Northvolt’s bankruptcy: Lessons from the fall of a green technology pioneer

Founded in 2016 by former Tesla executives Peter Carlsson and Paolo Cerutti, Northvolt had set out with an ambitious mission to produce the world’s greenest batteries and support the global transition to renewable energy.

Northvolt had sought to disrupt the battery industry and strengthen Europe's energy independence by establishing gigafactories powered by renewable energy and prioritizing the fundamental circular economy principles.

However, despite its innovative vision, Northvolt faced significant operational and financial challenges that snowballed into a bankruptcy filing in the US. This article attempts to unravel crucial insights into the complexities associated with scaling up the green technologies, navigating competitive markets, and driving cost efficiencies.

Since, its inception, Northvolt had devised a robust strategic vision towards green technologies. Its strategic plan included:

·  Focus on producing lithium-ion batteries for electric vehicles (EVs) and energy storage, using renewable energy to minimize environmental impact.

·  Building its first gigafactory, Northvolt Ett, in Skellefteå, Sweden, with an annual capacity target of 60 GWh.

·  Expanding into sodium-ion batteries, diversifying its portfolio to lower costs and reduce dependency on critical minerals.

·  Operating a battery recycling facility to recover valuable materials

However, the company underwent several operational bottlenecks in 2023. This led to the business incurring severe losses and mounting debt, with the company eventually filing for bankruptcy under Chapter 11 in the US.

Some of the challenges that the business grappled with are as follows:

Production issues:

·  By 2023, Northvolt Ett produced less than 1% of its theoretical capacity due to challenges in scaling production processes.

·  Issues observed in achieving consistency across critical steps, such as mixing, coating, and drying, severely hampered productivity.

·  Quality concerns led to the cancellation of high-value contracts, including a €2 billion deal with BMW.

Technological constraints:

·  Focused on nickel manganese cobalt (NMC) cathodes for high-energy density batteries, which became less competitive as lithium iron phosphate (LFP) batteries improved in cost and performance.

Financial woes:

·  Northvolt accrued $5.84 billion (€5.61 billion) in debt while maintaining only $30 million (€28.81 million) in cash reserves by 2023 end

·  Failed to secure a critical $1.5 billion loan guarantee, leading to increase in the liquidity issues.

Increasing competition:

·  Faced stiff competition from Chinese manufacturers like CATL and BYD, which offered batteries at significantly lower costs ($55/kWh compared to $139/kWh for European counterparts).

Consumer sentiment:

·  Consumers, pressured by inflation and rising costs of living, began prioritizing affordability over green premiums.

Key learnings that can be derived through this case are as follows:

·  Sustainability must be complemented by cost-competitiveness, especially in price-sensitive markets like EV batteries.

·  Despite its state-of-the-art facilities, Northvolt struggled to scale production effectively. This highlights the strong imperative to secure technical know-how and quality talent before foraying into large-scale expansion. Investing in expertise and process optimization early on can help curtail risks.

·  The business's high operating leverage and significant fixed cost structure magnified its challenges, converting difficult periods into severe downturns.

   * The opinions expressed in the article are personal and do not represent the opinions of the organization I work for * 

Trump 2.0: What Indian economy can expect from the new US presidency

 

The recent election of Donald Trump as the 47th President of the US has stirred global markets, with far-reaching implications that transcend beyond the American frontiers. As India’s top export destination and a significant economic partner, the US plays a pivotal role in India’s trade, investment landscape, and overall economic trajectory. Trump’s anticipated policies, particularly on tariffs, immigration, tax reforms, and defence, could shape India's economic and geopolitical positioning. This article attempts to delves into the potential impacts of Trump’s presidency on the Indian economy.

1. Tariff implications

The US is India’s largest export destination, constituting 17.41% of India’s total exports in 2023. However, Trump’s proposed imposition of higher tariffs at 10% across all imports could disrupt India’s export market. Trump’s administration is likely to increase tariffs on key Indian goods, including automobiles, textiles, pharmaceuticals, and wines, affecting India’s competitive standing in the U.S. market. According to the Global Trade Research Initiative (GTRI), heightened tariffs on these sectors could compress India’s export revenue, particularly in manufacturing-dependent regions.

