worker used an ordinary vacuum cleaner to clean a dust collection box specifically designed to collect debris from the cutting of battery cell casings on the production line, resulting in a dust explosion. Another incident happened in the front-end oven used for drying coated materials. Somehow, air had mixed into the equipment, causing another explosion.

It was such a ragtag group of people that, even after professionals from China and South Korea began to be brought in to oversee operations at the Ett factory starting from 2022, it was still difficult for the factory to quickly reach its designed capacity.

As of the end of 2021, Northvolt had received nearly $30 billion in intent orders for power batteries. However, until the end of 2023, the battery cells delivered by the Ett factory amounted to only 0.5% of the total value of the orders in hand.

Due to disappointment, BMW Group cancelled a long-term contract for EV batteries worth €2 billion that it had signed with Northvolt four years ago in June this year. Under various pressures, Peter Carlson was also forced to once again postpone the timeline for "full production" to after 2026. This effectively sentenced the company to death.

The bankruptcy and restructuring of Northvolt was undoubtedly a shocking blow to its investors. Goldman Sachs lost at least $900 million, while Volkswagen's losses were even more severe. Although the financing amount from March 15, 2021, was not disclosed, it is known to be far more than Goldman Sachs' loss.

What's more, at this moment when Europe is lagging behind China and the United States in the new energy sector, the only hope of European automakers for a local supply of power batteries has been completely dashed. In the future, even if local supply can be expected, it will only be possible to rely on the production capacity of "foreigners" such as CATL and LG Chem set up in Europe.

Oh right, we shouldn't forget the other two companies mentioned at the beginning of this article: Vulcan Energy Resources and Livista Energy.

The latest news about the former appeared on November 26th, when the company's current CEO Chris Morena told the media that the company was in talks with multiple lithium companies about licensing its filtration technology, aiming to provide a new revenue stream for its renewable energy projects in Germany. The company's latest plan is to build a commercial facility in Landau, Rheinland-Pfalz, Germany. To achieve this plan, the company will raise €1.4 billion in funding, which is currently in the final stages of being finalized. The new facility is expected to commence production in 2027.

As for Livista Energy, according to the latest news on its official website, it has successively acquired land in Le Havre, France, and Emden, Lower Saxony, to build its lithium refining plants and so on. Don't ask when exactly the construction will begin or when refined lithium products can be produced; the estimated time is 2026.

Let's continue with the story of NorthVolt. This company is actually very typical. Its rise gathered almost all the elements of the rise of unicorn companies in the American and European tech sectors after the first decade of the new century. Filled with cool and fashionable elements, its production base was even built in a famous tourist city in Northern Europe, carrying the heavy responsibility entrusted by grand narratives, so that it could make money while also making customers pay with the mindset of purchasing indulgences.

Throughout all the stages from its establishment to the announcement of its commencement of construction in 2019, it can almost be called a model of contemporary corporate financing. However, after successfully raising billions and even securing orders for many years in advance before the factory was built, like many rapidly rising and swiftly falling European and American peers in recent years, it never effectively solved the production capacity issue and produced products that could fulfill the promises made in its investment promotion PPTs.