For weeks, we have been hearing about the troubles of the Swedish battery company Northvolt. What is happening and what do these problems mean for its major project underway in Quebec? We take stock.
Layoffs in Sweden
On Monday morning, the Swedish multinational announced the layoff of 1,600 people in its home country, representing 20% of its global workforce. Northvolt had previously announced that it was restructuring to address financial difficulties: the company founded in 2016 no longer has the cash to carry out all its aspirations, so it is suspending expansion and enlargement projects.
The company has chosen to focus its efforts on accelerating its production of battery cells in its existing facilities. It must be said that it has had difficulty meeting expectations in the last year. BMW notably cancelled a contract worth more than two billion euros (about three billion Canadian dollars) last spring due to delivery delays.
According to Michel Magnan, a professor at Concordia University’s John Molson School of Business, these layoffs are major because Northvolt is losing the expertise of its specialized workforce. “Northvolt had very big ambitions. In the field of innovative firms, a roller coaster is not unusual. But here, the descent is particularly steep,” he emphasizes.
However, the blow is not necessarily fatal: the company is betting “on taking a step back in order to move forward better,” explains Mr. Magnan.
Concerns for Quebec
The young multinational has several projects abroad, including in Germany and Quebec. Northvolt stated by email that the bad news had “no impact on the Northvolt Six project” in Quebec and that the work was continuing. “This announcement only concerns Sweden,” it was specified.
Northvolt’s “strategic review,” however, is not yet complete. “This process is expected to be completed this fall,” the company said in an email. “Northvolt will provide an update at the end of this fiscal year.”
The Legault government and the Trudeau government, ardent defenders of the project, wanted to be reassuring on Monday. But, according to Michel Magnan, it would be “burying our heads in the sand to have no concerns.” “We must not panic either, because in the medium or long term, the prospects are there,” said the professor, referring to the electrification of transportation, which will inevitably lead to significant needs in this sector of activity.
The planned mega-factory in Quebec has the distinction of meeting Northvolt’s ambitions in North America, a major automotive market, notes Mr. Magnan. “It is perhaps this strategic choice that explains why the project does not seem to be cancelled.” The company will, however, have to convince its investors and generate returns to make this American dream come true.
Construction delays
The opening of Northvolt’s Quebec mega-factory is not for tomorrow. The construction site continues — the excavation work for the first building is already 60% complete — but its construction is taking longer than expected. “The design of the three components of the project (cells, cathode and recycling) is continuing,” the company said in writing Monday.
At the beginning of July, the Swedish multinational announced that it was preparing to slow down its international development plan, particularly in Quebec. The project was initially scheduled to be completed in 2027, but its schedule will be delayed by 12 to 18 months.
Public money at stake
How much public money has been invested in the project so far? Ottawa and Quebec have respectively promised $1.34 billion and $1.37 billion, for a total of approximately $2.7 billion, for the construction of the Northvolt plant in Montérégie.
For the moment, the Trudeau government has not revealed the extent of the sums already put on the table. As for Quebec, we know that the Legault government has already disbursed approximately $510 million, or more than a third of the amounts promised. Here is a breakdown of the money already spent:
- a $240 million secured loan for the purchase of the land;
- a subscription to a convertible debenture of 270 million dollars for “the financing of preliminary activities”.
If the company were to close, could the Quebec government recover its investment? “We can’t answer that with certainty at the moment,” says Magnan. It would depend on many factors, including “the market value of the assets in the event of a cessation of operations” or “the legal form of the process: arrangements with creditors, debt restructuring, bankruptcy or liquidation,” he says.
In addition to these public funds, there is a $200 million investment from the Caisse de dépôt et placement du Québec in Northvolt. In total, if we include these last amounts, $710 million from Quebec has been invested so far in the Swedish company.
Note that Ottawa and Quebec also plan to subsidize battery production by Northvolt to the tune of $4.6 billion once its mega-factory in Montérégie is in operation.
With Alexandre Shields and François Carabin
