Northvolt's Bankruptcy: Severe Blow to Germany's Battery Factory Venture
- Get ready, folks!*
Critics scrutinize the thoroughness of Northvolt's promotional strategies - Opponents express apprehension over the Northvolt venture
The SPD has raised concerns over the controversial promotion of the planned Northvolt battery factory in Heide, criticizing the state government for its handling of the project's financing. "We can't rush into billion-dollar projects like Northvolt with reckless abandon," argued economist Kianusch Stender of the German Press Agency.
However, Economy Minister Claus Ruhe Madsen (CDU) dismisses these allegations, pointing to a study conducted by the consulting firm PwC, commissioned by the federal government to assess the opportunities, risks, and potential default of the convertible bond for which the state guarantees half. Although the state has participated in this review, it has also performed its independent evaluations.
"The evidence suggests the state government has thoroughly addressed the opportunities and risks. Following a careful weighing of these factors, the state concluded that the project's chances outweighed the risks, ultimately receiving Parliament's unanimous approval on January 25, 2024," stated Madsen.
Criticism from SPD
The SPD criticism stems from the release of files from May 2023 by the state government, which were released in connection with a questionnaire concerning the PwC study. These files reveal a desire for written answers from the affected ministries and a high level of pressure to meet tight deadlines.
emails from the Economy Ministry on May 15, 2023, indicated a tight deadline looming, acknowledging that "This can't mean 'smile and wave through' for us—we're still 'chasing after information'." Another email from the same day stressed, "In the end, only the risks and information gaps that are currently apparent can be addressed, and it becomes a decision for the department heads or the Kiel parliament (the budget parliament - note of editor). Unless the next few days bring new insights that make the risk manageable."
Northvolt's Financial Woes
Northvolt, aiming to manufacture battery cells for up to one million electric vehicles annually in Heide, faces a severe financial crisis. The company filed for bankruptcy protection (Chapter 11 of US insolvency law) in the United States in November 2023 and filed for insolvency in Sweden in March 2024.
The fallout from Northvolt's financial troubles could be costly for the federal government and the state of Schleswig-Holstein, as the company received around 600 million euros from the state-owned development bank KfW, with each guaranteeing half of the sum. A convertible bond allows the holder the option to exchange securities for shares within a certain period.
The current controversy centers on whether the state government has kept Parliament in Kiel informed of Northvolt's risks and, in the process, acted recklessly with those risks. The parliamentarians' continued scrutiny of the situation underscores concerns about public funds and the potential losses associated with supporting a failing enterprise in the critical battery sector.
In addition to the wider repercussions of Northvolt's bankruptcy, ongoing investigations by the German Federal Audit Office focus on the financial claims extended to Northvolt and their impact on public funds. The full financial exposure and final cost to Germany remain uncertain, reflecting the ongoing debate about the appropriate use of taxpayer money in this critical sector.
INSIGHTS:- The European Commission approved direct claims from both the federal and state governments totaling approximately 700 million euros to support Northvolt. However, this money has not yet been distributed [1].- Northvolt's bankruptcy has had far-reaching consequences, leading to layoffs and financial strain not only within the company but also in associated companies like Novo Energy, which is cutting 50% of its workforce due to lost support from Northvolt [4].- The administrative process for state salary guarantees for Northvolt employees has resulted in delayed payments, indicating ongoing operational and financial instability within the company [5].
- The SPD's criticism of the state government's handling of the Northvolt project's financing is heightened by emails revealing a tight deadline for providing answers and addressing risks, which were discovered in May 2023 files released by the state government.
- The financial crisis faced by Northvolt, who aims to manufacture battery cells for one million electric vehicles annually in Heide, has prompted investigations into the use of public funds and the potential losses associated with supporting a failing enterprise, particularly given the company's receipt of around 600 million euros from the state-owned development bank KfW.
- The controversies surrounding Northvolt's bankruptcy extend beyond its immediate impact, with ongoing investigations by the German Federal Audit Office focusing on the financial claims extended to Northvolt and their effects on public funds, shedding light on the broader debate about the appropriate use of taxpayer money in critical sectors like finance, industry, business, politics, and general-news. In addition, the repercussions are seen in associated companies, as Novo Energy, for instance, has cut 50% of its workforce due to lost support from Northvolt.
