Countdown to Northvolt’s Collapse Begins with BMW Pulling the Plug

(Bloomberg) — The downward spiral for Northvolt AB, the Swedish startup that has become the poster child for Europe’s electric driving future, began in June when BMW AG canceled a multibillion-dollar order.

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

The company responded to the loss of revenue by curtailing expansion plans and cutting jobs. When the last attempt at a contingency plan failed, investors who had invested $10 billion discovered they had only $30 million in cash left.

Northvolt’s filing for U.S. bankruptcy protection, announced Thursday, marks one of the highest-profile setbacks for the European industry in the face of cheaper and more nimble competition from China and South Korea. The next day, co-founder and Chief Executive Peter Carlsson, who had announced Northvolt as a possible IPO candidate just a year earlier, resigned and warned that the European Union risked being left behind on green projects.

Saying that the company needs $1.2 billion to finance its new business plan, Carlsson told reporters that “if we do not encourage the transition to clean technologies, we will regret it in 20 years.”

Northvolt’s biggest investors include BMW and Volkswagen AG, as well as Goldman Sachs’ asset management arm, Denmark’s largest pension fund ATP, and Baillie Gifford & Co. funds and a number of Swedish organisations.

The Financial Times reported on Saturday that funds managed by Goldman Sachs Asset Management will lose almost $900 million by the end of the year. The investment is a minority investment “through highly diversified funds,” Goldman said in an emailed statement, adding that its portfolios “have concentration caps to mitigate risks.”

A fund representative, who asked to remain anonymous while discussing private matters, said they were shocked at how quickly Northvolt was melting down billions of dollars. The investor was confident of a return as soon as July, but that changed in early August when one of Northvolt’s owners warned that the battery maker could run out of cash by September.

While the investor explained how Excel models and slide presentations were used to hide how empty the coffers were, he said that the extent of the delays and the bad conditions in building budgets and construction projects remained secret.

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

“They had to announce very large-scale plans from the beginning to be attractive to financiers,” said Robert Heiler, a senior executive at Porsche Consulting, part of the sports car unit of Volkswagen, Northvolt’s biggest investor. “But it’s really hard to grow all of the various operations at the same time,” he said.

It is now clear how much Northvolt and its financiers misjudged the situation a year ago. Last fall, the company invited investment banks to take part in an initial public offering that could value the battery maker at $20 billion, the FT reported.

Just over six months later, the IPO was postponed from 2024, Bloomberg reported. Shortly thereafter, VW’s truck unit Scania complained that Northvolt was having trouble increasing production volumes, and BMW subsequently launched a €2 billion ($2.1 billion) investment into electric vehicles such as the i4 sedan and iX sport utility vehicle. withdrew his contract.

After repeated delays, the battery maker is unlikely to produce the volumes BMW needs before 2026 (a year after previous models were phased out and almost three years after the original target date), a person familiar with the matter said. , declines to give his name when discussing private information.

The failure to close the equity financing round at the time meant the $5 billion green loan announced in January remained frozen, according to another person.

Even then, Northvolt had a chance to move forward with plans for new battery facilities in Germany, Sweden and Canada. Volkswagen, which owns 23% of Northvolt, was ready to step in, this person said in late June. A representative for VW declined to comment.

But the German auto giant was facing a crisis of its own. By the end of the summer, as electric vehicle sales stagnated in Europe and profitable business in China declined, VW called for unprecedented factory closures in Germany.

Amid potentially tens of thousands of layoffs at VW, Northvolt financing was off the table and withdrew from VW’s equity plan in August, the person said. A Volkswagen representative declined to comment.

The German automaker, which values ​​its Northvolt holding at more than $730 million by the end of 2023, later refrained from committing to buying more batteries, people familiar with the matter said this month.

Still, work on the bridge financing agreement continued, with the agreement coming to fruition as soon as October. The $300 million emergency aid was supposed to include lenders, creditors and customers, but talks fell short.

“In this last round of financing, VW basically told us that they could not continue to capitalize us,” Carlsson said in a statement on Friday.

Northvolt’s debts include a $330 million convertible loan from Volkswagen due in December 2025, according to the bankruptcy court filing.

To reassure financiers, Northvolt canceled a planned expansion of its main factory in Skelleftea in northern Sweden and replaced the factory’s manager in October. But Carlsson admits he moved too slowly.

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

Northvolt’s big move approach will be second-guessed for years to come. But it won’t disappear in the near future. In its filing, the company said finding a strategic or financial partner was an overarching goal as it sought to restructure the balance sheet and continue operations.

Governments from Stockholm to Berlin have rejected suggestions they would spend taxpayer funds on rescue efforts.

German Economy Minister Robert Habeck, who in June suggested Northvolt build a second factory in his country, told DPA on Saturday that he was “cautiously optimistic” about the company’s future.

The relationship with Volkswagen continues. Scania CV AB remains a major customer of Northvolt and will provide $100 million in debtor-in-possession financing at a high interest rate of 16%. Northvolt will also have access to approximately $145 million in cash collateral. While battery facilities under construction in Germany and Canada were excluded from bankruptcy, the company announced that these projects would be postponed.

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

–With assistance from Sara Sjolin, Rafaela Lindeberg, Luca Casiraghi, Sonja Wind, Kamil Kowalcze and William Wilkes.

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