Speaker 1: With a round second and from London and Gerard Reed
Speaker 1: from Berlin. This is redefining energy.
Speaker 2: Today on really failing Energy. Job, We've decided to do
Speaker 2: a special episode on Nosfold.
Speaker 1: Yeah, and for those of you who Northfold is it
Speaker 1: is Europe's attempt to really take on the Asians and
Speaker 1: batterlysell manufacturing.
Speaker 2: Yeah. It was really the poster child of every politician
Speaker 2: and of course especially in Sweden. And they went bankrupt
Speaker 2: last week after raising fifteen billion euro of equity plus
Speaker 2: probably five of loans by the European Investment Bank. So
Speaker 2: that's a lot of money for not too much to
Speaker 2: show for. There's been a lot of very interesting analysis
Speaker 2: on Indian and elsewhere, but Job, you've had access to insiders.
Speaker 1: Absolutely, Yeah. This week I've actually had conversations with let's say,
Speaker 1: senior people within the organization and senior people formally work
Speaker 1: for them, and also some of the consultants and suppliers
Speaker 1: and clients out there as well. So it's been an
Speaker 1: interesting week.
Speaker 2: Lere on some conversation you had are extremely sensitive. We
Speaker 2: won't reveal the names because those people are in very
Speaker 2: high position right now. So the first part is the
Speaker 2: generic market positioning, they had into sixteen, and if you
Speaker 2: look at their decks from eight years ago, their vision
Speaker 2: was that within ten years the market would be short batteries,
Speaker 2: basically that the market would go to say two hundred
Speaker 2: giga what hour, And of course now we're at one
Speaker 2: ter what hour. So they did not foresee the development
Speaker 2: of the Chinese production.
Speaker 1: No, that's definitely number one round. They didn't see the
Speaker 1: speed of change. What also really handicapped them is the
Speaker 1: fact that they vertically integrated. What I mean by that is,
Speaker 1: you know, this is a company was set up really
Speaker 1: cell manuf and it's hard enough to go and build
Speaker 1: up a line of let's say, cylindrical cells, but they
Speaker 1: also decided they were going to do prismatic cells. They
Speaker 1: also decided they were going to do specialty cells. That's
Speaker 1: really complex. That's one business. And then they decided they
Speaker 1: were going to do an ESS business that's a stationary
Speaker 1: storage and specialty equipment business. Then they decided they were
Speaker 1: going to do a recycling business. Then they're going to
Speaker 1: go into upstream manufacturing cat hold manufacturing. They also decided
Speaker 1: to go into lithium refining. So there you are trying
Speaker 1: to really scale. If you think about all of that. There,
Speaker 1: what have you got seven businesses you're trying to scale
Speaker 1: at the one time. That's bloody tough. So, without a
Speaker 1: doubt that the lack of foe because it was the
Speaker 1: major error that this company is made. And again, but
Speaker 1: I'm going to contrast it with the Chinese. The Chinese
Speaker 1: jobed that the Chinese just focused on one thing and
Speaker 1: get as big as possible and then if they need to,
Speaker 1: they will buy that business or they will buy other businesses. Right,
Speaker 1: completely different approach. And the Chinese have done a good
Speaker 1: job at scaling, and to be really be honest, Northfold hasn't.
Speaker 2: So they were really spread much too wide. A second
Speaker 2: mistake and that's not on them because it was not
Speaker 2: obvious at the time, but they never pivoted was to
Speaker 2: go for really higher hand batteries, so Nikkel, Mongens, cobalt
Speaker 2: and of course the price of which went crazy and
Speaker 2: they could never pivote to EDFP.
Speaker 1: Yeah, this is very very important because you listen, we
Speaker 1: went back a few years ago around I think the
Speaker 1: general view was it's all about increasing the performance of
Speaker 1: the battery, and actually the Chinese took a different approach,
Speaker 1: was it's not about performance. It's about lowering the cost,
Speaker 1: which is why they all went for lithium iron phosphate batteries.
Speaker 1: And the other thing also found very interesting that Lauran
Speaker 1: and we've done a lot of work in the whole
Speaker 1: stationary storage area. The reason you go for lithium ion
Speaker 1: phosphate is obviously it's cheap in stationary storage, but also
Speaker 1: it's safer and even though it doesn't have the energy
Speaker 1: density of maybe a cobalt based battery, you don't care
Speaker 1: when it comes to stationary storage application, it's not that important.
Speaker 1: But this company decided they were going to do an
Speaker 1: ess based business in and around using more expensive technology.
Speaker 1: And Lauran, have you seen anybody use the North Folds
Speaker 1: stationary storage batteries?
