Germany set to offer state support for Northvolt

Germany is poised to announce it is offering significant state support to Northvolt, Europe’s main battery maker, to build its next factory in the north German region of Schleswig-Holstein.

Northvolt had earlier indicated it might put its plans for the factory on ice and concentrate solely on the US unless the EU matched the generous subsidies on offer to green tech companies from the Biden administration.

The German government will announce on Friday that it intends to offer hundreds of millions of euros to help the Swedish start-up build its third battery factory in Heide, according to two people briefed on the plans.

They said it had not been decided how much public funding Northvolt would receive in total. Any subsidy will be subject to approval by the EU under its state aid rules.

Northvolt already has one gigafactory in operation in Sweden and another under construction.

The fight for the location of Northvolt’s next factory has become the most visible sign of the transatlantic struggle over green subsidies. The company announced plans a year ago to build a factory in Heide after a long search for a location in Germany with sufficient green energy.

The Biden administration’s Inflation Reduction Act is worth up to €8bn per battery factory, according to Northvolt.

Northvolt is planning to look at opening a North American factory in parallel with its German plant. But without the German support, it was likely that the Swedish group would have prioritised a factory in the US or Canada over Schleswig-Holstein, Northvolt has told EU officials.

The EU has invested significant money and time in trying to develop a domestic battery industry to compete with Asian companies that dominate the sector.

But the IRA led to a surge of investment from European and Asian battery companies in North America. Volkswagen opted to build its next battery factory in Canada rather than eastern Europe, attracted by subsidies the carmaker estimated could be worth €10bn over the plant’s lifetime.

Stunned by the disruptions to global trade seen during the Covid-19 pandemic and the war in Ukraine, Europe wants to increase domestic production of crucial components and shorten supply chains to make them less vulnerable to external shocks.

Germany has emerged as a major beneficiary of the EU’s drive for greater sovereignty, with its strategy of boosting its self-reliance in critical sectors such as batteries and semiconductors, the data cloud and pharmaceuticals.

The country has seen huge foreign investment in its battery sector, as companies rush to service its expanding electric-vehicle industry.

Microvast and CATL of China are building battery factories, one in Ludwigsfelde, south of Berlin, and one in Erfurt, while BASF is building a plant in Schwarzheide, eastern Germany, to make cathode active materials used in lithium-ion batteries.

Germany is also making large subsidies available to tech companies. Intel is receiving €6.8bn in public funding for the €17bn factory it is planning to build in the eastern city of Magdeburg, though it says it needs more due to higher energy and construction costs.