Goldman Sachs is taking a significant financial hit following the bankruptcy filing of Swedish battery manufacturer Northvolt AB. This move marks one of the most notable setbacks for Europe’s ambitions to become a leader in electric vehicle battery production.
Just last week, Northvolt shocked the business world by filing for Chapter 11 bankruptcy protection, leaving Goldman Sachs and other major investors reeling from their investments. The U.S. bank, which serves as one of Northvolt's largest shareholders, is expected to write off nearly $900 million from its books due to this unexpected turn of events.
The turmoil at Northvolt began as early as June when BMW AG abruptly canceled its substantial contract worth €2 billion. This decision sent shockwaves through the battery maker and marked the beginning of its steep decline. With production challenges piling up and funds diminishing, Northvolt struggled against the backdrop of an increasingly competitive industry dominated by cheaper and more agile companies from China and South Korea.
Northvolt had initially garnered attention and confidence from investors, having raised over $10 billion since its inception to fund ambitious plans to build the largest battery factory in Europe. The now-defunct project attracted support from giants like Volkswagen AG, which owned 23% of Northvolt, and other significant investors such as Danish pension fund ATP and Baillie Gifford & Co. Funds. Just last year, the company was even gearing up for what could have been a glamorous initial public offering (IPO) anticipated to value Northvolt at around $20 billion.
But as the months unfolded, the reality faced by Northvolt deviated markedly from its initial projections. The reliance on financial projections and optimistic growth plans failed to account for the increasing competition and the economic malaise affecting Germany's automotive industry. With production volume targets unmet and significant funding lacking, the company had no choice but to retrench, laying off workers and shelving expansion plans.
Peter Carlsson, co-founder and CEO of Northvolt, announced at the time of the bankruptcy filing his own resignation, transforming his role to Senior Advisor. He lamented the European Union's risk of falling behind on green technologies. He acknowledged the gravity of the situation, noting, “We’ll regret it in 20 years if we’re not driving the transition to clean technologies.”
Goldman Sachs, along with other investors, expressed disappointment but noted its investment was well diversified amid the unpredictable risks posed by the startup world. “While we are one of many investors disappointed by this outcome, this was a minority investment through highly diversified funds. Our portfolios have concentration limits to mitigate risks,” the bank said in its statement.
On the investor side, the swiftness of Northvolt’s deterioration caught many off guard. Letters sent from the bank to its investors indicated the planned write-down of their Northvolt investments to zero by the end of the year. Some insiders expressed their disbelief at how quickly Northvolt had consumed its cash reserves and the extent to which it obscured its financial fragility.
From its peak as the embodiment of hope for Europe’s energy transition, Northvolt’s fall is now serving as both a cautionary tale and reflection on the current volatility of the market. The company’s Chapter 11 filing takes place amid broader difficulties for the electric vehicle sector, which has struggled to maintain momentum as demand fluctuates and production challenges come to the fore nationwide.
The bankruptcy process will allow Northvolt to access recent cash collateral pledges and potentially attract fresh funding from strategic partners willing to take the risk of investing amid the tumult. Notably, the firm announced it would continue fulfilling orders and paying its employees. A selected colleague from Scania CV, which remains one of Northvolt's key customers, has pledged $100 million to support the firm's operations through emergency DIP (debtor-in-possession) financing. This financing is not without strings, as it carries high-interest rates but symbolizes a flicker of hope for Northvolt.
Looking forward, Northvolt indicated its strategy will involve restructuring its operations and seeking new investors or partnerships. Despite the current circumstances, the operations of its gigafactory located in Skellefteå, Sweden, along with Northvolt Labs, will persist as they start to stabilize the business.
Ironically, Northvolt finds itself at a point this year where some foundations of its future may still rely on the steadfast demand for clean energy solutions, pushing governments and private investors to keep the momentum going. For now, companies across the European automotive sector and their supply chains will have to stay alert as they navigate this uncertain chapter marred by financial instability and rising operational costs.
Northvolt’s ambitions to be at the forefront of battery production may not disappear entirely, yet the path to recovery will undoubtedly not be easy as it adjusts to the harsh realities of the market.
