With a round second and from London and Gerard Reed from Berlin. This is redefining energy.
Today on really failing Energy. Job, We've decided to do a special episode on Nosfold.
Yeah, and for those of you who Northfold is it is Europe's attempt to really take on the Asians and batterlysell manufacturing.
Yeah. It was really the poster child of every politician and of course especially in Sweden. And they went bankrupt last week after raising fifteen billion euro of equity plus probably five of loans by the European Investment Bank. So that's a lot of money for not too much to show for. There's been a lot of very interesting analysis on Indian and elsewhere, but Job, you've had access to insiders.
Absolutely, Yeah. This week I've actually had conversations with let's say, senior people within the organization and senior people formally work for them, and also some of the consultants and suppliers and clients out there as well. So it's been an interesting week.
Lere on some conversation you had are extremely sensitive. We won't reveal the names because those people are in very high position right now. So the first part is the generic market positioning, they had into sixteen, and if you look at their decks from eight years ago, their vision was that within ten years the market would be short batteries, basically that the market would go to say two hundred giga what hour, And of course now we're at one
ter what hour. So they did not foresee the development of the Chinese production.
No, that's definitely number one round. They didn't see the speed of change. What also really handicapped them is the fact that they vertically integrated. What I mean by that is, you know, this is a company was set up really cell manuf and it's hard enough to go and build up a line of let's say, cylindrical cells, but they also decided they were going to do prismatic cells. They also decided they were going to do specialty cells. That's
really complex. That's one business. And then they decided they were going to do an ESS business that's a stationary storage and specialty equipment business. Then they decided they were going to do a recycling business. Then they're going to go into upstream manufacturing cat hold manufacturing. They also decided to go into lithium refining. So there you are trying to really scale. If you think about all of that. There, what have you got seven businesses you're trying to scale
at the one time. That's bloody tough. So, without a doubt that the lack of foe because it was the major error that this company is made. And again, but I'm going to contrast it with the Chinese. The Chinese jobed that the Chinese just focused on one thing and get as big as possible and then if they need to, they will buy that business or they will buy other businesses. Right,
completely different approach. And the Chinese have done a good job at scaling, and to be really be honest, Northfold hasn't.
So they were really spread much too wide. A second mistake and that's not on them because it was not obvious at the time, but they never pivoted was to go for really higher hand batteries, so Nikkel, Mongens, cobalt and of course the price of which went crazy and they could never pivote to EDFP.
Yeah, this is very very important because you listen, we went back a few years ago around I think the general view was it's all about increasing the performance of the battery, and actually the Chinese took a different approach, was it's not about performance. It's about lowering the cost, which is why they all went for lithium iron phosphate batteries. And the other thing also found very interesting that Lauran and we've done a lot of work in the whole
stationary storage area. The reason you go for lithium ion phosphate is obviously it's cheap in stationary storage, but also it's safer and even though it doesn't have the energy density of maybe a cobalt based battery, you don't care when it comes to stationary storage application, it's not that important. But this company decided they were going to do an ess based business in and around using more expensive technology.
And Lauran, have you seen anybody use the North Folds stationary storage batteries?
No, I've been tendering for such a nice storage because at the end of the day, when you buy anss and again that's me and I accept that other people of other vision. But in the products I'm buying, I want their cooling and I could get their cooling with LFPs. If I've got an MC, I need liquid couting, which just increased the price.
Yeah. What else I also learned really was I find it's a really difficult topic to talk about, but it's really the culture of the business, and I have heard. Firstly, it was very very difficult at an intercultural level. So you had basically a Swedish business with a lot of Asian employees. You also had an Asian equipment supplier, and the communication was very, very very difficult for a start. This was one point we got up with that. But actually, and this really is a I'm sorry to say for
Swedes or listen to this. This is a real criticism of there's a Swedish way of doing stuff. The Swedish approach is to come to a consensus decision, and a consensus decision what that means is decision making is slow because you have a flat hierarchy. And the other thing that happened in the organization was there was a general
unwillingness to take responsibility. So what that meant then was that if something went wrong, well, there was nobody there that was in charge of actually making sure it worked or it gets to be clear if they did it wrong that they'll let go. So you suddenly had this situation where you had no and not willing The way that was described to me was in no conflict culture. Now Lauren, you know this in any formal startup, I'm sorry.