However, this scenario presents a different perspective as well. The potential for up to 60% higher tariffs on Chinese imports aligns with the globally relevant China+1 strategy, which encourages diversifying manufacturing dependence away from China. India stands to benefit from this policy shift by effectively positioning itself as an alternative manufacturing hub and unlock increased market share in sectors like electronics, textiles, and semiconductors.

2. H1-B Visa program

Indian IT firms and professionals heavily depend on the H-1B visa program for workforce mobility to the US. In the past, Trump has adopted a restrictive stance toward this program, asserting that it disadvantages American workers. During his first term, stricter visa regulations led to increased denial rates, with the average H-1B denial rate jumping from 6% in 2016 to 24% by 2018. Analysts anticipate similar measures could resurface, potentially complicating the visa process for Indian applicants.

Indian firms that rely on H-1B visas for a skilled workforce in the US may face an imperative to diversify their market focus or boost domestic hiring in India. With 15% of H-1B applicants recently securing visas amidst heightened scrutiny, Indian companies might prioritize alternative hiring practices, which could spur local employment but limit Indian talent's access to US-based opportunities.

3. Corporate tax cuts

Trump’s emphasis on reshoring US manufacturing through a reduced corporate tax rate of 15% for domestic manufacturers could have mixed effects on India. As the US works to reduce its dependence on overseas production, particularly from China, opportunities for Indian manufacturers in sectors like semiconductors and consumer electronics may expand, aligning with India's Make in India campaign. However, this redirection may also heighten competition for Indian exporters in the US market, making the environment more challenging for MSMEs.

4. Strengthening collaborations on defence

Trump’s foreign policy outlook on reducing Chinese influence in Indo-Pacific region places India as its strategic partner. The US is likely to expand defence cooperation with India, focusing on countering China’s regional influence through initiatives like the Quadrilateral Security Dialogue (QUAD), involving the US, India, Japan, and Australia. Enhanced military cooperation could catalyse investments in India’s defence sector, fostering technological advancement, and robust defence spending to enhance its security infrastructure.

5. Potential Rupee Depreciation Against a Strengthening Dollar

The Indian rupee may experience depreciation in light of the strengthening US dollar, with forecasts projecting it to decline to 84.20-84.50 against the dollar in the short term, and potentially reaching 84.50-85 in the first half of 2025. A weaker rupee could increase the cost of imported goods, impacting sectors reliant on dollar-denominated imports. Rising import costs, especially for oil, could contribute to inflationary pressures within the Indian economy, mandating appropriate policy responses from the RBI.

Donald Trump’s presidency presents a barrage of economic challenges and opportunities for India. While increased tariffs and restrictive immigration policies may create hurdles for Indian businesses, opportunities also arise from the China+1 strategy, defence collaborations, and export competitiveness. Indian policymakers and businesses need to navigate these shifts, ensuring India capitalizes on new avenues while mitigating potential adverse impacts.

  * The opinions expressed in the article are personal and do not represent the opinions of the organization I work for * 

The Evolution of the UK's Financial Sector

Over the centuries, the UK has established itself as a financial hub, with London emerging as a centre for international trade in the early 18th century. The Bank of England, established in 1694, played a crucial role in providing greater liquidity in the national marketplace and supporting the growth of foreign trade.

In 1986, the London Stock Exchange underwent significant changes when it was deregulated, an initiative that became known as the "Big Bang". This event marked the introduction of electronic trading, eliminating face-to-face trading mechanisms and resulting in a surge in trading activity. The Big Bang led to the merger of brokers, jobbers, and merchant banks, and created a free-for-all trading environment that attracted several international banks to London. The Big Bang is credited with creating a significant number of millionaires, and it has left a legacy in the form of a robust financial infrastructure that has cemented London's status as a leading global financial hub.

During the same period, the London Interbank Offered Rate (LiBOR) was established as a benchmark interest rate used to set the cost of borrowing for financial institutions around the world. LiBOR was established in 1986 as part of a broader set of reforms known as the "Big Bang" that deregulated financial markets in the UK. The purpose of LiBOR was to serve as a benchmark interest rate that reflected the cost of borrowing for banks in the London interbank market. The rate was determined by a daily survey of a panel of banks, which submitted their estimated borrowing costs for various currencies and maturities. LiBOR quickly became a widely used benchmark rate for financial contracts, including derivatives, loans, and mortgages, and played a key role in facilitating global financial transactions.

