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<v Speaker 1>With a round second and from London and Gerard Reed

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<v Speaker 1>from Berlin. This is redefining energy.

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<v Speaker 2>Today on really failing Energy. Job, We've decided to do

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<v Speaker 2>a special episode on Nosfold.

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<v Speaker 1>Yeah, and for those of you who Northfold is it

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<v Speaker 1>is Europe's attempt to really take on the Asians and

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<v Speaker 1>batterlysell manufacturing.

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<v Speaker 2>Yeah. It was really the poster child of every politician

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<v Speaker 2>and of course especially in Sweden. And they went bankrupt

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<v Speaker 2>last week after raising fifteen billion euro of equity plus

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<v Speaker 2>probably five of loans by the European Investment Bank. So

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<v Speaker 2>that's a lot of money for not too much to

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<v Speaker 2>show for. There's been a lot of very interesting analysis

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<v Speaker 2>on Indian and elsewhere, but Job, you've had access to insiders.

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<v Speaker 1>Absolutely, Yeah. This week I've actually had conversations with let's say,

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<v Speaker 1>senior people within the organization and senior people formally work

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<v Speaker 1>for them, and also some of the consultants and suppliers

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<v Speaker 1>and clients out there as well. So it's been an

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<v Speaker 1>interesting week.

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<v Speaker 2>Lere on some conversation you had are extremely sensitive. We

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<v Speaker 2>won't reveal the names because those people are in very

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<v Speaker 2>high position right now. So the first part is the

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<v Speaker 2>generic market positioning, they had into sixteen, and if you

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<v Speaker 2>look at their decks from eight years ago, their vision

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<v Speaker 2>was that within ten years the market would be short batteries,

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<v Speaker 2>basically that the market would go to say two hundred

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<v Speaker 2>giga what hour, And of course now we're at one

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<v Speaker 2>ter what hour. So they did not foresee the development

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<v Speaker 2>of the Chinese production.

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<v Speaker 1>No, that's definitely number one round. They didn't see the

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<v Speaker 1>speed of change. What also really handicapped them is the

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<v Speaker 1>fact that they vertically integrated. What I mean by that is,

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<v Speaker 1>you know, this is a company was set up really

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<v Speaker 1>cell manuf and it's hard enough to go and build

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<v Speaker 1>up a line of let's say, cylindrical cells, but they

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<v Speaker 1>also decided they were going to do prismatic cells. They

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<v Speaker 1>also decided they were going to do specialty cells. That's

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<v Speaker 1>really complex. That's one business. And then they decided they

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<v Speaker 1>were going to do an ESS business that's a stationary

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<v Speaker 1>storage and specialty equipment business. Then they decided they were

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<v Speaker 1>going to do a recycling business. Then they're going to

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<v Speaker 1>go into upstream manufacturing cat hold manufacturing. They also decided

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<v Speaker 1>to go into lithium refining. So there you are trying

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<v Speaker 1>to really scale. If you think about all of that. There,

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<v Speaker 1>what have you got seven businesses you're trying to scale

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<v Speaker 1>at the one time. That's bloody tough. So, without a

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<v Speaker 1>doubt that the lack of foe because it was the

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<v Speaker 1>major error that this company is made. And again, but

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<v Speaker 1>I'm going to contrast it with the Chinese. The Chinese

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<v Speaker 1>jobed that the Chinese just focused on one thing and

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<v Speaker 1>get as big as possible and then if they need to,

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<v Speaker 1>they will buy that business or they will buy other businesses. Right,

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<v Speaker 1>completely different approach. And the Chinese have done a good

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<v Speaker 1>job at scaling, and to be really be honest, Northfold hasn't.

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<v Speaker 2>So they were really spread much too wide. A second

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<v Speaker 2>mistake and that's not on them because it was not

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<v Speaker 2>obvious at the time, but they never pivoted was to

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<v Speaker 2>go for really higher hand batteries, so Nikkel, Mongens, cobalt

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<v Speaker 2>and of course the price of which went crazy and

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<v Speaker 2>they could never pivote to EDFP.

