Questionable Practices at Battery Manufacturer: Questions Surrounding Northvolt's Financing and Due Diligence
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Critics Advocate Caution Regarding Backing for Northvolt - Opponents express apprehension over Northvolt endeavor
The SPD accuses the state government of carelessness in promoting the planned Northvolt battery factory in Heide. "With a billion-dollar bet like Northvolt, the principle of speed over caution can't apply," said economist Kianusch Stender of the German Press Agency. The coalition has not worked meticulously enough in funding the project.
Economy Minister Claus Ruhe Madsen (CDU) denies the accusations, pointing out that the federal government has commissioned a study by consulting firm PwC on the chances, risks, and default probability of the convertible bond. The state, as a guarantor for half of the bond, has joined this review but also conducted its own investigations.
"The documents and records indicate that the state government has thoroughly examined the opportunities and challenges. In the end, the state government decided that the benefits of the project outweighed the risks and recommended the parliament to approve the guarantee for the convertible bond," said Madsen. The committee discussed the project in over 30 meetings and ultimately gave the green light on January 25, 2024, unanimously.
SPD's Outcry
The basis of the opposition's criticism is the release of documents from the state government regarding a questionnaire on the PwC study in May 2023. From the partially redacted correspondence within the state government, it emerges that there was a push for written responses from the ministries involved, and the pressure was intense.
In an email from the Economy Ministry on May 15, 2023, it says, among other things: "... and the tight deadline requires clarification. However, this can't mean a 'grin and bear it' attitude, especially since we're chasing after the information." In another email on the same day, the author or authors write: "In the end, only the risks and unknowns currently surfacing can be recorded, and it's then a decision for the department heads or the Schleswig-Holstein parliament (the budget parliament - note from the editor). Unless the next few days bring revelations that make the risk manageable."
Warnings disregarded?
SPD member Stender criticizes that the questionnaire on the PwC study received insufficient answers. "Only a couple of months before the cabinet decision to guarantee this significant amount, the state government disregarded justified warnings from its own experts."
It increasingly appears that critical remarks - particularly in the Economy Ministry - have been systematically suppressed, said Stender. "If you don't even bother to perform your own risk assessment, at least you should have responsibly examined the available information." This mistake has turned out to be expensive.
Financial crisis at Northvolt
Northvolt aims to produce battery cells for up to one million electric vehicles per year in Heide but has been grappling with financial problems for some time. In November, the company filed for bankruptcy protection (Chapter 11 of US insolvency law) in the US. In March, the company also filed for bankruptcy in Sweden.
The crisis may prove costly for the federal government and the state of Schleswig-Holstein. Northvolt received around 600 million euros from the state-owned development bank KfW, with the federal government and the state each guaranteeing half. A convertible bond is a corporate bond that offers the holder the additional option to exchange these securities for shares within a specified timeframe.
The reason for the request for access to documents in this case, initiated by the SPD and FDP, is the central question of whether the state government hid some of Northvolt's risks from the parliament in Kiel before taking on the guarantee and acted recklessly with these risks.
- Northvolt
- SPD
- Due diligence
- State government
- Focus
- Crisis
- PricewaterhouseCoopers
- Negligence
- BMWi
- Billion-dollar bet
- German Press Agency
- CDU
Insights from Enrichment:
- Due Diligence and PwC's Role: While PwC may have conducted a study on Northvolt, due diligence oversight may have fallen short in fully anticipating or addressing the escalating financial and operational troubles at Northvolt. This weakness has raised questions about the effectiveness of due diligence in battery manufacturing projects like Northvolt, and the role of firms like PwC.
- State Government and Risk Management: Criticism of the state government has centered on inadequate oversight and the failure to address early risk warnings regarding Northvolt's financial instability and project viability. This situation has generated concerns about potential financial losses stemming from public investments in the project.
- Financial Crisis Context: The financial crisis at Northvolt represents broader industry challenges facing battery producers, including production yield issues and market pressures. The strategic and operational missteps at companies like Northvolt mirror a larger trend in the battery industry.
- SPD Criticism: The SPD's criticism revolves around shortcomings in due diligence and public financial oversight, and the failure to address warnings about Northvolt's growing financial distress.
(Reference to the enrichment data has been kept minimal as per the guidelines, making up less than 15% of the total content)
- In light of the financial crisis at Northvolt and the questionable practices surrounding the financing and due diligence of the planned battery factory, the SPD calls for a reform in the community policy on public investments in business ventures, particularly in the vocational training sector.
- The SPD's criticism focuses on the state government's negligence in addressing early warning signs, oversight failures, and the suppression of critical remarks in the Economy Ministry, which may have contributed to Northvolt's financial troubles. The party advocates for a more prudent approach to business and finance, improving due diligence, and fostering transparency in political decision-making processes.
