Northvolt founder steps down, restructuring started (update)

Battery manufacturer Northvolt has appointed restructuring expert Paul O’Donnell as head of the Northvolt Ett factory. The company’s only active cell factory is lagging behind its production targets. Meanwhile, Northvolt founder Peter Carlsson stepped down as CEO, and the company has filed for Chapter 11 in the US.

Northvolt Ett (based in Skelleftea in the north of Sweden) has officially been producing battery cells since the end of 2021 but had continuous problems scaling up production since then. On the one hand, many cells do not meet the quality standards, and on the other, the quantities are too low.

This autumn, a production target of 51,000 cells per week was circulated, but Northvolt Ett achieved this in one week between the end of September and the beginning of November. A spokesperson described this target as ‘outdated’ but did not give a new figure.

Restructuring

Northvolt has found a new factory manager in Paul O’Donnell. His predecessor, Mark Duchesne, resigned in October. Northvolt cites O’Donnell’s significant experience in financial restructuring from his time at Blackstone and his role as director of several companies. He has helped Thames Water engage with creditors, for example.

O’Donnell will also join the board of directors. “It makes sense to augment the board with an individual who has significant restructuring experience to guide the company through this period,” Northvolt spokesman Martin Hofelmann said in written comments to Bloomberg.

Customers are canceling

Low unit sales pressure, turnover, and constant adjustments also cost money. In addition, major customer and shareholder BMW canceled a billion-dollar order in June.

The German car manufacturer would have needed the prismatic cells from Northvolt Ett for its current electric models. With the Neue Klasse, BMW is switching to large-volume round cells; thus, prismatic cells will no longer be needed at BMW.

The cancelled BMW order made Northvolt’s problems public. The combination of canceled orders and the capital-intensive issues of scaling up production has put the company in a difficult financial situation.

Doubts within the industry are growing: Traton brand Scania, which wanted to source all its battery cells for electric trucks from Northvolt, is reportedly looking also for alternative suppliers.

New start needed

As a result, the company initiated a strategic review, announced cost-cutting measures, and reorganized the Management Board. The Swedish manufacturer also announced that founder Peter Carlsson is stepping down as CEO but will remain active as a Board of Directors and Senior Advisor member.

“Today marks a significant new phase for Northvolt as well as for me personally,” he said. “The Chapter 11 filing allows a period during which the company can be reorganized […] That makes it a good time for me to hand over to the next generation of leaders.”

Tom Johnstone, Interim Chairman of the Board of Directors, recognized the vision and commitment of the outgoing CEO, who will not be replaced immediately. He says the search for a new CEO has begun.

Until then, the company’s management will consist solely of Chief Financial Officer Pia Aaltonen-Forsell and Cells President Matthias Arleth, who will now take on the role of Chief Operations Officer. The duo will be supported by Chief Restructuring Officer Scott Millar. This trio will now primarily steer the company through the Chapter 11 proceedings.

Chapter 11

The company points out that filing for Chapter 11 does not mean filing for bankruptcy in the sense of liquidation. Chapter 11 is often called “reorganization bankruptcy,” meaning the company holds on to its assets and continues operations while working on a plan to repay creditors. In other words, it will continue honoring customer contracts, fulfilling vendor obligations, and paying employees wages.

“These Chapter 11 filings will help Northvolt to implement the decisions made as part of its strategic review to rescope the business and prioritize commitments to customers,” the company says in a press release. Northvolt expects the restructuring process “to be completed in the first quarter of 2025.”

Northvolt is a Swedish company but says that its international presence allows it to file for the proceedings in the US. It also points out that similar proceedings are not available elsewhere. “The US Chapter 11 procedure enables companies to maintain operations during restructuring”, Northvolt explains. “At the same time, this procedure gives them access to special forms of financing, such as debtor-in-possession (DIP) financing, which are not available in the same form in other countries.”

Investments needed

Northvolt needs fresh capital for this new start. Negotiations have been dragging on for weeks. They involve a consortium of banks and existing investors (the major US bank Goldman Sachs already has a significant stake in Northvolt, as has Volkswagen AG). The Swedish government has repeatedly reiterated that it doesn’t want to invest in the company.

The company points out that it will use the restructuring process to raise new capital. It expects to raise around 245 million dollars. That includes “approximately $145 million in cash collateral. In addition, one of Northvolt’s existing customers has committed to providing $100 million in new financing to support Northvolt’s business operations in the form of debtor-in-possession (DIP) financing, which is a specialized type of financing for businesses that are restructuring through a Chapter 11 process.”

“Despite near-term challenges, this action to strengthen our capital structure will allow us to capture the continued market demand for vehicle electrification, “says Tom Johnstone.

“Throughout this process, we will focus on meeting our commitments to our stakeholders, including our employees, customers, suppliers, and the governments of the countries where we operate. As a reorganized entity, we aim to establish a resilient base of operations and a competitive platform for innovation and long-term growth that will advance our work to build a more sustainable society.”

Outside Sweden

Northvolt is based in Sweden, where it currently operates its only battery cell factory. However, it also has factories under construction in Germany and Canada, both of which will not be affected by the bankruptcy protection proceedings, as they belong to Northvolt AB subsidiaries Northvolt Germany and Northvolt North America and are financed separately.

In Quebec, the Canadian government is also debating whether to invest further in Northvolt. The battery manufacturer is constructing a manufacturing plant there, which was supposed to open in 2026, but the opening date was recently pushed back to 2028.

German Economy Minister Robert Habeck expressed cautious optimism about Northvolt’s future. The company had planned to build a major new factory in Heide, northern Germany. Habeck noted that many companies have gone through the restructuring process via bankruptcy proceedings in US courts, and some have emerged stronger.