Speaker 2: No, I've been tendering for such a nice storage because
Speaker 2: at the end of the day, when you buy anss
Speaker 2: and again that's me and I accept that other people
Speaker 2: of other vision. But in the products I'm buying, I
Speaker 2: want their cooling and I could get their cooling with LFPs.
Speaker 2: If I've got an MC, I need liquid couting, which
Speaker 2: just increased the price.
Speaker 1: Yeah. What else I also learned really was I find
Speaker 1: it's a really difficult topic to talk about, but it's
Speaker 1: really the culture of the business, and I have heard. Firstly,
Speaker 1: it was very very difficult at an intercultural level. So
Speaker 1: you had basically a Swedish business with a lot of
Speaker 1: Asian employees. You also had an Asian equipment supplier, and
Speaker 1: the communication was very, very very difficult for a start.
Speaker 1: This was one point we got up with that. But actually,
Speaker 1: and this really is a I'm sorry to say for
Speaker 1: Swedes or listen to this. This is a real criticism
Speaker 1: of there's a Swedish way of doing stuff. The Swedish
Speaker 1: approach is to come to a consensus decision, and a
Speaker 1: consensus decision what that means is decision making is slow
Speaker 1: because you have a flat hierarchy. And the other thing
Speaker 1: that happened in the organization was there was a general
Speaker 1: unwillingness to take responsibility. So what that meant then was
Speaker 1: that if something went wrong, well, there was nobody there
Speaker 1: that was in charge of actually making sure it worked
Speaker 1: or it gets to be clear if they did it
Speaker 1: wrong that they'll let go. So you suddenly had this
Speaker 1: situation where you had no and not willing The way
Speaker 1: that was described to me was in no conflict culture.
Speaker 1: Now Lauren, you know this in any formal startup, I'm sorry.
Speaker 1: Contrasting this would say Tesla, which would be the exact opposite,
Speaker 1: or even the Chinese, which is this animal spirits culture,
Speaker 1: which is we're just going to get bloody done, and
Speaker 1: we're going to fight with each other and we're going
Speaker 1: to work bloody hard. Am I going to get it done?
Speaker 1: And what I got back actually was that this was
Speaker 1: not the case in Northfolks. You really had people that
Speaker 1: just wanted to work nine to five and didn't take
Speaker 1: responsibility for the areas that they were in. And this
Speaker 1: is a huge issue. There's something that we need to
Speaker 1: look at because it's not and I did criticize Sweden
Speaker 1: in this, but it's not just Sweden. I see this
Speaker 1: more and more across Europe, is that this culture of
Speaker 1: let's just get this done, and we're going to bloody
Speaker 1: work hard to get it done, and we're going to
Speaker 1: solve it. Because I have taken responsibility for this. And again,
Speaker 1: I live very close to the Tesla factory outside Berlin,
Speaker 1: and they just broke all the rules were on they
Speaker 1: That's how they got it done. And I think what
Speaker 1: Tesla's done with that factory outside Berlin, and then you
Speaker 1: contrast it with what north Fall tried to do. Then,
Speaker 1: as I said, goes back to culture and also probably
Speaker 1: quality of people as well. Not an easy thing to say,
Speaker 1: but it's important.
Speaker 2: Yeah, among the anecdotes you have at some point they work.
Speaker 2: Get in corners. You want to talk about that vacuum thingh.
Speaker 1: Listen, you go and talk about it. Go on side,
Speaker 1: you say, you see yourself.
Speaker 2: They had a very bad safety recorder. They were supposed
Speaker 2: to use special equipment to vacuum because there's a lot
Speaker 2: of dust created by the industriale process, but the use
Speaker 2: of the shelf vacuum and of course that created the
Speaker 2: an explosion. So I mean, it's just an anecdote, but
Speaker 2: it's a symbol of everything that went wrong.
Speaker 1: And Ron I heard really concerning stories in and around
Speaker 1: health and safety. I really did, and I was quite
Speaker 1: taken back with it. But I could give you another
Speaker 1: dozen examples of that. But I think the point of
Speaker 1: end that actually goes back to culture as well, which
Speaker 1: is did you have to make people personally responsible for
Speaker 1: their actions? And also then the other thing is that
Speaker 1: related to that is you also need to make sure
Speaker 1: the bad news is passed up an organization, and I
Speaker 1: did hear that. Oftentimes what happened was you had a
Speaker 1: management board who didn't have the information that they needed
Speaker 1: until it was too late. That's not of great help
Speaker 1: when you're trying to scale a business like this and
Speaker 1: do it quickly. You need to get information and you
Speaker 1: need to make decisions quickly, because again you're up against
Speaker 1: a competitor. In all the Chinese, they're going to work
Speaker 1: sixty hours a week, they're aggressive and really focused. And
Speaker 1: then you've got Tesla the exact same thing, and that's
Speaker 1: your competition. So you need to be really focused, not
Speaker 1: just entirely, but also what's my competition jurn from where's
Speaker 1: the market going? And that, as I said, that necessary
Speaker 1: information didn't come about. I suppose the question is you
Speaker 1: can go on moaning and groaning about this business. I
Speaker 1: suppose the question i'd ask you Iramas, what comes next? First?
