Goldman Sachs' $900 Million Northvolt Gamble

Goldman Sachs Asset Management is set to take a significant hit, with a potential $900 million write-off on its investments in Swedish battery maker Northvolt AB. The US bank's private equity funds, which have at least $896 million in exposure to Northvolt, will write down the entire amount at the end of the year, according to the Financial Times. This move highlights the challenges and risks associated with investing in the high-growth, high-risk battery industry.

Northvolt, which aims to become Europe's leading electric vehicle (EV) battery supplier, recently filed for bankruptcy protection in the US. The company, which has received over $10 billion in funding since its inception in 2016, struggled to secure new financing despite talks with investors like Volkswagen and Goldman Sachs. Northvolt's inability to meet production targets and satisfy customer demands has raised concerns about the European battery industry's ability to compete with Chinese rivals.

The European battery industry's dream of catching up with China and the US in battery cell production has been hindered by Northvolt's production delays and supply chain issues. With Europe accounting for just 3% of global battery cell production, the strategic importance of electric batteries for the green transition has been emphasized. However, the Swedish government has insisted it will not come to the group's financial rescue, leaving Northvolt's future uncertain.



Northvolt's struggles underscore the challenges in catching up with Chinese rivals, who control 85% of global battery cell production. As Europe's biggest hope for an electric vehicle (EV) battery champion, Northvolt's difficulties highlight Europe's lag behind China and the US in battery production. With eight companies postponing or abandoning EV battery projects in Europe this year, the pipeline capacity for 2024 has fallen by 176 gigawatt-hours, nearly all the current installed capacity in Europe.

Goldman Sachs' significant write-off on Northvolt serves as a cautionary tale for investors in the high-growth, high-risk battery industry. While the potential rewards are substantial, the risks and challenges are equally significant. As Europe looks to achieve its 25% global market share target by 2030, investors must carefully evaluate the opportunities and pitfalls in the battery sector. By understanding the specific dynamics of individual companies like Northvolt, investors can make more informed decisions and allocate capital more effectively.

In conclusion, Northvolt's financial crisis highlights the challenges and risks associated with investing in the high-growth, high-risk battery industry. As Europe seeks to achieve its ambitious goals in the EV market, investors must carefully evaluate the opportunities and pitfalls in the sector. By understanding the specific dynamics of individual companies like Northvolt, investors can make more informed decisions and allocate capital more effectively.