The 1990s saw the UK's financial sector continue to grow, with the emergence of hedge funds and private equity firms. By the 2000s, the UK's financial sector had become increasingly globalized, with strong foothold of international banks.

However, the global financial crisis in 2008 led to increased regulation of the financial sector and a renewed focus on risk management. And in 2021, the Financial Conduct Authority (FCA) announced that LiBOR will be phased out by the end of the year, reflecting changing attitudes towards benchmark interest rates. The changing attitude came as a result of several scandals and concerns over the manipulation of these rates. In this context, LiBOR had come under scrutiny after allegations of rate-rigging by several large banks. This resulted in a loss of confidence in the benchmark and a dire need for a replacement.

In conclusion, the UK has a long history as a financial centre, with London establishing itself as a hub for international trade and finance. The development of the Bank of England, the creation of the London Stock Exchange, and the introduction of electronic trading and LiBOR have all contributed to London's status as a leading global financial hub. However, challenges such as the global financial crisis and concerns over benchmark interest rates have also prompted increased regulation and scrutiny of the financial sector.

 * The opinions expressed in the article are personal and do not represent the opinions of the organization I work for * 

Elon Musk’s ‘Twitter’ dream and the measures taken to realize it

 

Elon Musk bought Twitter for cash consideration of US$ 44 billion, paying $54.20 per piece. After months of legal tussles, deal was finally sealed in October 2022. Musk announced that he plans to promote free speech and create open algorithms to showcase transparency. In his investor pitch, he made tall claims to increase annual revenue from US$ 5 billion in 2021 to US$ 26.4 billion in 2028. He further anticipated the user base to grow from 217 million in 2021 to 931 million in 2028. However, to realize his vision, he has resorted to aggressive measures like job cuts and charging customers for verified accounts, attracting a strong public backlash and co-ordinated trolling attacking by resentful users. This post attempts to lay down a summarized view on steps taken by Elon Musk to remodel the business

1)     New appointments and series of layoffs: Musk has handed pink slips to 50% of Twitter’s staff in order to drive cost efficiencies. His acquisition of Twitter has led to interest bill of US$ 1 billion which makes it imperative for him to cut costs on a war footing. Additionally, being the sole director of Twitter, he has also dissolved the board and fired series of leadership including CEO Parag Aggarwal (CEO), Ned Segal (CFO) and Vijaya Gadda (Head of Legal, Policy and Trust). Furthermore, he has also brought in team of associates as enablers to grow the business including his personal attorney and tech investors 

2)     Setting the table for a stream of recurring revenues: The users of verified accounts will have to pay US$ 8 per month to keep the blue tick (sign of a verified account) next to their name. With this, Twitter will attract a slew of recurring revenues of US$ 40.3 million annually and is expected to reach above US$ 400 million as of 2028 (Assumption: 0.2% of total twitter user base consists of verified accounts; This figure is expected to reach 0.5% as of 2028)

3)     Additional features: Musk wants to transform Twitter’s user interface into different customized versions across customer preferences. He has backed a user suggestion wherein one of the versions can include a conducive space for organized debates and spats (only for verified users). Additionally, he also wants to include user feedback to Twitter posts in form of ratings.

4)     Revival of Vine?: Vine was six-second-long video sharing application, which was acquired by Twitter in 2012 and later discontinued in 2016. Elon Musk conducted a Twitter poll for a consumer opinion on whether he should revive Vine or not. The poll results concluded with 70% of respondents in favour of the Vine comeback. However, Musk needs to evaluate this decision, considering a fierce competition from the existing giants: Tiktok and Youtube in this space

5)     Transforming the application into a super app: Lastly, Musk plans to transform the social media platform into a super application. In future, Twitter can also include features like instant messaging and digital wallets (Elon Musk can bring his core expertise from his initial ventures – Paypal, a digital wallet). Furthermore, he also wants the platform’s algorithm to be open source, making way for public review and modification. Furthermore, he desires to chart a blockchain-based future for Twitter wherein users can add their messages to the blockchain for a small fee which can insulate the posts from bots and spams.

