I feel like a broken record at this point, but the electric vehicle race isn't just about cars. It's about who controls the battery supply chain, and thus one of the most crucial energy technologies of tomorrow. As is the case in the U.S., Europe is trying to break free of China's iron grip on the battery space. But the failure of a once-promising battery project has cast doubt on that, and sent ripple effects across the entire auto industry.
That kicks off this Monday edition of Critical Materials, our morning news roundup. Also on deck today: Mercedes-Benz is looking to cut costs and Tesla's stock is surging on what British economist John Maynard Keynes today would've called "vibes." Let's dig in.
30%: Northvolt's Bankruptcy Is More Bad News For Europe's Auto Sector
I am, of course, talking about Northvolt, the Swedish-based lithium-ion battery manufacturer that just declared bankruptcy in U.S. court. Everyone had high hopes for Northvolt. BMW, Volvo, Volkswagen and other firms were not only counting on Northvolt for future batteries but were also investors in the company. As The Information noted as well, the governments Germany and Canada put billions into it as well in hopes of future factories.
Basically, Northvolt got a ton of hype, funding and excitement for the future just a few years ago. So what the heck happened? The same issues that have befallen many battery operations: high costs, delays and multiple challenges ramping things up at scale.
As Bloomberg reported this weekend, the biggest cracks appeared when BMW canceled a $2 billion contract this summer when Northvolt revealed it wouldn't be able to get i4 and iX batteries up to scale before 2026—not only three years late, but late enough to where those models will be phased out in favor of newer ones like the Neue Klasse EVs. Things tumbled from there: "The scale of the delays, and how bad things were with building budgets and construction projects remained hidden, the investor said, recounting how excel models and slide decks were used to conceal how empty the coffers had become," the story says. Ouch.
Here's former Aston Martin and Nissan exec Andy Palmer weighing in for Reuters:
Northvolt has missed some in-house targets and curtailed production at its battery cells plant in northern Sweden, underscoring the difficulties, Reuters reported last Monday. "The biggest issue is that batteries are not easy to make and Northvolt haven’t satisfied the supply demands of their customers - that is a management issue," said Andy Palmer, founder of consultancy Palmer Automotive said.
“The Chinese are technologically 10 years ahead of the West in batteries. That’s a fact," he said.
Already, Volkswagen is taking a big financial hit from Northvolt's failure, but Volvo—owned by China's Geely Group—seems to be messing around the least here. It's moving to take control of Northvolt's stake in another joint venture. But Volkswagen is already having a terrible year, as is the rest of the European auto sector amid declining new car demand, rising labor costs and intense competition from China.
Yet analysts believe that if Europe backs off in the battery race now, it risks being even more behind China than it already is. But it may be tough to convince investors of that as the EV transition feels rockier than it has years.
60%: Mercedes Seeks To Cut Costs
I was heartened to see that after some early EV setbacks, Mercedes-Benz is hardly giving up in the space. The new CLA-Class seems like a high-tech powerhouse that may just rival some of what we see coming out of China these days.
But Mercedes has hardly been immune to the same headwinds above. As such, it's looking to cut costs, focus on "profitability over volume," invest more into internal combustion and reevaluate situations like a factory in Mexico that only makes the GLB crossover. From Automotive News:
In September, Mercedes cut its financial forecast for the year as the entire German auto industry, from BMW to Volkswagen, struggles to stay competitive amid higher energy costs, inflation and an expensive transition to EVs.
For Mercedes, weaker sales of top-tier models such as the S-Class in China, inventory clearance of electric vehicles, and costly model transitions, such as the G-Class update, were all factors leading to the weak Q3 results. Mercedes is also taking a closer look at where it is investing after it decided to build and sell combustion cars for longer than it had planned because of slow EV demand.
Wilhelm said investment decisions will focus on ensuring that customers have a choice between EVs and efficient combustion models across all segments.
With China not being the cash cow it once was, firms like Mercedes need to figure out another way forward.
90%: 'Animal Spirits' Drive Tesla's Stock Surge
Meanwhile in America right now, Tesla's stock price has been surging, up 50% year-over-year and at its highest levels since 2022. But one analyst insists it's not because of business fundamentals—it's more on the promise that CEO Elon Musk can Deliver Things® now that he's apparently become a key figure in the incoming Trump White House.
"Animal spirits," this analyst calls it, citing a Keynesian term that describes psychological factors like overall investor confidence. Or "vibes," as we'd say today. From Bloomberg:
While policy proposals have emerged since President-elect Donald Trump’s victory that could favor Tesla, analysts led by Joseph Spak wrote that the changes wouldn’t be absolute positives for the company.
Removing consumer tax credits for electric vehicle purchases, for example, could force Tesla to have to cut prices, Spak wrote. He also noted that while the regulatory environment under Trump may be more conducive to artificial intelligence ventures, including autonomous vehicles, Tesla doesn’t have a robotaxi ready to take advantage of relaxed rules.
“The rise in Tesla stock is mostly driven by animal spirits/momentum,” Spak wrote in the report.
Don't say that I didn't warn you.
100%: How Does Mercedes-Benz Succeed Now?
We've had several stories lately on Mercedes' future tech push and more are coming. And the German automaker seems to be taking a diversified approach to powertrains and electrification, which is smart given the current environment. What else do you want to see out of Benz as it figures out the future?
Contact the author: patrick.george@insideevs.com