Contrasting this would say Tesla, which would be the exact opposite, or even the Chinese, which is this animal spirits culture, which is we're just going to get bloody done, and we're going to fight with each other and we're going to work bloody hard. Am I going to get it done? And what I got back actually was that this was not the case in Northfolks. You really had people that just wanted to work nine to five and didn't take responsibility for the areas that they were in. And this
is a huge issue. There's something that we need to look at because it's not and I did criticize Sweden in this, but it's not just Sweden. I see this more and more across Europe, is that this culture of let's just get this done, and we're going to bloody work hard to get it done, and we're going to solve it. Because I have taken responsibility for this. And again, I live very close to the Tesla factory outside Berlin, and they just broke all the rules were on they
That's how they got it done. And I think what Tesla's done with that factory outside Berlin, and then you contrast it with what north Fall tried to do. Then, as I said, goes back to culture and also probably quality of people as well. Not an easy thing to say, but it's important.
Yeah, among the anecdotes you have at some point they work. Get in corners. You want to talk about that vacuum thingh.
Listen, you go and talk about it. Go on side, you say, you see yourself.
They had a very bad safety recorder. They were supposed to use special equipment to vacuum because there's a lot of dust created by the industriale process, but the use of the shelf vacuum and of course that created the an explosion. So I mean, it's just an anecdote, but it's a symbol of everything that went wrong.
And Ron I heard really concerning stories in and around health and safety. I really did, and I was quite taken back with it. But I could give you another dozen examples of that. But I think the point of end that actually goes back to culture as well, which is did you have to make people personally responsible for their actions? And also then the other thing is that related to that is you also need to make sure the bad news is passed up an organization, and I
did hear that. Oftentimes what happened was you had a management board who didn't have the information that they needed until it was too late. That's not of great help when you're trying to scale a business like this and do it quickly. You need to get information and you need to make decisions quickly, because again you're up against a competitor. In all the Chinese, they're going to work
sixty hours a week, they're aggressive and really focused. And then you've got Tesla the exact same thing, and that's your competition. So you need to be really focused, not just entirely, but also what's my competition jurn from where's the market going? And that, as I said, that necessary information didn't come about. I suppose the question is you can go on moaning and groaning about this business. I suppose the question i'd ask you Iramas, what comes next? First?
The culture part is probably the most important. But look, at the end of the day, as an investor, you know, I'm Goldman sucks. I need to write a nine hundred million dollars from four of the funds. Whereas they were saying a few months ago to their investor. Everything's fine, and you see Goldman sucks at Nuklue. What was going on when the stuff almost went under because they could not fix the ramp up of Model III US slept on the factory floor, you know, and he was shaking
the machine one by one. Did the board of Norswalk ever do that? And you know, I want to quote Robin Zheng, the c of CTL. They have a wrong design, they have the wrong process, they have the wrong equipment. That's a tougher pitap. I'm a number guy, so you know the culture that's you. The number is they burned fifteen billion. They could not put a factory together. A factory. If you look at the CTL factory, it's one point five billion dollars in China, it's probably three billion outside China.
And that's the type of factory. They could not make it with fifteen billion and whatever they were producing at the end, they had a one percent capacity. The factories in China they have fifty seventy eighty percent capacity. I mean, you just can't survive. For me, it's execution. Now you explain execution because of culture, fine, but I mean the execution was lousy.
