*

Northvolt's troubles trigger doubts about its ability to

produce

enough batteries for Europe

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Northvolt to buy cathode active materials from Asian

suppliers,

source says

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Delivery issues triggered BMW contract cancellation,

sources

says

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Northvolt's struggles raise questions about future

gigafactories

and joint ventures, industry analysts say

By Marie Mannes

STOCKHOLM, Sept 13 (Reuters) - Northvolt's shock

decision this week to shrink its operations and cut jobs has

sparked fears that Europe's best shot at a home-grown electric

vehicle battery champion may stall, sector experts and people

familiar with the situation told Reuters.

Struggling with order delays and the loss of a $2 billion

BMW contract in June, CEO and ex-Tesla executive Peter Carlsson

said on Monday the company he co-founded in 2016 would stop

producing cathode active material (CAM) - a crucial battery

component - scrap plans for a Swedish facility and seek

investors for a plant in Poland.

The Swedish company said it will focus on its core business

of making battery cells, the units that store chemical energy.

The decision effectively means Northvolt, Europe's most

developed battery player, has stepped back from its original

mission to be an all-in-one shop offering everything from

material production and battery making to end-of-life recycling.

Coming just as former European Central Bank head Mario

Draghi warned of green tech competition from China in a long

awaited report, the announcement raises questions about

Northvolt's ability to be a major force in Europe's electric

mobility push.

"Northvolt was the doyen of European battery industry and if

they can't produce (batteries), it really shows that,

industrially, Europe is going to be incredibly dependent on Asia

going forward," said Andy Leyland, co-founder of supply chain

specialist SC Insights.

Benchmark Mineral Intelligence analyst Evan Hartley said the

scrapping of cathode active material production will put Europe

"at a further disadvantage when it comes to local production".

Northvolt has had problems in manufacturing high-quality

batteries in high volumes to meet its ambitious targets while

fighting Chinese rivals such as CATL and BYD

, analysts told Reuters. Northvolt's sprawling

business has been a complicating factor, they added.

In its strategic review, the company did not address the

issue of delays but said it would focus on being a battery cells

leader.

Northvolt will now need to buy its cathode active materials

from Chinese or South Korean suppliers, said a person familiar

with the matter.

CANCELLED CONTRACTS

The travails of Northvolt, which is still loss-making

despite securing orders worth over $50 billion from customers

including top investor Volkswagen, underscore Europe's struggle

to reduce Western carmakers' reliance on China, which controls

85% of global battery cells production, International Energy

Agency data show.

The Swedish player has $15 billion in equity and debt

financing from a raft of players including Goldman Sachs ( GS ) and

Blackrock ( BLK ), filings show, and has been trying to raise more money

to fund its expensive ramp-up.

Struggles to produce and deliver batteries triggered a

cancellation of BMW's $2 billion order in June, a person

familiar with the matter and an industry source told Reuters.

This ultimately led to Monday's drastic strategic U-turn.

"The situation got increasingly tricky when customers like

BMW canceled order contracts," a third source with direct

knowledge of the situation told Reuters.

BMW's decision to axe its contract was the result of

Northvolt being two years behind on the batteries for that deal,

meaning they would be obsolete by the time they would be

delivered, an industry source told Reuters.

Also, VW's Swedish truckmaking unit Scania in May told

Swedish Svenska Dagbladet that Northvolt's delivery problems had

prevented it from shipping thousands of electric trucks last

year, underscoring a widespread issue. Contacted by Reuters,

Scania declined to comment on its order situation.

Northvolt's future now looks uncertain.

Its flagship factory in Skelleftea, in northern Sweden, is

far from reaching full capacity. Carlsson told a Swedish paper

in July that it aimed to reach initial production of 16 gigawatt

per hour (GWh) per year by 2026, a delay of three years from the

original target according to the paper.

That raises questions on when the plant may be able to run

at its full capacity of 60 GWh per year, enough to produce

batteries for one million cars annually.

And it puts in doubt the future of three gigafactories

planned at Heide, Germany, Quebec, Canada, and Gothenburg,

industry analysts said.

Other businesses potentially at risk are the Swedish

company's joint venture for a lithium conversion plant with

Portugal's Galp Energia, a Swedish battery material

recycling business called Revolt Ett as well as Hydrovolt, a

battery recycling joint venture with Norsk Hydro ( NHYKF ).

"They have a recycling project that could be slowed

down...there's a potential lithium refinery project they have in

Portugal that could be scrapped or postponed," Leyland said.

Northvolt said on Monday it will decide this autumn whether

to delay any of its three planned gigafactories, and did not

give details about the other projects.

Despite its struggles, Northvolt is still far ahead of such

rivals as Norway's Morrow and Freyr, and Stellantis ( STLA ) and

Mercedes' joint venture Automotive Cells Company (ACC).

But customers have been nervously following the situation, a

source at one industry player and an industry expert who spoke

to some of Northvolt's customers told Reuters.

When contacted by Reuters, Volvo Cars said its joint venture

with Northvolt was still part of its strategy and said it could

not add further comment. Volkswagen declined to comment, BMW

declined to comment on the Swedish company's latest troubles.

Northvolt's challenges could delay a planned listing to next

year or the following one, one source with direct knowledge of

the situation told Reuters.

Contacted by Reuters, Northvolt did not respond about BMW's

order cancellation, its production target hold-up or its IPO

delay.

"Every setback costs money," said Daniel Brandell, a

research leader at Uppsala University's battery research group

Angstrom Advanced Battery Centre.