Speaker 2: The culture part is probably the most important. But look,
Speaker 2: at the end of the day, as an investor, you know,
Speaker 2: I'm Goldman sucks. I need to write a nine hundred
Speaker 2: million dollars from four of the funds. Whereas they were
Speaker 2: saying a few months ago to their investor. Everything's fine,
Speaker 2: and you see Goldman sucks at Nuklue. What was going
Speaker 2: on when the stuff almost went under because they could
Speaker 2: not fix the ramp up of Model III US slept
Speaker 2: on the factory floor, you know, and he was shaking
Speaker 2: the machine one by one. Did the board of Norswalk
Speaker 2: ever do that? And you know, I want to quote
Speaker 2: Robin Zheng, the c of CTL. They have a wrong design,
Speaker 2: they have the wrong process, they have the wrong equipment.
Speaker 2: That's a tougher pitap. I'm a number guy, so you
Speaker 2: know the culture that's you. The number is they burned
Speaker 2: fifteen billion. They could not put a factory together. A factory.
Speaker 2: If you look at the CTL factory, it's one point
Speaker 2: five billion dollars in China, it's probably three billion outside China.
Speaker 2: And that's the type of factory. They could not make
Speaker 2: it with fifteen billion and whatever they were producing at
Speaker 2: the end, they had a one percent capacity. The factories
Speaker 2: in China they have fifty seventy eighty percent capacity. I mean,
Speaker 2: you just can't survive. For me, it's execution. Now you
Speaker 2: explain execution because of culture, fine, but I mean the
Speaker 2: execution was lousy.
Speaker 1: Yeah, you're absolutely right, and sorry, negative gross margins in
Speaker 1: last year. That means the more you produce, the more
Speaker 1: you lose. Yeah, huge mistakes in it, I suppose. I
Speaker 1: mean I'm thinking about what comes next, because the one
Speaker 1: thing that I really hear is if you think of
Speaker 1: different business units that they have the recycling business, listen
Speaker 1: and you could probably sell that off SS business. You
Speaker 1: can probably send it off on stream. They should not
Speaker 1: have gone into cathoe production themselves. This is crazy. You
Speaker 1: should have team up with BSF, team up at the
Speaker 1: Chinese whatever, just team up with people. They didn't do this.
Speaker 1: They tried to do it all themselves, and they made
Speaker 1: strategic mistakes as well. So the question is what happens.
Speaker 1: So you can see you can restructure some of this
Speaker 1: and then you're left with a cell business. Well, you
Speaker 1: know what you're going to do is you're going to
Speaker 1: focus on cylindrical cells rather than five different types of
Speaker 1: cells for different clients who want slightly different things. You
Speaker 1: used to go, No, we're going to just standardize and
Speaker 1: get the quality right. They had really bad quality issues.
Speaker 1: Get your costs down, and as you said, you need
Speaker 1: to pivot. This is the challenge. You need to pivot
Speaker 1: you either say, okay, I'm just going to go with
Speaker 1: a really high end where I'm using nickel and cobalt,
Speaker 1: or I say, well, I'm going to go into the
Speaker 1: iron fast for the area. But do you know what
Speaker 1: if you go into the latter on, the equipment is
Speaker 1: not appropriate. So you had per equipment choice and that
Speaker 1: equipment is now old. So you see where I'm coming from.
Speaker 1: In that cell area, it's going to be really tough.
Speaker 1: You know, somebody might come in and buy this as
Speaker 1: they can buy it five cents in the eural, you know,
Speaker 1: being extreme there, but I think that's probably could end
Speaker 1: up happening with the cell business.
Speaker 2: Whether they have with the said business they have a
Speaker 2: good location nor South Sweden, they have access to cheap electricity.
Speaker 2: It's going to be hard to bring a lot of
Speaker 2: quality engineers because it's really very remote. It's like in
Speaker 2: ne Lascal or something.
