The Swedish battery developer is considering abandoning their plans to build a factory in northern Germany to instead build it in the United States where subsidies for decarbonized industrial projects are more favorable.
LE MONDE BY CÉCILE BOUTELET(BERLIN (GERMANY) CORRESPONDENT), APRIL 27, 2023. A few kilometers from the North Sea coast, standing on the moors of Schleswig-Holstein, Heide is one of those typical villages of Germany's northernmost state: a rural community, swept by the sea winds, where manufacturing has become rare.
For several months now, though, Heide has been at the heart of a battle that has become almost existential for "made in Germany:" The Swedish group Northvolt, which was planning to set up a huge car battery factory in Heide, is threatening to build it in the United States instead, mainly because the cost of electricity in Germany is too high.
If Heide were to be abandoned, it would be catastrophic for the German industrial site. A year ago, in March 2022, Berlin and the Schleswig-Holstein region celebrated the announcement of Northvolt's move to the region, which promised an investment of €4.5 billion and the creation of 3,000 jobs.
The Minister for Economic Affairs and Climate Change Robert Habeck was particularly pleased. A native of Schleswig-Holstein, where he was a regional minister, he has played a major role in making the region self-sufficient in green energy by developing an ambitious wind power program. It was the local abundance of renewable electricity that convinced Northvolt to locate in Heide. The vision of environmentalist Habeck was realized: It is possible to combine industry with carbon neutrality.
Intense negotiations
A few months later, Northvolt's boss, the Swede Peter Carlsson, dashed hopes of a rapid opening of the Heide plant. In the columns of the Frankfurter Allgemeine Zeitung in October, the 52-year-old founder and former Tesla executive explained that the highly anticipated factory project was now facing headwinds. The Inflation Reduction Act (IRA), which massively subsidizes projects for low-carbon technologies produced in the United States, has reshuffled the deck, as has the energy crisis caused by the war in Ukraine.
"With current electricity prices, we consider the profitability of energy-intensive projects in Germany to be at risk," said Carlsson. "We want to continue to be a European champion and market leader. But we are now at a point where it is possible that we will prioritize expansion in the US over Europe."
These statements chilled Berlin and triggered a phase of intense negotiations between the Swedish group and the German and European authorities, which is not yet over. But no decision has been taken, the Northvolt group confirmed to Le Monde. It hopes that the matter will be decided "in the course of the year." In practical terms, it is a question of knowing to what extent the Swedish group can benefit from the European response to the very attractive American subsidies, and above all, within what timeframe. Habeck continues to throw all his weight behind Heide's investment: He personally visited Northvolt's research center in Västeras, Sweden, in February 2023. "We continue to work on the Heide project," Carlsson said after the visit.
But the most sensitive matter remains the cost of electricity. Compared to the north of Sweden, the gap is huge. In Skelleftea, where Northvolt has been operating its first gigafactory since the end of 2021, "electricity from renewable sources is 3 cents per kilowatt hour," said Martin Höfelmann, spokesman for Northvolt in Germany. "In Germany, the price of electricity for industry is currently around 15 cents. About 5 cents would be required to make the plant profitable. There would also be the possibility of directly using locally produced surplus wind power, which the grid cannot absorb. But there are major administrative barriers to this solution," Höfelmann said.
Unattainable ambition
Heide is emblematic of the current dilemma of the European automotive industry. All carmakers are pushing their electric programs and urgently need batteries – ideally made in Europe – to reduce dependence on external suppliers. But this ambition seems increasingly unattainable. Volkswagen, the largest shareholder in Northvolt with a 20% stake, and which itself plans to build six battery factories, is not indifferent to the sirens of the IRA: in March, the group announced its intention to build its third gigafactory in Canada (which benefits from American subsidies) rather than in Slovakia as originally planned.
The debate reinforces concerns currently expressed by German imanufacturing, which gathered at the Hannover Fair this week, the world's largest industrial trade fair. "German competitiveness is eroding," said Siegfried Russwurm, president of the industry federation, at the opening of the meeting on Monday, April 17, in front of Chancellor Scholz. "We have reached a point where German companies are thinking twice before investing," he continued, pointing to high electricity prices as one of the main reasons for the current loss of market share for "made in Germany."
The trade unions deplore the already perceptible consequences of this development on industrial employment. According to a recent survey by IG Metall in Baden-WĂĽrttemberg, almost every second automotive supplier is currently relocating jobs abroad, either to cut costs or to produce closer to the end customer, following the global trend away from free trade to relocating production.