The Boom of Battery Factories – The “Northvolt” Blueprint

Dear Friends & Shareholders,

Northvolt is an example of the further development of electric cars in Europe. The Swedish battery manufacturer started in 2016 – as a start-up founded by Paolo Cerruti and Peter Carlson. The two former Tesla managers collected 12€ million in the first round of financing, the equivalent of almost $15 million. In June of this year, the company announced that it had already secured a total of almost 900€ million ($1 billion). Among the investors are illustrious names such as Goldman Sachs and VW. Ikea, BMW and the Swedish insurer Folksam are also on board.

The research and development unit, Northvolt Labs in Skellefteå, 800 kilometres north of Stockholm, is already being built. The actual battery factory is also to be built there. A production capacity of 8 gigawatt hours (“GWh”) is planned for next year. Three years later, the factory is to produce battery cells with a volume of 32 GWh. This corresponds roughly to the production capacity of Tesla’s Gigafactory in Nevada. This would allow VW to equip 550,000 ID.3 electric cars with a medium-sized battery.

Full Order Books

Even before the start of production, Northvolt is practically sold out for years to come. The VW subsidiary, Audi, alone has ordered cells with a volume of 80 GWh by 2030. That will be two and a half years’ production when the factory has reached its planned 2023 expansion stage. Orders for the next 10 years already total approximately 11.5€ billion ($13 billion).

Just how gigantic the demand is, is perhaps best demonstrated by VW’s plans: The largest car manufacturer in the world has announced 70 car models with electric motors for the coming years. Around two-thirds of them are to be pure electric vehicles, the rest plug-in hybrids. By 2025, VW says it will need battery cells with a volume of more than 150 GWh – every year and only in Europe. The corresponding production requires four to five Gigafactories the size of the joint Tesla and Panasonic factory in Nevada, the largest battery cell production site in the world to date. VW expects similar demand in Asia. It is generally advantageous if the cells are manufactured close to the car production site. This is because the logistics and transportation of the cells is not unproblematic and naturally costs money.

Capacities are being Expanded

Northvolt does not limit itself to the Ett (Swedish for “one”) factory in Skellefteå. Together with VW, another plant is to be built in Salzgitter, near VW’s headquarters in Wolfsburg. Volkswagen is investing a total of 900€ million in its Scandinavian partner – equivalent to $1 billion. In return, VW will obtain 20% ownership of Northvolt, the rest of the investment will go to the plant in Salzgitter.

Battery production at the joint venture plant is expected to start at the end of 2023/beginning of 2024. The capacity is to reach 16 GWh. For the VW Group, Salzgitter is one of the most important locations for engine production. It is already clear today that the output of the plants in Skellefteå and Salzgitter will be far from sufficient to cover VW’s battery cell requirements – even if they were to produce exclusively for Volkswagen.

Against this background, it is speculated that VW will launch a second battery cell production plant in Emden. In Emden, the company intends to have 300,000 electric cars rolled off the production line each year.

Of course, not only VW requires cells in Europe, but also competitors such as BMW, Daimler and Renault. Against this background, Northvolt’s plans are impressive, but not much more than a drop in the ocean. Numerous Northvolts are required, all of which hopefully successful in building cell factories.