Northvolt Saga Jeopardizes Quebeckers'
Pension Funds

For several months now, hardly a day goes by without the Swedish electric vehicle (EV) battery manufacturer Northvolt making headlines. It is all about how the unseemly haste of the governments of Quebec and Canada to hand out oodles of public money to EV battery manufacturers is imbued with corruption and a decision-making process conducted by narrow private interests in the service of the Pentagon.

It all started in the spring when the parent company of Northvolt in Sweden announced a restructuring of its activities in Europe and North America. This was followed by the loss of a major contract with carmaker BMW, which in June cancelled an order worth around three billion dollars. This was said to be because of delays in the delivery of products from Northvolt's gigafactory in Skelleftea, Sweden.

While a lot is written about the Northvolt Saga, kept as hidden as possible is what the Quebec people will lose because their pension funds were invested in an opportunist venture.

To date, the Caisse de dépôt et placement du Québec (CPDQ), which manages Quebeckers' pension funds, has invested $200 million in convertible debt in Northvolt's parent company, as well as $270 million in convertible debt from Quebec's Ministry of the Economy, Innovation and Energy. The Quebec government advanced to Northvolt's Quebec subsidiary $240 million in the form of a mortgage loan to purchase the land for the Quebec plant, which less than a year ago was valued at $40 million. The government has also already spent several million dollars building new road access to the prospective plant. (Building social housing takes years and is wholly inadequate but building the infrastructure required by foreign interests whose investments in Quebec are touted as guaranteeing prosperity is speedy indeed. No problem.)

The government also promised to allocate a 354 megawatt block of power to Northvolt. This is now being challenged by a number of smaller companies that want access to this energy, which they have so far been denied by the former "Super Minister" of Energy Pierre Fitzgibbon.

Premier Legault claims that the Quebec Government will not lose any of the $270 million in the event of Northvolt's financial collapse, while the new "Super Minister" of the Economy, Innovation and Energy, Christine Fréchette, talks instead of a "calculated risk."

Convertible debt, even if it is not converted into Northvolt shares, represents a risk that does not protect the government from significant losses. In an interview with La Presse, professor in accounting at the Université du Québec à Montréal, Saïdatou Dicko, had this to say: "In the event of bankruptcy or restructuring, a proportional calculation is often made. We take all the debts before determining the proportion of each creditor. For example, if the CDPQ represents two per cent of all debts, it will only recover two per cent of the money available to repay creditors."

As of December 31, 2023 -- the most recent data available -- the sums borrowed by Northvolt totalled more than $7.4 billion.

The private financial institution IMCO, which calls itself "an independent, long-term investor for Ontario's public-sector institutions and, among other things manages the Ontario Municipal Employees Retirement System (OMERS), invested twice in Northvolt's parent company, in 2021 and 2022. In 2022 it did so with the Canada Pension Plan Investment Board (CPPIB) and BlackRock for a sum equivalent to $1.5 billion, also in the form of a convertible debt security.

In a press release issued on September 23 by the parent company, Northvolt is "redefining its field of operations" in Sweden, where there is now talk of 1,600 layoffs, including 1,000 workers laid off at its Skelleftea production plant alone, 400 employees at its research and innovation centre in Västeras and 200 employees in Stockholm. Northvolt had already announced in the first week of September that it was suspending cathode production at its Skelleftea plant. It had also given up plans to build another plant at Borlänge, 200 kilometres northwest of Stockholm, where it had originally had a cathode materials project. It also announced on August 20 that it was closing its research and development centre in San Francisco, California, where 200 engineers were losing their jobs, in order to 'transfer its activities' to its research and development centre in Västeras. The other joint venture projects it was considering in Portugal, Poland and Germany have either been put on ice or abandoned.[1]

