Sam Jaffe, Principal at 1019 Technologies and a battery industry expert, shares insights on Northvolt's ambitious journey to challenge Asian battery giants. They delve into the timeline of Northvolt's rise and fall, discussing the impact of a crucial $2B deal loss with BMW. Jaffe highlights the pitfalls of trying to produce multiple battery types simultaneously and the heavy influence of venture capital pressures. Despite the collapse, he maintains optimism about the potential future of Northvolt’s factory in the evolving landscape of battery manufacturing.
Northvolt's ambition to establish multiple gigafactories simultaneously without a solid operational foundation led to insurmountable production challenges, including significant quality issues with major clients like BMW.
The collaboration difficulties with their Chinese equipment supplier, Wuxi Lead, underscored the critical importance of effective supplier relationships and cultural compatibility in complex manufacturing processes.
Deep dives
The Ambitious Vision Behind Northvolt
Northvolt was founded with the intention of establishing a significant battery manufacturing presence in Europe, aiming to challenge the dominance of Asian battery manufacturers. The company sought to produce lithium-ion batteries to support the growing demand from the European automotive and energy storage industries. It raised approximately 15 billion euros in funding, including debt, equity, and promised future investments, solidifying its position as a high-profile player in the sector. However, the ambition to simultaneously build multiple gigafactories rather than focusing on perfecting one factory created insurmountable challenges.
Challenges in Scaling Production
Despite securing demand from major automotive players like VW and BMW, Northvolt struggled with production ramp-up issues that hindered its ability to meet expectations. A complexity in battery manufacturing, coupled with initial production difficulties, meant they operated far below their intended capacity. Furthermore, a significant setback occurred when BMW canceled a major order due to persistent quality issues, significantly impacting Northvolt's financial viability. The difficulties reflected broader industry challenges faced by companies at similar scales, especially when introducing new technologies.
The Crucial Role of Equipment Suppliers
A key aspect of Northvolt’s challenges stemmed from its decision to partner with a Chinese equipment supplier, Wuxi Lead, which created complications in establishing an efficient battery manufacturing process. Effective collaboration with equipment suppliers is vital, particularly for new factories, where nuances and intricate relationships are necessary for success. Problems arose from insufficient communication and alignment in expectations between Northvolt and Wuxi Lead, impeding the operational effectiveness of the factory. This highlights the importance of good supplier relationships, knowledge sharing, and cultural compatibility in such complex manufacturing environments.
Lessons Learned from Northvolt's Experience
The Northvolt story serves as a cautionary tale about the pitfalls of scaling too aggressively without establishing a strong operational foundation. Critics often conclude that it is impossible to build batteries outside of Asia, which overlooks the ongoing successes in European and North American manufacturing. The correct takeaway emphasizes the need for focus and incremental scaling, especially in high-complexity sectors like battery manufacturing. Ultimately, Northvolt's factory may still succeed under new ownership, suggesting that despite its challenges, the potential for establishing a viable manufacturing operation in Europe remains.
Northvolt’s ambition was to become a European batterymaker 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 $2B 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
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