Just 125 miles south of the Artic Circle, here in the small Swedish town of Skelleftea, lies one of Europe’s most cherished hopes for the future: a low-carbon battery maker. But where is it going to make its next big investment? The U.S. or Europe? Northvolt produces batteries that are mostly used in electric cars, some of its most important buyers include Volkswagen, BMW and Scania.
Its aim is to produce the cleanest batteries. That’s why it uses local sources of renewable energy, such as wind and hydropower, to do so. Northvolt says its batteries have a carbon footprint 80% lower than those made using electricity from coal-fired power stations. This is one typical prismatic cell.
Peter Carlsson is the founder and CEO of Northvolt. He was previously the global head of sourcing and supply chain at Tesla. Northvolt is a European battery and energy storage developer, we started in the beginning of 2016 with the aim of building a really, really green sustainable battery set up in Europe. Behind us, we are building Revolt Ett. Ett is one in Swedish. It is perhaps the largest recycling facility in Europe.
The aim here that we in 7-8 years we should be having 50% of our materials coming from recycled cells. This plant is the size of about 71 soccer pitches and employs about 1,500 out of Northvolt’s 4,000 workers. Northvolt had plans to open a similar facility in Germany in 2025, which would have created about 3,000 new jobs. Looking at some of the investment decisions from Northvolt, you recently decided to press pause on opening a new factory in Germany. This was announced in October 2022. We haven’t pressed pause.
We recognize that the site here at a certain point probably 2025-2026, we will have built out this to its maximum capacity. We are working on a second factory together with Volvo cars in Gothenburg but we found a spot in northern Germany. But we have also been clear that in order to put a real large amount of investments into the facilities and the equipment we need to find a solution with different stakeholders including the German government. So, you still intend to open a factory in Germany? Absolutely.
There is a lot of controversy on whether you are actually going to invest in the U.S. before you open this factory in Germany. What can you tell us about that? What I can see is that, whilst we have been doing this in Germany, we have also been working on a North American plant and with IRA that plan kind got turbo boosted given the very strong incentives. At this stage, if you compare the development in Germany and the development in North America, which one will be ready first? That’s a good question, I pass on that. It’s not just Northvolt that is reconsidering upcoming investments and deciding whether to press ahead with American versus European expansion.
Volkswagen, the German car manufacturer, Enel the Italian energy firm, chemical giant Solvay and Spain’s Iberdrola just to name a few have expressed their interest in what the U.S. is doing after a landmark announcement last year. A survey of Finnish businesses showed almost 20% of them were thinking about shifting their investments to the U.S. All of these investments decisions were shaken up by President Joe Biden, who last year unveiled the U.S. Inflation Reduction Act, often shortened to IRA, and promised more than 300 billion dollars in climate and energy policies. One practical example of the IRA in action involves buying an electric car.
If you live in America and you want to buy a new electric car, you’ll likely benefit from a tax credit if you choose a model where 40% of the critical mineral and battery components were sourced from America or a country with a U.S. free-trade agreement. Naturally, American-made EVs will become more attractive to consumers which is why European companies are looking to grow their manufacturing output in the U.S. While European officials are happy that the U.S. is working towards a more sustainable economy, they worry that the IRA discriminates against European businesses. There are two issues here. The first one is that there is a bit to the IRA that is in direct violation of international rules of trade.
And the second one is that there is a bit that can actually distort competitiveness. Policymakers, think tanks and the business community agree that the way the U.S. built these subsidies is simple, unlike the way EU works. The IRA is constructed in a way that is very simple. By contrast the European Union machinery is a lot more complex.
Will firms in the European Union or anywhere else postpone investment that they wanted to make in the European Union and actually profit from the direct and very simple and immediate benefit that the IRA actually promises? Some European officials argue they have allocated more funding to sustainable projects than the United States.
In total, the European Commission has said there’s more than 600 billion euros available for the green transition. It’s not just the pull factors, it’s also about the push factors. For starters, businesses in Europe complain there’s too much regulation and getting funded is a lengthy process. Sometimes simple is beautiful, the U.S. plan you might argue about it but it is pretty easy to understand, and it works. But the announcement stateside has left the EU to reevaluate its actions.
The EU is particularly aware that it needs to do more to compete internationally. It depends on others to be able to advance with the green transition. And that of course, it means that you become vulnerable, just like the EU was vulnerable to the way that it relied on Russia for energy. This issue of the vulnerability and the lack of diversification, we have been talking about this for some time, and it’s important that we take action. The European response so far can be broken down into two steps. First: state aid. The 27 heads of state agreed to use financial support from national governments to encourage businesses to stay in the region and invest further across the EU. They said this will be temporary and targeted, so member states do not compete against one another.
Second: they will pay into a Sovereignty Fund which could hand out money to worthy projects, but we still don’t how this will look. For the time being, there’s only appetite to redirect resources from existing European funds rather than raising new money by issuing bonds. More broadly, the IRA is focused not just on making the U.S. a more attractive place to invest, it’s also about gaining an edge over China. Does this go beyond trade? Is this actually a geopolitical issue? The IRA is definitely a geopolitical tool, a geo-economic tool.
The third part of the of the IRA, which refers to how it deals with China, is very much an attempt to antagonize it again. Very little that comes out of the U.S. these days doesn’t have a China dimension in it. And the IRA is no exception in this respect. It remains to be seen how these trade tensions will evolve, but the race to be the host to the best firms in tackling climate change is on.
source CNBC international.