At the beginning of September, Goldman Sachs, Northvolt's main U.S. financial backer, had already asked U.S. firm PJT Partners which specializes in corporate restructuring, to "advise on all options", including the possible bankruptcy of Northvolt. Volkswagen, Europe's leading carmaker and Northvolt's biggest backer, announced in early September that it might close two of its plants in Germany, something that has never happened in Volkswagen's 87-year history.[2] For the time being, however, it still has plans for a gigafactory to assemble electric cars in St. Thomas, Ontario, financed to the tune of several billion dollars by the governments of Canada and Ontario.[3]

The people of Quebec and Canada are reduced to being spectators of this decision-making process driven by corrupt pay-the-rich schemes from which everyone except the people benefit handsomely. Under the pretext of "building a green economy," pension plans are invested in "calculated risks" while the well-being of the people is sacrificed on the altar of private profit. The governments at the federal and provincial levels are not fit to rule. That is a fact every Canadian and Quebecker knows instinctively from their own direct experience.

Notes

1. Northvolt's 2 million square metre gigafactory in Skelleftea, Sweden, came on stream in December 2021. It is the first of its kind to be launched by a European group on the Old Continent. According to Northvolt and global economic analysts, its aim was to compete with the U.S. company Tesla and Asian producers of lithium-ion batteries for the automotive industry. At the time, Northvolt said that the site was expected to produce enough batteries to power 300,000 electric vehicles each year, with an annual production capacity equivalent to 16 gigawatt hours (GWh), when the plant would reach its full capacity by the end of 2023.

The Swedish media recently reported that in 2024 the plant was operating at less than one per cent of its planned capacity. The annual production target of 16 GWh of battery cells, originally planned for 2023, has now been pushed back to 2026. In fact, just as Northvolt was negotiating with the Canadian and Quebec governments to obtain subsidies of nearly $2.7 billion to build its first battery plant in North America, Northvolt's Skelleftea plant delivered 79.8 MWh of battery cells, or less than five per cent of the facility's total production capacity, in the first nine months of 2023. According to Northvolt, deliveries were particularly low in the third quarter, which ended in September, due to upgrading and maintenance work.

Currently, Northvolt has cash shortfalls of around $1.5 billion, as it had an operating deficit of around $1.4 billion in the first nine months of 2023, more than eight times that recorded during the same period in 2022, according to Swedish financial newspaper Dagens industri.

Northvolt's main shareholders are Volkswagen (21 per cent), Goldman Sachs (19 per cent), Vargas Holding (7 per cent) and Northvolt founder Peter Carlsson (6.7 per cent). They are among the private and public investors who have invested more than $18 billion in Northvolt. In January 2024 alone, the company raised nearly $6 billion in financing of all kinds.

2. According to Le Devoir, "Volkswagen has been suffering for months from falling sales, a weakening auto sector and growing competition from Chinese manufacturers, particularly in China, its main market." The German press is talking about 20,000 German workers being made redundant, despite the fact that the company still made a net profit of 3.71 billion euros in the first quarter of 2024. Volkswagen workers are unionized in the steelworker trade union, IG Metall. IG Metall points out that in 1994 a social pact was signed between the unions and employers, including Volkswagen, banning lays-offs until 2029. Now Volkswagen wants to tear up this agreement.

Volkswagen closed its Westmoreland plant in the United States in 1988, only to return to open an assembly plant in Puebla, Mexico, in 2008, and an EV car plant in Chattanooga, Tennessee, in 2011, where workers were only finally able to unionize in April 2024, after two other unsuccessful attempts.

3. See "Massive New Subsidy for Volkswagen Battery Facility to be Built in St. Thomas, Ontario", TML Monthly, April 2023.

(With files from the Quebec Government, Northvolt, OMERS, TML, Dagen industri, Radio-Canada, Le Devoir, La Presse, Journal de Montréal)

This article was published in

Volume 54 Numbers 8-9 - September 2024

Article Link:
https://cpcml.ca/Tmlm2024/Articles/MS54086.HTM