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<v Speaker 1>Yeah, this is very very important because you listen, we

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<v Speaker 1>went back a few years ago around I think the

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<v Speaker 1>general view was it's all about increasing the performance of

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<v Speaker 1>the battery, and actually the Chinese took a different approach,

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<v Speaker 1>was it's not about performance. It's about lowering the cost,

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<v Speaker 1>which is why they all went for lithium iron phosphate batteries.

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<v Speaker 1>And the other thing also found very interesting that Lauran

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<v Speaker 1>and we've done a lot of work in the whole

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<v Speaker 1>stationary storage area. The reason you go for lithium ion

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<v Speaker 1>phosphate is obviously it's cheap in stationary storage, but also

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<v Speaker 1>it's safer and even though it doesn't have the energy

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<v Speaker 1>density of maybe a cobalt based battery, you don't care

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<v Speaker 1>when it comes to stationary storage application, it's not that important.

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<v Speaker 1>But this company decided they were going to do an

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<v Speaker 1>ess based business in and around using more expensive technology.

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<v Speaker 1>And Lauran, have you seen anybody use the North Folds

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<v Speaker 1>stationary storage batteries?

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<v Speaker 2>No, I've been tendering for such a nice storage because

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<v Speaker 2>at the end of the day, when you buy anss

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<v Speaker 2>and again that's me and I accept that other people

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<v Speaker 2>of other vision. But in the products I'm buying, I

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<v Speaker 2>want their cooling and I could get their cooling with LFPs.

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<v Speaker 2>If I've got an MC, I need liquid couting, which

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<v Speaker 2>just increased the price.

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<v Speaker 1>Yeah. What else I also learned really was I find

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<v Speaker 1>it's a really difficult topic to talk about, but it's

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<v Speaker 1>really the culture of the business, and I have heard. Firstly,

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<v Speaker 1>it was very very difficult at an intercultural level. So

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<v Speaker 1>you had basically a Swedish business with a lot of

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<v Speaker 1>Asian employees. You also had an Asian equipment supplier, and

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<v Speaker 1>the communication was very, very very difficult for a start.

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<v Speaker 1>This was one point we got up with that. But actually,

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<v Speaker 1>and this really is a I'm sorry to say for

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<v Speaker 1>Swedes or listen to this. This is a real criticism

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<v Speaker 1>of there's a Swedish way of doing stuff. The Swedish

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<v Speaker 1>approach is to come to a consensus decision, and a

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<v Speaker 1>consensus decision what that means is decision making is slow

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<v Speaker 1>because you have a flat hierarchy. And the other thing

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<v Speaker 1>that happened in the organization was there was a general

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<v Speaker 1>unwillingness to take responsibility. So what that meant then was

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<v Speaker 1>that if something went wrong, well, there was nobody there

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<v Speaker 1>that was in charge of actually making sure it worked

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<v Speaker 1>or it gets to be clear if they did it

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<v Speaker 1>wrong that they'll let go. So you suddenly had this

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<v Speaker 1>situation where you had no and not willing The way

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<v Speaker 1>that was described to me was in no conflict culture.

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<v Speaker 1>Now Lauren, you know this in any formal startup, I'm sorry.

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<v Speaker 1>Contrasting this would say Tesla, which would be the exact opposite,

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<v Speaker 1>or even the Chinese, which is this animal spirits culture,

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<v Speaker 1>which is we're just going to get bloody done, and

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<v Speaker 1>we're going to fight with each other and we're going

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<v Speaker 1>to work bloody hard. Am I going to get it done?

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<v Speaker 1>And what I got back actually was that this was

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<v Speaker 1>not the case in Northfolks. You really had people that

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<v Speaker 1>just wanted to work nine to five and didn't take

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<v Speaker 1>responsibility for the areas that they were in. And this

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<v Speaker 1>is a huge issue. There's something that we need to

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<v Speaker 1>look at because it's not and I did criticize Sweden

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<v Speaker 1>in this, but it's not just Sweden. I see this

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<v Speaker 1>more and more across Europe, is that this culture of

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<v Speaker 1>let's just get this done, and we're going to bloody

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<v Speaker 1>work hard to get it done, and we're going to

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<v Speaker 1>solve it. Because I have taken responsibility for this. And again,

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<v Speaker 1>I live very close to the Tesla factory outside Berlin,

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<v Speaker 1>and they just broke all the rules were on they

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<v Speaker 1>That's how they got it done. And I think what

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<v Speaker 1>Tesla's done with that factory outside Berlin, and then you

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<v Speaker 1>contrast it with what north Fall tried to do. Then,

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<v Speaker 1>as I said, goes back to culture and also probably

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<v Speaker 1>quality of people as well. Not an easy thing to say,

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<v Speaker 1>but it's important.

