“Make Oil History…The World Is Turning Its Back on Fossil Fuels.”
That’s what you’ll find on the landing page of Northvolt’s website.
As an analyst, whenever I see sweeping statements by a company that are clearly false, it always makes me think… what else is the company being dishonest about?
Fossil Fuels Aren’t Going Anywhere
One simple chart shows an obvious global trend that isn’t reversing anytime soon. Global energy consumption has been on the rise since 1850, and the majority of energy production has come from coal, oil, and natural gas.
Source: Our World In Data
But that’s the past, what about the future?
The International Energy Agency estimates that energy consumption will increase by about 27% between 2017 and 2040. The increase in consumption is driven by population increases as well as increased global prosperity. And that forecast does not include the increased energy requirements necessary to fuel the artificial intelligence infrastructure buildout.
And while the use of renewables like solar and wind will continue to grow and contribute to meeting the increasing energy demands, the world’s primary sources of energy will still be oil and natural gas as far out as 2050.
We all want clean energy, but no, the world isn’t “turning its back on fossil fuels.” Quite the opposite. It’s increasing its use of them. And until the world brings on enough new capacity from nuclear fission and nuclear fusion power plants, this trend won’t change.
A House of Cards
Northvolt – a company that I highlighted in The Bleeding Edge – The Battery Graveyard – is a European lithium-ion battery manufacturing company.
Its goal was to become Europe’s competitive answer to Asia’s electric vehicle (EV) battery manufacturing powerhouses like CATL (China), LG Energy Solution (South Korea), BYD (China), Panasonic (Japan), and SK Innovation (South Korea).
The plan was ambitious. It almost felt like the scale of something Tesla would do. Northvolt even went so far as to use Tesla’s terminology of building “gigafactories” for EV battery production.
Northvolt Ett | Source: Northvolt
The Northvolt Ett manufacturing plant, shown above, was meant to be the first of many Northvolt gigafactories. Its location is notable, far north in Sweden, very close to the Arctic Circle. While inconvenient, its proximity to a hydropower plant meant that 100% of its electricity used for battery production was renewable – a rarity in the world of clean energy.
Only there was one major problem. It didn’t produce many batteries.
Northvolt Ett was built to produce 16 gigawatt hours of EV batteries, but it was only able to produce 80 megawatt hours in 2023… just 0.5% of what it had originally forecast. Being off by 10% or 15% of production targets is one thing. Coming in at less than 1% of production targets is another.
So it was no surprise when the news dropped last Friday that the CEO of Northvolt resigned and the company filed for bankruptcy in the U.S. Filed in the Southern District of Texas, it wasn’t just a division of Northvolt, it was the parent company and all of its subsidiaries. For anyone interested in seeing the filings, you can find them here.
It was a house of cards.
A lot of Northvolt executives and suppliers to Northvolt made out great when there was money to be spent, but as we just found out, there’s almost nothing left… Reportedly just $30 million. If that wasn’t bad enough, it also has $5.84 billion in debt.
Since 2017 Northvolt raised almost $15 billion in support of its vision, and it has almost nothing to show for it.
The “Magical Thinking” of ESG Investment
Northvolt reminds me of the U.S. taxpayer-funded solar panel manufacturer Solyndra which defaulted on its $535 million loan from the U.S. Department of Energy in 2011.
Solyndra had raised more than $1.3 billion – mostly from venture capital and private equity firms – before it filed for bankruptcy. But Northvolt makes Solyndra look like a walk in the park. It burned through and lost more than 10 times the capital Solyndra did.
Like Solyndra, Northvolt is still private. It raised its capital through grants, and the sale of equity to firms like Goldman Sachs, ABB, BMW, Ikea, Volkswagen, Siemens, Scania, Baillie Gifford, Baron Capital, and many Scandinavian venture capital funds.
We have to wonder, how is this possible? How can so much smart money get it all so wrong? Is the veil of “ESG” (Environmental Social Governance) and “sustainability” so magical that institutional investors completely forget to apply critical thinking?
Ironically, Swedish investors established Northvolt by hiring two former Tesla executives. The marketing pitch – and we now know that’s all it was – was that they could easily replicate Tesla’s gigafactory strategy for EV batteries.
The Northvolt team took on all the grand ambitions of Tesla but without the experience and skill. A couple of years ago, it announced it would make its own lithium hydroxide, a critical compound for EV batteries. And it got even more ambitious when it laid out plans for three more gigafactories in Quebec, Germany, and another location in Sweden.
It all looked good on paper. Northvolt had money to burn and even broke ground on its Germany gigafactory. But right out of the gates it was having horrible problems at its Northvolt Ett factory. It completely underestimated the manufacturing precision required to manufacture lithium-ion EV batteries.
Throwing good money after bad.
This is one of the largest tech failures in history, all under the guise of “clean energy.”
Thankfully, Northvolt isn’t a public company, so no retail investors were harmed. And it’s hard to feel bad for all the institutional investors who made a horrible investment decision despite all the red flags surrounding the project. After all, they clearly didn’t have the manufacturing team to take on a project of this scale.
And the worst part? Northvolt had to burn through tons of fossil fuels to build their Northvolt Ett factory.
Even though the factory’s electricity is all from hydropower, with Northvolt completely bankrupt, there doesn’t appear to be a path towards them ever making enough clean energy to become carbon neutral on their construction.
Conveniently Left Out of the “Competition” Narrative
And one of the funniest elements of the media’s depiction of Northvolt’s demise and all the references to how hard it is to compete with the largest EV battery manufacturers in the world in China, South Korea, and Japan, was the glaring omission of one of the largest EV battery manufacturers in the world (and most successful I might add)…
Tesla.
Tesla’s Nevada Gigafactory | Source: Tesla
Nevada is one of the world’s largest manufacturing plants for EV batteries, but that’s just a portion of Tesla’s manufacturing capacity. There’s Gigafactory Shanghai, Gigafactory Berlin, Gigafactory Texas, Gigafactory New York, and Tesla’s manufacturing site in Fremont, California.
Tesla is the largest EV battery manufacturer in the U.S., the largest in Europe, and one of the largest in Asia.
Funny how they left that out.
As for Northvolt, it now begins the painful process of a massive restructuring. The bankruptcy filing will allow it to have access to about $245 million in financing, but that’s nothing but a Band-Aid.
Even assuming it remains an ongoing entity, it will require billions more in capital to clean up the mess and get on a path toward generating free cash flow.
All I know at this stage is that I wouldn’t invest.
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