Why Tesla could face a tough challenge from the Volvo-Northvolt battery joint venture

Adrian Clarke, CEO of Novo Energy, a joint venture between Volvo and Swedish battery maker Northvolt, hopes to use his experience at previous employer Tesla to boost the performance of the joint venture's new gigafactory when it starts producing batteries in late 2026.

When asked whether he can take Novo Energy's first gigafactory to a higher level than he achieved with Tesla's battery plants in the U.S. state of Nevada and in Germany, he said: "I think so. Looking at what we are able to do with the integration of timber as an example. We're really trying to make this a lighthouse."
 
One way Clarke is making the Novo Energy plant more sustainable is by using wood instead of steel for part of the factory's structure.
 
To take the gigafactory to the next level, Clarke intends to capitalize on the JV's vertical integration aspects, which he also enjoyed at Tesla. This includes close collaboration between the engineering organization that designs the battery cells and the team in charge of construction of the factory.

"Looking at that integration is super important because then we could be specific about how you manage costs, how you manage operations."

Having people look at the entire operation from the very beginning was "a big enabler" at Tesla, Clarke said.

"That is the reason why I love this joint venture," he said. "Even though we are not the same company, we can still have those same conversations and that same feeling of this vertical integration, so we can push the same boundaries."

With Volvo, "working across functionality in the organization is super important," he said. "Having one common vision and one common goal for our company is super important for us."

Focus on Volvo

Novo Energy's planned gigafactory (see box) will be located just 200 meters away from Volvo's largest vehicle assembly plant in Torslanda, near Gothenburg. It will play a key role in Volvo's transition into becoming an electric-only brand by 2030.

The automaker wants half of its global sales to be full-electric cars as early as next year. Volvo is one of the few automakers to include battery cell development and production in its end-to-end engineering capabilities.

For now, Novo Energy will focus exclusively on its JV partner. "It's nice that we can focus on one customer and that is Volvo, which is really supportive of what we are trying to accomplish."

Looking ahead, there may also be long-term "opportunities" with Volvo sister brands such as Polestar, Clarke said.

Like other battery suppliers, Novo Energy is keen to be part of initial conversations about key topic such as which battery chemistry to choose. Having an open dialogue with Volvo enables the partners to overcome several challenges that include adapting to prevailing market trends effecting the battery sector, such as the sourcing of raw materials.

No worries about EV sales slowdown

Although Clarke concedes that the electrification transition has slowed this year, he said now is the ideal time to get a battery factory started because they are "not easy to build."

At the same time, Volvo is currently moving "full steam ahead" with its EV transition, which Clarke said, "is still the right thing to do."

The CEO dismisses any concerns about lackluster EV sales in Europe. "It's just slowing down. In the past couple of years there has been a lot of momentum in changing an industry, pushing electrification forward. But in reality, it is still growing. It is just not increasing at the rate it did in the past."

Through July sales of full-electric vehicles rose 0.7 percent to 1,097,433. After the first seven months of 2023 sales of those cars grew 47 percent to nearly 1.1 million.

Clarke also isn't worried about Northvolt's recent struggles, which include losing a contract with BMW. In June, the German carmaker pulled out of a €2 billion ($2.1 billion) order with Northvolt.

On Aug. 20, Northvolt closed down a Californian unit, Cuberg, that it acquired only three years ago, and shifted its research and development efforts to its home country.

"Luckily for us, it didn't impact us at all," Clarke said.

Instead, Novo Energy continues to work closely on battery cell development with Northvolt, he said.

Northvolt isn't the only battery business that is dealing with changes. Volkswagen is scaling back its battery cell factory plans in Europe and North America due to a recent slump in the EV market.
 

Electrification boosts sustainability

Clarke sees Volvo's brand offering as unique.

"Its focus really is around quality, sustainability and safety and it has that brand awareness," he said.

Quality, sustainability and safety also align with Novo Energy's priorities, Clarke said.

In terms of sustainability, being in Sweden provides the added benefit of access to free, renewable energy. Plus, Clarke considers it important for the company to build up the necessary competence within Europe to deliver battery cells to vehicles in a region that is mostly served by Asian transplants such as China's CATL, which has a factory in Erfurt, Germany, and South Korea's LC Chem, which has a plant in Wroclaw, Poland

Key questions a newcomer such as Novo Energy face include: How to access the raw materials it needs to make battery cells sustainably; and how to source these locally within Europe, despite a huge push from Asia.

Since Europe is still building up its battery materials supply chains, Clarke expects the majority of Novo Energy's raw materials to come from Asia at first. However, in every conversation with a supplier from Asia, the CEO and his team ask that company how it plans to industrialize within Europe because, "Novo Energy's long-term strategy is to have a European supply as well."

Price plays a key role here. To lower material costs, people need to invest in sustainability and build it up to reach economies of scale.

Safety and profitability

With recent EV fires such as a blaze that did significant damage in South Korea, battery safety is another priority.

"Safety is obviously such a big driver from Volvo Cars perspective," Clarke said.

With this in mind, a quality control team assesses what they can do differently and how to incorporate new safety design and new safety measures from a quality perspective as the industry undergoes the sweeping transition toward electrification.

Clarke admits that it is "hard to say" whether Novo Energy will be profitable by 2030. However, it is benefiting from "pretty promising" financing with "a lot of engagement" from banks and institutions within Europe, as well as "overall commitment" from Volvo.