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<v Speaker 2>Yeah, among the anecdotes you have at some point they work.

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<v Speaker 2>Get in corners. You want to talk about that vacuum thingh.

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<v Speaker 1>Listen, you go and talk about it. Go on side,

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<v Speaker 1>you say, you see yourself.

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<v Speaker 2>They had a very bad safety recorder. They were supposed

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<v Speaker 2>to use special equipment to vacuum because there's a lot

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<v Speaker 2>of dust created by the industriale process, but the use

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<v Speaker 2>of the shelf vacuum and of course that created the

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<v Speaker 2>an explosion. So I mean, it's just an anecdote, but

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<v Speaker 2>it's a symbol of everything that went wrong.

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<v Speaker 1>And Ron I heard really concerning stories in and around

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<v Speaker 1>health and safety. I really did, and I was quite

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<v Speaker 1>taken back with it. But I could give you another

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<v Speaker 1>dozen examples of that. But I think the point of

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<v Speaker 1>end that actually goes back to culture as well, which

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<v Speaker 1>is did you have to make people personally responsible for

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<v Speaker 1>their actions? And also then the other thing is that

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<v Speaker 1>related to that is you also need to make sure

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<v Speaker 1>the bad news is passed up an organization, and I

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<v Speaker 1>did hear that. Oftentimes what happened was you had a

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<v Speaker 1>management board who didn't have the information that they needed

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<v Speaker 1>until it was too late. That's not of great help

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<v Speaker 1>when you're trying to scale a business like this and

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<v Speaker 1>do it quickly. You need to get information and you

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<v Speaker 1>need to make decisions quickly, because again you're up against

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<v Speaker 1>a competitor. In all the Chinese, they're going to work

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<v Speaker 1>sixty hours a week, they're aggressive and really focused. And

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<v Speaker 1>then you've got Tesla the exact same thing, and that's

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<v Speaker 1>your competition. So you need to be really focused, not

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<v Speaker 1>just entirely, but also what's my competition jurn from where's

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<v Speaker 1>the market going? And that, as I said, that necessary

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<v Speaker 1>information didn't come about. I suppose the question is you

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<v Speaker 1>can go on moaning and groaning about this business. I

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<v Speaker 1>suppose the question i'd ask you Iramas, what comes next? First?

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<v Speaker 2>The culture part is probably the most important. But look,

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<v Speaker 2>at the end of the day, as an investor, you know,

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<v Speaker 2>I'm Goldman sucks. I need to write a nine hundred

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<v Speaker 2>million dollars from four of the funds. Whereas they were

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<v Speaker 2>saying a few months ago to their investor. Everything's fine,

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<v Speaker 2>and you see Goldman sucks at Nuklue. What was going

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<v Speaker 2>on when the stuff almost went under because they could

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<v Speaker 2>not fix the ramp up of Model III US slept

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<v Speaker 2>on the factory floor, you know, and he was shaking

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<v Speaker 2>the machine one by one. Did the board of Norswalk

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<v Speaker 2>ever do that? And you know, I want to quote

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<v Speaker 2>Robin Zheng, the c of CTL. They have a wrong design,

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<v Speaker 2>they have the wrong process, they have the wrong equipment.

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<v Speaker 2>That's a tougher pitap. I'm a number guy, so you

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<v Speaker 2>know the culture that's you. The number is they burned

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<v Speaker 2>fifteen billion. They could not put a factory together. A factory.

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<v Speaker 2>If you look at the CTL factory, it's one point

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<v Speaker 2>five billion dollars in China, it's probably three billion outside China.

