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The recent bankruptcy declaration by Northvolt has sent shockwaves throughout the cleantech industry, emphasizing the substantial hurdles that companies encounter when attempting to innovate in electric vehicle (EV) battery production. Northvolt, a Swedish startup with backing from prominent investors such as Goldman Sachs and BlackRock, had grand plans not only to manufacture cutting-edge batteries but also to recycle used ones into valuable materials.

In contrast, Redwood Materials, a competing entity based in the United States and founded by JB Straubel, a co-founder of Tesla, is navigating the complex landscape of battery production with a markedly different methodology. Instead of attempting to expand rapidly and directly compete with its own customers, Redwood has chosen to focus on upstream materials, form strategic partnerships, and maintain a careful distance from its rivals.

Understanding the Downfall of Northvolt

Northvolt's vision was not merely ambitious; it was intricately complex and fraught with risk. With an astounding $15 billion raised in funding, the company sought to control every element of battery production in-house. This encompassed sourcing raw materials, recycling batteries into a substance known as black massrich in essential elements such as nickel, lithium, cobalt, and manganeserefining this material through sophisticated hydrometallurgical processes, and subsequently producing battery cells at an unprecedented scale.

However, with such grand aspirations came equally significant risks. The endeavor of establishing and scaling battery cell manufacturing, particularly outside of Asia, is notoriously fraught with logistical and operational challenges. Northvolt struggled to ramp up production at its facility situated in the Arctic Circle. The company's increasing dependence on equipment sourced from China led to frustrating production delays and bottlenecks. As financial pressures mounted and debts escalated, Northvolt ultimately found it impossible to sustain its ambitious plans amidst these mounting obstacles.

A cautious investor within the cleantech sector remarked, Northvolt went a little too fast. They tried to commercialize before perfecting the process at scale. This anonymous source emphasized the inherent risks involved in Northvolt's rapid expansion strategy, illustrating the volatility of the industry.

When inquiries were made regarding its strategic decisions and subsequent failure, Northvolt declined to comment.

Redwood's Balanced Approach

In stark contrast to Northvolt, Redwood Materials has deliberately chosen to concentrate on what it perceives as the most critical and underfunded segment of the EV battery supply chain: cathode active materials (CAMs). Redwood asserts that CAMs represent approximately 60% of a battery's overall value and constitute around 15% of the total costs associated with an electric vehicle.

Currently, North America lacks a large-scale CAM production facility, and Redwood aims to fill this void. Cal Lankton, Redwood's Chief Commercial Officer, stated, Were not making battery cells. Thats never been part of the plan. We dont want to compete with our customers.

Rather than producing battery cells, Redwood specializes in recycling scrap materials generated during EV battery production and repurposing old batteries, transforming them into usable metals. These refined materials are then sold to cell manufacturers such as Panasonic and Toyota. This strategic approach allows Redwood to maintain a neutral position within the market while generating revenue from various points along the supply chain.

As JB Straubel often puts it, We can be Switzerland. Lankton emphasized during a recent visit to Redwoods facility in the arid high desert of Nevada, highlighting the companys goal to act as a facilitator rather than a direct competitor in the market.

A Step-by-Step Strategy

Unlike Northvolts ambitious aim to leap directly from laboratory research to large-scale production, Redwood adopts a more methodical, incremental approach to scaling its operations. The company prioritizes refining materials, enhancing its CAM production capacity, and only taking on new challenges when it feels adequately prepared to do so.

For instance, Lankton noted that although Redwood initially intended to hold onto intermediate recycled materials until its CAM operations were fully operational, the company made a strategic pivot to start selling these intermediate products earlier than planned. This shift not only generated immediate revenue but also showcased Redwoods capabilities to investors and customers alike. A dollar today for a company in our position is much more valuable than a dollar to use in the future, Lankton explained, underlining the critical importance of liquidity. Lets convert that inventory into cash.

At one point, Redwood also ventured into producing copper foil, an essential component of batteries. However, when Chinese manufacturers began producing copper foil at significantly lower prices, Redwood made the pragmatic decision to discontinue that segment of its business. Were not dogmatic, Lankton remarked. We wont follow a business plan blindly if it leads us into trouble.

Learning from Northvolt's Experience

The bankruptcy of Northvolt serves as more than just a cautionary tale; it acts as a real-time case study for other companies in the industry. Northvolt's failure illustrates the dangers associated with over-integration, excessive ambition, and a fundamental underestimation of the complexities involved in battery cell manufacturing.

Conversely, Redwood Materials is positioning itself differently. Rather than striving to be a battery manufacturer, Redwood aims to serve as an enabler within the EV battery supply chain. I think thats one of the strengths of Redwood, Lankton articulated, not to mention something Northvolt struggled with: identifying pivot points when the original plan becomes more costly or logistically challenging.