It is not everyday that a European industrial company receives an order worth $14 billion. Not entirely unexpected, however, is that the order is related to the superhot electric vehicle battery industry. The deal involves battery developer Northvolt, led by ex-Tesla man Peter Carlsson, which brought home the order related to a partnership agreement with the Volkswagen Group.
The order comes in part as an result of Northvolt being a strategic supplier of premium battery cells to the Volkswagen Group in Europe, and in part is based on Volkswagen increasing its ownership in Northvolt in parallel with the order. However, the deal contains another interesting component: Northvolt is selling its joint venture share in the factory it is now building in Salzgitter, Germany, to Volkswagen.
In a press release, the company notes that, "The Northvolt Volkswagen partnership will be centered around Northvolt's gigafactory in Sweden, which will be expanded to achieve additional economies of scale, reduced complexity and a better environmental footprint for the product."
With the new order and outlook, Northvolt is looking at expanding this gigafactory’s capacity beyond the 40 GWh level; the same goes for VW’s Salzgitter plant, designed using a digital twin of the Swedish Northvolt One Gigafactory, and which will be upgraded to a 40 GWh capacity. But Volkswagen’s need doesn’t stop there—today, the German car maker revealed a plan containing no less than six battery gigafactories.
“Volkswagen is an important investor, customer and partner on the journey ahead and we will continue to work hard with the goal of providing them with the greenest battery on the planet as they rapidly expand their fleet of electric vehicles,” comments Peter Carlsson, co-founder and CEO of Northvolt.
In total, Northvolt has now secured more than $27 billion in contracts from key customers. The question is: how do you build a production apparatus that can meet these requirements as well as the almost explosive increase in demand that is expected to keep pace with the electrification of the world's vehicle fleets?
For Northvolt, the answer is far-reaching automation using PLM and automation solutions from Siemens and ABB.
In today's article I look at what the overall picture is in these pieces.
Mutual Analysis For Optimal Effect
When Northvolt and Volkswagen Group presented the next step in the partnership between the two companies—a partnership which began in 2019—one of the consequences is that the collaboration between these companies will place greater focus on Northvolt's Swedish gigafactory in Skellefteå. This facility, which is already almost gigantic and not far from production-ready, will now be further expanded to support a combined order worth more than $14 billion over the next ten years as Northvolt is selected by the Volkswagen Group as a strategic leading supplier of premium battery cells in Europe.
The next step in the partnership is the result of a mutual analysis of how to best utilize the strengths and ambitions of each party in the coming years. By consolidating cell production to Northvolt's plant, the companies expect to achieve additional economies of scale, thereby ensuring the best possible costs and enabling the lowest environmental impact in the world for cell production.
But there are several aspects to the announcement from Northvolt. Because the Volkswagen Group plans to increase its own battery production in Europe, Northvolt will sell its share in the joint venture project Northvolt Zwei in Salzgitter to Volkswagen. At the same time, Volkswagen will increase its ownership in Northvolt.
“Volkswagen will continue to deepen its cooperation and partnership with Northvolt. They are one of our most important battery suppliers when we make the transition to electric mobility, and there is potential to expand this partnership further,” says Thomas Schmall, chairman of the board of Volkswagen Group Components.
How Is The Battery Demand In Europe Calculated To Develop?
Interesting in this context is how demand in Europe will develop in the future. In Europe alone, the Volkswagen Group expects an annual demand of over 150 gigawatt hours from 2025, and a demand in Asia at the same level.
It is thus clear that the 16 gigawatt hours that will initially come from the Northvolt produced VW factory in Salzgitter only make up just over 10 percent of the German car giant's battery needs.
Today, the world consumes about 230 GWh of EV batteries (as of 2020), half of which relates to Europe. The expectation is that world consumption in ten years' time will increase to 3,000 GWh.
On the other hand, this opens the door to several new Northvolt factories or the expansion of existing ones, which will be one of the effects of today's announced business development between the companies.
An Ambitious Entrepreneur
Northvolt’s Peter Carlsson is an ambitious entrepreneur. He is striving for a 25 percent market share in Europe, he said in an earlier interview with engineering.com. The effect will probably be that he not only needs to build more gigafactories, but that he will also need to expand the capacity of existing facilities, where relevant. With the previously mentioned expectation that in ten years EV battery consumption will increase to nearly 3,000 GWh, means that, according to Volkswagen:
- In Europe alone, six gigabytes with a total production capacity of 240 GWh will be established at the end of the decade.
- Uniform cell and synergies reduce battery costs by up to 50 percent.
- Six gigabytes with a total production capacity of 240 GWh secure the battery supply through a collaborative model.
- "Northvolt One" in Skellefteå will be expanded beyond 40 GWh.
- Salzgitter is planned as a second gigafactory with a production capacity of up to 40 GWh.
One GWh represents an investment cost of $120 million. To achieve the goal of a European market share of 25 percent, Carlsson must build for 150 GWh over the next ten years.
“The first 16 GWh production of batteries in Skellefteå, Sweden, will be enough for between 250,000 and 300,000 cars,” said Peter Carlsson. He adds that the product development needed to realize factory capacity to meet the demands above will need "digital twins in factory construction." These twins will then gradually be used to form "factory copies," of which one is presently being used in building the Northvolt Zwei plant in Satlzgitter, Germany, which will primarily supply the Volkswagen Group with batteries for electric vehicles.
“This means that we must be superefficient at building production blocks in very complicated sets. How do we do it? Well, you're building a damn good digital twin,” Carlsson said. He and his employees seem to be in full swing; however, a recent Covid-19 outbreak in the Swedish gigafactory in Skellefteå may delay the building process progress.
Siemens and ABB in Main Roles in PLM and Automation
It is also clear that the type of production Peter Carlsson and his employees have developed characterized by automation, and by digitally controlled and coherent manufacturing.
When it comes to PLM support and automation, Siemens—like ABB—plays important roles in this. In product development and manufacturing automation, Northvolt works with software and hardware from these two players.
Siemens plays a dominant role on the PLM software side in product development. Solutions such as Teamcenter (cPDm backbone), NX (CAD), Battery Design Studio, Simcenter Structures/STAR-CCM+ (CAE and flow simulation) and Amesim (1D simulation) will all be used. The production page includes software such as Tecnomatix for production planning and simulation.
As I said, ABB is also strongly committed to building Northvolt's production capacity; this includes things such as plant electrification and certain manufacturing process areas, including solutions from the Ability family.
When it comes to factory automation, there is also a massive Siemens presence. For example, we can find Siemens’ automation system, Simatic, which includes control systems, integration and safety solutions, while engine movement control of the servo is handled in Siemens Simotion.
When it comes to ABB's role, the Swedish-Swiss engineering giant's solutions for process automation and electrification of the facilities are currently being used, or will be used in the future.
“We needed to reduce the price of the batteries' manufacturing costs to half of the ‘normal’ production cost,” said Carlsson. “This meant a need to think in new terms. For example, how can we change the value chain and make a possible vertical integration with more rational processes included, and thus achieve a lower manufacturing cost? Secondly, what would be the absolute, most optimal scale if you take all your different investment resources and assess them from an efficiency angle and work out ways to optimize them as well?”
The final answer was in line with a concept of economies of scale: it turned out that factories that were four to ten times larger than the existing ones would make it possible to "swallow" the challenges defined above.
Today's announcement from Northvolt is an indication that the path Carlsson has set for the future is right.