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<v Speaker 2>And that's the type of factory. They could not make

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<v Speaker 2>it with fifteen billion and whatever they were producing at

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<v Speaker 2>the end, they had a one percent capacity. The factories

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<v Speaker 2>in China they have fifty seventy eighty percent capacity. I mean,

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<v Speaker 2>you just can't survive. For me, it's execution. Now you

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<v Speaker 2>explain execution because of culture, fine, but I mean the

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<v Speaker 2>execution was lousy.

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<v Speaker 1>Yeah, you're absolutely right, and sorry, negative gross margins in

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<v Speaker 1>last year. That means the more you produce, the more

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<v Speaker 1>you lose. Yeah, huge mistakes in it, I suppose. I

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<v Speaker 1>mean I'm thinking about what comes next, because the one

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<v Speaker 1>thing that I really hear is if you think of

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<v Speaker 1>different business units that they have the recycling business, listen

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<v Speaker 1>and you could probably sell that off SS business. You

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<v Speaker 1>can probably send it off on stream. They should not

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<v Speaker 1>have gone into cathoe production themselves. This is crazy. You

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<v Speaker 1>should have team up with BSF, team up at the

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<v Speaker 1>Chinese whatever, just team up with people. They didn't do this.

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<v Speaker 1>They tried to do it all themselves, and they made

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<v Speaker 1>strategic mistakes as well. So the question is what happens.

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<v Speaker 1>So you can see you can restructure some of this

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<v Speaker 1>and then you're left with a cell business. Well, you

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<v Speaker 1>know what you're going to do is you're going to

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<v Speaker 1>focus on cylindrical cells rather than five different types of

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<v Speaker 1>cells for different clients who want slightly different things. You

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<v Speaker 1>used to go, No, we're going to just standardize and

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<v Speaker 1>get the quality right. They had really bad quality issues.

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<v Speaker 1>Get your costs down, and as you said, you need

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<v Speaker 1>to pivot. This is the challenge. You need to pivot

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<v Speaker 1>you either say, okay, I'm just going to go with

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<v Speaker 1>a really high end where I'm using nickel and cobalt,

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<v Speaker 1>or I say, well, I'm going to go into the

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<v Speaker 1>iron fast for the area. But do you know what

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<v Speaker 1>if you go into the latter on, the equipment is

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<v Speaker 1>not appropriate. So you had per equipment choice and that

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<v Speaker 1>equipment is now old. So you see where I'm coming from.

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<v Speaker 1>In that cell area, it's going to be really tough.

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<v Speaker 1>You know, somebody might come in and buy this as

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<v Speaker 1>they can buy it five cents in the eural, you know,

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<v Speaker 1>being extreme there, but I think that's probably could end

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<v Speaker 1>up happening with the cell business.

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<v Speaker 2>Whether they have with the said business they have a

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<v Speaker 2>good location nor South Sweden, they have access to cheap electricity.

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<v Speaker 2>It's going to be hard to bring a lot of

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<v Speaker 2>quality engineers because it's really very remote. It's like in

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<v Speaker 2>ne Lascal or something.

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<v Speaker 1>Which, by the way, let me just add on that

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<v Speaker 1>point which you just said there. So what you've got

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<v Speaker 1>is your cell manufacturing in the north of the country

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<v Speaker 1>and your R and D team somewhere else some work.

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<v Speaker 1>How can that be? You have to have your R

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<v Speaker 1>and D people on the line. But as you said,

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<v Speaker 1>they don't want to live up in the north of

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<v Speaker 1>the country, they can't get the people that they need, etcetera, etcetera.

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<v Speaker 1>So you end up cutting corners on what is the

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<v Speaker 1>core of your business, which is the technology that you

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<v Speaker 1>have and the product that you're trying to bring into production.

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<v Speaker 2>I think cultureie that experience is staminated. There's no point

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<v Speaker 2>trying to fix it. Rather than put a billion in

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<v Speaker 2>try to sell agit. That'd rather create a branufactory out

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<v Speaker 2>of zero, build thos everything.

