Giga-scaling low-carbon batteries: A chat with Northvolt CEO Peter Carlsson

Launched in 2016, battery maker Northvolt continues to impress investors. In the last round of funding, the company was valued at more than $11 billion. From the start, cofounder and CEO Peter Carlsson has been on a mission to build the largest green-battery producer in the world. Where many saw a highly competitive and fragmented value chain, Carlsson spotted an opportunity in large-scale vertical integration of lithium-ion manufacturing at low cost and with low carbon intensity. Northvolt currently operates one gigafactory in Sweden and has plans to open several more.

In a conversation with McKinsey’s Rob W. Mathis and Tomas Nauclér, Carlsson discusses what it takes to build and scale a green business, the need for new types of partnerships, and how to tackle the talent shortage. An edited version of the conversation follows.

McKinsey: What were the biggest roadblocks to getting started?

Peter Carlsson: I would say there were two major roadblocks. One was technology; know-how was not available in the surrounding area, which meant that we needed to bring in competence from different parts of the world. That was a challenge.

Second, this business is a scale business. It is kind of go big or go home, which means when you’re starting, you have a tremendous entry hurdle in terms of the capital expenditure you need to scale. We knew in the beginning that there is a fairly large risk that this wouldn’t succeed. But we still thought the opportunity to build a pioneer in Europe, and to do it in a sustainable way, outweighed the risk of failing.

McKinsey: And how did you overcome these roadblocks?

Peter Carlsson: We took a middle step to scale. We funded what we called Northvolt Labs, which was an R&D and industrialization facility. We assumed we needed roughly €100 million. To date, we have invested over €500 million.

But it’s also grown significantly in scale. And I guess that’s part of the entrepreneurial journey. You never know the full complexity of the route you’re taking. And if you knew, you wouldn’t start. Labs was one step to prove the product and process toward the larger step. And I think that was a key enabler.

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Another one was to move all stakeholders, step by step, to build a foundation that was solid enough for everybody to do their share: for carmakers to make strong agreements that were financeable, for suppliers to take risks in selling the equipment, for politicians and stakeholders to support the setup from a regulatory and a local government point of view. It was the construction of a big ecosystem that was necessary. And we knew nobody would individually take a big jump. You needed to get everybody together.

McKinsey: What has been Northvolt’s approach to scale?

Peter Carlsson: First, you need a product. Second, you need to industrialize that product. And then, based on that industrialization, you need to find a manufacturing concept that is scalable.

We’re still in that industrialization scale-up, which is incredibly painful. We have to fight for every product that comes out. The yield numbers are not great, and you’re struggling continuously with issues. Systematically tackling each problem is a step-by-step process. And eventually, you will get to the yields, the outputs, and potentially even more.

And at some point in time, you need to decide: Is this the process that we will duplicate? Within Northvolt, we have created what we call the blueprint team, which is basically designing process software for constructing blocks of capacities that we then intend to scale. And this is what we think is going to be essential to go from one to five factories. That is a very strong format that we adhere to.

McKinsey: How have partnerships accelerated Northvolt’s ability to scale?

Peter Carlsson: The partnering strategy was very important from the beginning. Part of building a company with a small team yet with a big ambition meant that partnering up with different stakeholders was a key enabler to creating a solid foundation. For example, if this financing partner sees that this carmaker or this technology provider is lining up, it gives them comfort. And therefore, it’s perceived, to some extent, to reduce the risk.

Part of building a company with a small team yet with a big ambition meant that partnering up with different stakeholders was a key enabler to creating a solid foundation.

We are now seeing such a big transformation in the industry—from combustion engines into electrification and also into autonomous driving and ride-sharing. There is so much happening, and there are so many investments going into this transition that the traditional customer–supplier partnerships are, for most people, not really working. That means that we’re starting to see many more discussions about joint ventures, like the factory-building joint venture we did with Volvo Cars.

And there are also other types of strategic discussions going on about technology, capacities, et cetera, where you’re working in a much more integrated way than what we’ve seen in the past. This transition is marking a sort of new era in supply chain management and adding new and different tools to the partnership toolbox.

McKinsey: Talent is a critical component of Northvolt’s success. How have you attracted and brought talent to Sweden?

Peter Carlsson: First and foremost, it is about recognizing the clusters of competence that you need. In cell design, for example, the clusters of competence were in Japan and Korea.

If you look at battery systems and data analytics for batteries and battery packs, there is a strong proximity to Silicon Valley and the companies developed there. You need to determine where they are and then how we bring them here.

And for us, one key enabler has been the very strong mission to have an impact. People have almost uniformly joined because they want to be part of building the most sustainable battery in the world. Employees want to spend their time and their career in a company that is both sustainable and technologically advanced, where you can learn and evolve.

The second enabler, which is also something we’re going to see more and more going forward, is that almost everyone in the company is a shareholder. The employees own almost 10 percent of the company.

The combination of a mission, having a great working environment, and that shareholding has been a big success factor for us.

McKinsey: How have you managed investor and board expectations?

Peter Carlsson: I think one of the biggest reasons we have gotten the funding we have to date is because we have walked the talk on our execution and financial plans.

If you aim too high, there may be a large number of people who will doubt your ability. And we knew that. We used that as additional energy to fuel the team, like, “Let’s show them that they’re wrong.” I mean, this is a little bit too important not to try.

Of course, when you’re building a factory with the type of complexity that we’re doing up in Skellefteå, and then have a major COVID-19 crisis, the global logistics system gets totally out of whack to some extent. It hasn’t been the easiest of environments in which to run a really large, complex project. But it put the organization on its toes. We’re still roughly only six months delayed from the original plan, which is, in my book, incredibly good work from the team.

McKinsey: What surprised you on this journey of building a green business, and what excites you the most about the future?

Peter Carlsson: There are so many surprises that you go through during the journey. When somebody in the beginning told me how hard it would be to go through the first financing process, I kind of dismissed that and said, “We’re going to do it differently.”

When you sum it up, a year and a half later, all the things that I was told did happen. And maybe that wasn’t a surprise. But it was an incredible effort to get through that process.

Then from a product and industrialization process, you make a lot of mistakes. And the most important thing is you recognize you made a mistake, and you correct it as fast as hell and go on. And then don’t think too much about it. Focus on going forward.

What excites me the most is how fast I see this transition going now. The strength of technology development, the strength of the transition, and that we are able to solve a lot of big problems—that’s incredibly encouraging from my perspective.

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