Speaker 1: Which, by the way, let me just add on that
Speaker 1: point which you just said there. So what you've got
Speaker 1: is your cell manufacturing in the north of the country
Speaker 1: and your R and D team somewhere else some work.
Speaker 1: How can that be? You have to have your R
Speaker 1: and D people on the line. But as you said,
Speaker 1: they don't want to live up in the north of
Speaker 1: the country, they can't get the people that they need, etcetera, etcetera.
Speaker 1: So you end up cutting corners on what is the
Speaker 1: core of your business, which is the technology that you
Speaker 1: have and the product that you're trying to bring into production.
Speaker 2: I think cultureie that experience is staminated. There's no point
Speaker 2: trying to fix it. Rather than put a billion in
Speaker 2: try to sell agit. That'd rather create a branufactory out
Speaker 2: of zero, build thos everything.
Speaker 1: And by the way, somebody does that, then you know
Speaker 1: the question is who's going to do it? If you
Speaker 1: look at it, the Japanese won't go there. The career
Speaker 1: is won't gon airs, they won't go near now because
Speaker 1: it's Chinese equipment. So maybe the Chinese will commit, But
Speaker 1: is really ctl going to buy that when they know
Speaker 1: that this is the technology and you heard the CEO
Speaker 1: of CIL what he said, So you're not going to
Speaker 1: buy it unless you can get it for next to nothing.
Speaker 1: And then you're left with is there anyone in Europe?
Speaker 1: Well Volkswagen maybe did they go and take it over?
Speaker 1: And so say, hey, listen, we're just going to become
Speaker 1: a sell manufacturer of ourselves. But if they don't do it,
Speaker 1: I wonder is there anybody else in Europe that can
Speaker 1: do it?
Speaker 2: Ardswagen they sang one point seven billion in it. Again,
Speaker 2: as you said that you need a Camik as a
Speaker 2: leader to take over that. I'm not in their shoes,
Speaker 2: so I'm good. I won't give them any advice. But
Speaker 2: I see the writing on the wall bulldoze it.
Speaker 1: But it's a big statement. It's just said they're bulldozers.
Speaker 1: Because I think we both agree that Lyttiaman technology is
Speaker 1: an incredibly important technology for the twenty first century and
Speaker 1: our automobile industry. I would say life depends on it.
Speaker 1: And you might say, well, it depends on us and
Speaker 1: we've just lost and just give it to the Chinese,
Speaker 1: then the Koreans and Japanese. Maybe that you're saying we
Speaker 1: just can't compete. We just have to partner with them.
Speaker 2: Of course, partner you do a fifty one forty nine,
Speaker 2: you bring your tech, I pay for the rest of
Speaker 2: the discounted price. You can certainly do finance model around it.
Speaker 2: And you just say this plant you have in Wandong,
Speaker 2: I want the same plant here. You know, you just replicate,
Speaker 2: you don't think people are too much strategy and not
Speaker 2: enough execution.
Speaker 1: By the way, I'm laughing with myself here the irony
Speaker 1: of the fact that, you know, fifty years ago, what
Speaker 1: did we do. We all went to China and we
Speaker 1: did joint ventures with them, and we helped them build
Speaker 1: up their production and they learned from us excessa, etcetera.
Speaker 1: And now we have to go knocking on their doors
Speaker 1: to go and say bring your technology to us.
Speaker 2: Job. It reminds me when I became an investment banker.
Speaker 2: There was this own investment banker and he said, you
Speaker 2: have to choose between two things. Okay, your ego or
Speaker 2: your fees.
Speaker 1: Your Oh my god, I like it. I like it.
Speaker 2: That's the choice for you all. Is it about your
Speaker 2: ego or is it about web creation? That's simple and
Speaker 2: if it works with the Chinese? Yeah, okay, fine, we
Speaker 2: won't have a pan European fully integrated, wonderful champion. We'll
Speaker 2: suck it up, we'll ally and we'll deliver because at
Speaker 2: the end of the day, if we want to save
Speaker 2: the European car industry, we need batteries at fifty dollars
Speaker 2: or kill what hour and not one hundred and fifty
Speaker 2: dollar ARP or kill what Hour and all this drowned
Speaker 2: with subsidies and you know, mound dates and so on,
Speaker 2: nos board for all the people who believed in it.
Speaker 2: It's a tragedy, but it's capitalism. That's my final word, Jarah.
Speaker 2: I think that's a good way to end it.
Speaker 1: The round. I think it's a good way to energy.
Speaker 1: Got my friends, and I'm looking forward to our next conversation.
Speaker 2: Cheers by.
Speaker 1: Thank you for listening to Redefining Energy. Don't forget to
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