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<v Speaker 1>And by the way, somebody does that, then you know

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<v Speaker 1>the question is who's going to do it? If you

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<v Speaker 1>look at it, the Japanese won't go there. The career

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<v Speaker 1>is won't gon airs, they won't go near now because

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<v Speaker 1>it's Chinese equipment. So maybe the Chinese will commit, But

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<v Speaker 1>is really ctl going to buy that when they know

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<v Speaker 1>that this is the technology and you heard the CEO

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<v Speaker 1>of CIL what he said, So you're not going to

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<v Speaker 1>buy it unless you can get it for next to nothing.

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<v Speaker 1>And then you're left with is there anyone in Europe?

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<v Speaker 1>Well Volkswagen maybe did they go and take it over?

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<v Speaker 1>And so say, hey, listen, we're just going to become

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<v Speaker 1>a sell manufacturer of ourselves. But if they don't do it,

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<v Speaker 1>I wonder is there anybody else in Europe that can

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<v Speaker 1>do it?

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<v Speaker 2>Ardswagen they sang one point seven billion in it. Again,

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<v Speaker 2>as you said that you need a Camik as a

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<v Speaker 2>leader to take over that. I'm not in their shoes,

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<v Speaker 2>so I'm good. I won't give them any advice. But

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<v Speaker 2>I see the writing on the wall bulldoze it.

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<v Speaker 1>But it's a big statement. It's just said they're bulldozers.

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<v Speaker 1>Because I think we both agree that Lyttiaman technology is

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<v Speaker 1>an incredibly important technology for the twenty first century and

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<v Speaker 1>our automobile industry. I would say life depends on it.

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<v Speaker 1>And you might say, well, it depends on us and

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<v Speaker 1>we've just lost and just give it to the Chinese,

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<v Speaker 1>then the Koreans and Japanese. Maybe that you're saying we

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<v Speaker 1>just can't compete. We just have to partner with them.

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<v Speaker 2>Of course, partner you do a fifty one forty nine,

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<v Speaker 2>you bring your tech, I pay for the rest of

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<v Speaker 2>the discounted price. You can certainly do finance model around it.

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<v Speaker 2>And you just say this plant you have in Wandong,

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<v Speaker 2>I want the same plant here. You know, you just replicate,

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<v Speaker 2>you don't think people are too much strategy and not

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<v Speaker 2>enough execution.

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<v Speaker 1>By the way, I'm laughing with myself here the irony

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<v Speaker 1>of the fact that, you know, fifty years ago, what

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<v Speaker 1>did we do. We all went to China and we

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<v Speaker 1>did joint ventures with them, and we helped them build

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<v Speaker 1>up their production and they learned from us excessa, etcetera.

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<v Speaker 1>And now we have to go knocking on their doors

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<v Speaker 1>to go and say bring your technology to us.

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<v Speaker 2>Job. It reminds me when I became an investment banker.

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<v Speaker 2>There was this own investment banker and he said, you

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<v Speaker 2>have to choose between two things. Okay, your ego or

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<v Speaker 2>your fees.

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<v Speaker 1>Your Oh my god, I like it. I like it.

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<v Speaker 2>That's the choice for you all. Is it about your

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<v Speaker 2>ego or is it about web creation? That's simple and

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<v Speaker 2>if it works with the Chinese? Yeah, okay, fine, we

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<v Speaker 2>won't have a pan European fully integrated, wonderful champion. We'll

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<v Speaker 2>suck it up, we'll ally and we'll deliver because at

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<v Speaker 2>the end of the day, if we want to save

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<v Speaker 2>the European car industry, we need batteries at fifty dollars

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<v Speaker 2>or kill what hour and not one hundred and fifty

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<v Speaker 2>dollar ARP or kill what Hour and all this drowned

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<v Speaker 2>with subsidies and you know, mound dates and so on,

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<v Speaker 2>nos board for all the people who believed in it.

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<v Speaker 2>It's a tragedy, but it's capitalism. That's my final word, Jarah.

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<v Speaker 2>I think that's a good way to end it.

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<v Speaker 1>The round. I think it's a good way to energy.

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<v Speaker 1>Got my friends, and I'm looking forward to our next conversation.

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<v Speaker 2>Cheers by.

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<v Speaker 1>Thank you for listening to Redefining Energy. Don't forget to

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<v Speaker 1>rate the show and subscribe on Apple, podcast, Modify, or

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<v Speaker 1>the platform of your choice.