Yeah, you're absolutely right, and sorry, negative gross margins in last year. That means the more you produce, the more you lose. Yeah, huge mistakes in it, I suppose. I mean I'm thinking about what comes next, because the one thing that I really hear is if you think of different business units that they have the recycling business, listen and you could probably sell that off SS business. You can probably send it off on stream. They should not
have gone into cathoe production themselves. This is crazy. You should have team up with BSF, team up at the Chinese whatever, just team up with people. They didn't do this. They tried to do it all themselves, and they made strategic mistakes as well. So the question is what happens. So you can see you can restructure some of this and then you're left with a cell business. Well, you know what you're going to do is you're going to focus on cylindrical cells rather than five different types of
cells for different clients who want slightly different things. You used to go, No, we're going to just standardize and get the quality right. They had really bad quality issues. Get your costs down, and as you said, you need to pivot. This is the challenge. You need to pivot you either say, okay, I'm just going to go with a really high end where I'm using nickel and cobalt, or I say, well, I'm going to go into the
iron fast for the area. But do you know what if you go into the latter on, the equipment is not appropriate. So you had per equipment choice and that equipment is now old. So you see where I'm coming from. In that cell area, it's going to be really tough. You know, somebody might come in and buy this as they can buy it five cents in the eural, you know, being extreme there, but I think that's probably could end up happening with the cell business.
Whether they have with the said business they have a good location nor South Sweden, they have access to cheap electricity. It's going to be hard to bring a lot of quality engineers because it's really very remote. It's like in ne Lascal or something.
Which, by the way, let me just add on that point which you just said there. So what you've got is your cell manufacturing in the north of the country and your R and D team somewhere else some work. How can that be? You have to have your R and D people on the line. But as you said, they don't want to live up in the north of the country, they can't get the people that they need, etcetera, etcetera.
So you end up cutting corners on what is the core of your business, which is the technology that you have and the product that you're trying to bring into production.
I think cultureie that experience is staminated. There's no point trying to fix it. Rather than put a billion in try to sell agit. That'd rather create a branufactory out of zero, build thos everything.
And by the way, somebody does that, then you know the question is who's going to do it? If you look at it, the Japanese won't go there. The career is won't gon airs, they won't go near now because it's Chinese equipment. So maybe the Chinese will commit, But is really ctl going to buy that when they know that this is the technology and you heard the CEO of CIL what he said, So you're not going to buy it unless you can get it for next to nothing.
And then you're left with is there anyone in Europe? Well Volkswagen maybe did they go and take it over? And so say, hey, listen, we're just going to become a sell manufacturer of ourselves. But if they don't do it, I wonder is there anybody else in Europe that can do it?
Ardswagen they sang one point seven billion in it. Again, as you said that you need a Camik as a leader to take over that. I'm not in their shoes, so I'm good. I won't give them any advice. But I see the writing on the wall bulldoze it.
But it's a big statement. It's just said they're bulldozers. Because I think we both agree that Lyttiaman technology is an incredibly important technology for the twenty first century and our automobile industry. I would say life depends on it. And you might say, well, it depends on us and we've just lost and just give it to the Chinese, then the Koreans and Japanese. Maybe that you're saying we just can't compete. We just have to partner with them.
Of course, partner you do a fifty one forty nine, you bring your tech, I pay for the rest of the discounted price. You can certainly do finance model around it. And you just say this plant you have in Wandong, I want the same plant here. You know, you just replicate, you don't think people are too much strategy and not enough execution.
By the way, I'm laughing with myself here the irony of the fact that, you know, fifty years ago, what did we do. We all went to China and we did joint ventures with them, and we helped them build up their production and they learned from us excessa, etcetera. And now we have to go knocking on their doors to go and say bring your technology to us.
Job. It reminds me when I became an investment banker. There was this own investment banker and he said, you have to choose between two things. Okay, your ego or your fees.
Your Oh my god, I like it. I like it.
That's the choice for you all. Is it about your ego or is it about web creation? That's simple and if it works with the Chinese? Yeah, okay, fine, we
won't have a pan European fully integrated, wonderful champion. We'll suck it up, we'll ally and we'll deliver because at the end of the day, if we want to save the European car industry, we need batteries at fifty dollars or kill what hour and not one hundred and fifty dollar ARP or kill what Hour and all this drowned with subsidies and you know, mound dates and so on, nos board for all the people who believed in it. It's a tragedy, but it's capitalism. That's my final word, Jarah.
I think that's a good way to end it.
The round. I think it's a good way to energy. Got my friends, and I'm looking forward to our next conversation.
Cheers by.
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