Volkswagen increases investment in Northvolt

15 June 2021

Volkswagen Group (VW) is participating in a financing round of its Swedish battery partner Northvolt. The carmaker will look to maintain its current stake in the manufacturing company.

VW has forged close ties with Northvolt ever since announcing a partnership in 2019. VW will contribute around €500 million to the latest financing round, which has a total volume of $2.75 billion (€2.72 billion). This will allow it to maintain its 20% stake in the business.

The funding will be used for capacity expansion in production, recycling, research, and development. Northvolt intends to expand its gigafactory in Skellefteå, Northern Sweden from 40GWh to 60GWh per year, to meet higher demand from customers.

Northvolt has now raised more than $6.5 billion in equity and debt to enable an expansion plan leading up to and beyond 150GWh of deployed annual production capacity in Europe by 2030.

In addition, the company has, to date, secured more than $27 billion worth of contracts from key customers, including BMW, Fluence, Scania and VW, to support its plan. Alongside battery production, this includes establishing recycling capabilities to enable 50% of all its raw-material requirements to be sourced from recycled batteries by 2030.

Close relationship

VW’s 20% stake in Northvolt highlights the close working partnership the two companies have. The company has already invested €900 million in the battery manufacturer and has a seat on Northvolt’s board. VW will base production of its ‘premium’ battery cells in Skellefteå, with a start date of 2023 for its 40GWh capacity plans. As part of its electric roadmap, VW stated it would be increasing its order from Northvolt by €14 billion.

Earlier this year, the carmaker announced it would take full control of a joint venture with Northvolt to establish a gigafactory in Germany as part of six planned sites in Europe. This plant will produce a standard cell for the volume segment, with a planned 40GWh production capacity to begin in 2025. Both plants will be operated using electric power from renewable-energy sources as part of VW’s commitment to becoming carbon-neutral.

‘Batteries are one of the key success factors in our unprecedented electric offensive,’ commented Thomas Schmall, group board member for Technology and CEO of Volkswagen Group Components. ‘In the major area of green battery cells, we are assuming a pioneering role in Germany and Europe together.’

Increasing locations

In order to meet its 2030 capacity target, Northvolt anticipates building at least two more gigafactories in Europe over the coming decade. The company is exploring the opportunity of building the next oneof these in Germany.

During the same timeframe, Northvolt foresees tremendous growth in other parts of the European value chain for battery manufacturing, from processing raw materials to component and equipment manufacturing, to production of battery cells and systems, and the build-up of recycling infrastructure.

‘This is a new European industry in the making, and it will require significant investments over the coming decade. It is encouraging to see that the investor community has identified the opportunity early, and we hope to see more investments throughout the value chain over the coming years,’ said Alexander Hartman, CFO of Northvolt.

As the automotive industry embraces an electric future, the need for gigafactories across the continent will rise. Numerous carmakers and startup businesses are establishing sites and raising funding, hoping to take advantage of the anticipated increase in electrically-chargeable vehicle (EV) production.

Northvolt’s plans highlight the effort needed to ensure capacities are met so this crucial element of the EV does not become scarce and create a bottleneck for manufacturing. However, it is also clear to see that focus needs to be applied to recycling materials and dealing with end-of-life units to keep the sustainability push of this new technology on track. For that, more investment may yet be needed, not just for Northvolt but the entire battery-supply chain.