Northvolt’s Collapse Countdown Started With BMW Pulling the Plug

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(Bloomberg) — For Northvolt AB, the Swedish startup that has become a model for the future of electric driving in Europe, the road to collapse began in June when BMW AG canceled a multibillion-dollar order.

At the time, few saw the significance of the move, which effectively began the countdown that would culminate in a Chapter 11 filing less than six months later. Northvolt scrambled to keep financing flowing, but as Germany’s auto industry delved into its own crisis, it became clear that orders would dry up.

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The company responded to lost revenue by scaling back expansion plans and cutting jobs. By the time the last attempt to devise a contingency plan failed, investors who had pumped in $10 billion discovered they had only $30 million in cash left.

Northvolt’s filing for bankruptcy protection in the United States, announced on Thursday, represents one of the biggest setbacks for the European industry in the face of cheaper and more nimble Chinese and South Korean competition. The next day, co-founder and CEO Peter Carlsson, who just a year earlier had been touting Northvolt as a potential IPO candidate, resigned and warned that the EU risked falling behind on green projects.

Carlson said the company needs up to $1.2 billion to fund its new business plan, telling reporters that “we’ll regret it in 20 years if we don’t lead the transition” to clean technologies.

In addition to BMW and Volkswagen AG, major investors in Northvolt included the asset management arm of Goldman Sachs, Denmark’s largest pension fund ATP, and the Baillie Gifford & Co. funds. And a number of Swedish entities.

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Funds managed by Goldman Sachs Asset Management are set to write down nearly $900 million at the end of the year, the Financial Times reported on Saturday. The investment represented a minority stake “through highly diversified funds,” Goldman Sachs said in an emailed statement, adding that its portfolios “have concentration limits to mitigate risk.”

A fund representative, who requested anonymity to discuss private matters, said they were shocked by the speed with which Northvolt pumped in its billions. Until July, the investor was confident of a return, but that changed in early August after receiving a call from one of Northvolt’s owners, who warned that the battery maker could run out of cash by September.

The investor said the extent of the delay and how bad things were with construction budgets and construction projects remained hidden, and recounted how Excel models and slide shows were used to hide how empty the tanks had become.

The Swedish company now faces a restructuring task, with a more focused process set to emerge from the Chapter 11 process.

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“From the beginning, they had to announce very broad plans in order to be attractive to financiers,” said Robert Heller, a senior director at Porsche Consulting, part of the sports car unit of Volkswagen, Northvolt’s largest investor. “But it is really difficult to scale different operations at the same time,” he added.

It is now clear how badly Northvolt and its financiers misjudged the situation a year ago. Last fall, the company invited investment banks to vie for roles in an initial public offering that would have valued the battery maker at $20 billion, the Financial Times later reported.

Just over six months later, the IPO was postponed from 2024, Bloomberg reported. Shortly after, Volkswagen’s Scania truck unit complained after Northvolt had trouble increasing production volumes, and BMW then pulled its €2 billion ($2.1 billion) contract to equip electric vehicles such as the i4 sedan and iX SUV. Uses.

After repeated delays, the battery maker is unlikely to be able to produce the quantities BMW needs before 2026, a year after previous models were scheduled to be phased out and nearly three years after the original target date, a person familiar with the matter said. He declined to be named to discuss private information.

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Around that time, failure to close an equity financing round meant that a $5 billion green loan announced in January remained frozen, according to another person.

Until then, there was an opportunity for Northvolt to continue with its plans to set up new battery factories in Germany, Sweden and Canada. In late June, Volkswagen — which owns 23% of Northvolt — was ready to intervene, this person said. A representative for Volkswagen declined to comment.

But the German auto giant was facing a crisis of its own. By late summer, with electric vehicle sales stagnating in Europe and its lucrative business in China declining, Volkswagen called for unprecedented factory closures in Germany.

Against the backdrop of potential layoffs of tens of thousands of workers at Volkswagen, Northvolt financing was off the table, and in August, VW withdrew from the stock plan, the source said. A Volkswagen representative declined to comment.

The German automaker, which valued its holdings in Northvolt at the equivalent of more than $730 million as of the end of 2023, declined to commit to further battery purchases, people familiar with the matter said this month.

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However, work on the bridge financing deal continued, with the agreement close to fruition last October. The emergency aid amounting to $300 million was supposed to include lenders, creditors and customers, but the talks did not reach the required level.

“In this latest financing round, VW basically told us that it was unable to continue capitalizing on us,” Carlson said on Friday.

Northvolt’s debt includes a $330 million convertible loan from Volkswagen due for repayment in December 2025, according to a bankruptcy court filing.

In an attempt to reassure financiers, Northvolt canceled a planned expansion of its main plant in Skellefteå in northern Sweden and, in October, replaced the plant manager. But Carlson admits he acted too slowly.

“I probably should have hit the brakes earlier on some of the expansion paths,” he said.

Northvolt’s grand approach will be guessed at for years to come. But it will not disappear in the near future. The company said in its filing that finding a strategic or financial partner is an overarching goal as it seeks to restructure the balance sheet and continue operations.

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Governments – from Stockholm to Berlin – have rejected suggestions that they will spend taxpayers’ money on bailouts.

German Economy Minister Robert Habeck, who last June proposed to Northvolt to build a second factory in his homeland, told the German news agency (dpa) that he was “cautiously optimistic” about the company’s future.

The relationship with Volkswagen continues. Scania CV AB remains a key Northvolt customer and will provide US$100 million in debtor-in-possession financing at a whopping 16% interest rate. Northvolt will also have access to approximately $145 million in cash guarantees. Battery plants under construction in Germany and Canada were excluded from bankruptcy, although the company said those projects would be postponed.

Northvolt is also making preparations in case it fails to raise funds for the future. Documents filed with the US court show it plans to “evaluate potential opportunities to sell some or all of the assets, and has engaged Hilco Global to assist in an orderly liquidation process if necessary.”

-With assistance from Sarah Sjolin, Rafaela Lindbergh, Luca Casiraghi, Sonia Wind, Camille Kowalci, and William Wilkes.

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