* ThThe opinions expressed in the article are personal and do not represent the opinions of the organization I work for * 

3 must-haves for India to chart its own transformational growth journey

 As my first in post in year 2022, I decided to lay my idea on the fundamentals that India need to revisit in order to have a strong growth trajectory. However, this post does not try to slice and dice the economic data. Instead, it attempts to revisit the foundation that needs to be addressed to make growth an inherent process, more than an objective.

So, here are my 3 must-haves for India to chart a transformational journey

1)     Address the ‘Brain-Drain’ issue:

 One of the key issues that needs resolution is the brain-drain problem. Graduates from leading institutes settle abroad, looking for better education, good employment opportunities and high salaries. As per Global Wealth Migration Review, 2% of high-net worth individuals settled abroad in 2020. This dynamic creates worrying levels of vacuum of quality talent in India. There are few advantages as well as India observes strong flow of remittances (USD 87 billion) in 2021. However, the cons clearly outweigh the pros in this scenario

As a solution to this issue, India needs to explore options to create equal and strong educational frameworks that create nationwide skilling movement. It is imperative to focus on bridging gaps between academia and corporates by identifying relevant skills for today. With good opportunities opening up, we can see a decline in the brain drain activity in subsequent years.

2)     Foster Innovation:

India jumped two positions in Global Innovation Index prepared by World Intellectual Property Organization (WIPO) in 2020. Currently, India stands at 46^th position on this index. However, there are still significant degrees of freedom to build up on India’s innovation capabilities. Currently, the total patents filed in 2020 stood at 37,880 which is up from 15,914 back in 2011. This showcases strong push by Indian government and companies to bring new ideas to the growth story. However, breakthrough innovations at grassroot level sometimes go unnoticed with this patent filing mechanism. It is up to the government to tap into this so as to explore newer possibilities to its fullest depth. In this regard, the corporate and academia should be empowered to support India’s rural core by providing funding, technical know-how, marketing, branding and patent filing avenues to ensure that these innovations appear on radar going forward.

3)     Imbibing principles from India’s ancient heritage:  

This point may seem a little off-track given the fact that we are discussing on ways to grow economically. Believe it or not, India’s spiritual heritage is replete with principles on how to manifest abundance, growth, peace and harmony. In the age of dynamic change, it is important for us to imbibe principles which can give us required clarity and strength to work towards our growth. The new way of life can help us to navigate the complexities with fluidity and work to achieve the larger purpose.

 

With this, I will conclude by saying that India’s economic goals cannot be achieved without strong and focused individual contributors and thus it is necessary to nurture and develop talent across all levels.

 

Thanks to Tata Group, Air India finally gets their old pilot back

 

Struggle to find a buyer comes to an end

1)     Air India arrived in Tata Sons’ cockpit after relentless struggle by Indian Government spanning two decades to find a suitable buyer for distressed airline. For strategic disinvestment, the Government had reserved the ask price to be around 12,906 crores. Tata Sons bid price came to be around INR 18,000 crore, successful overpowering the bid by SpiceJet’s Ajay Singh for INR 15,100 crore.

2)     Tata Sons will now have 100% ownership in Air India along with complete stake in Air India Express (Air India’s international low-cost arm) and 50% stake in the ground handling joint venture. Further, Tata Sons will also own brands like Indian Airlines and Maharajah.

3)     Of INR 18,000 crores bid by Tata, 15,300 crores will be Air India’s debt component taken by Tata. Remaining 2,700 will be the cash paid to the government. 44,000 crores of remaining debt in Air India will be transferred to a special-purpose vehicle (SPV)

The Timeline

1)     The airline was bleeding cash since its merger with Indian airlines back in 2007 amounting to loss of INR 20 crore per day. With this, gradually, Air India started reeling under a mountain of debt amounting to INR 60,000 crore (2020)

2)     In 2019, Indian Government issued a de-facto approval for creation of SPV named Air India Assets Holding Ltd. Furthermore, they had decided to transfer the INR 29,464 crore of total 43,000 crore debt (2019) to the SPV. This led to 90% of total debt being government-guaranteed.

3)     Air India faced enormous turbulence since the initial decision by government to opt for a stake sale. In 2000, NDA Government led by Atal Bihari Vajpayee tried to sell a minority stake of 40%. However, rising resistance for privatization by trade unions led to this plan coming to an abrupt halt.

4)     Eventually, NDA Government hiked the stake sale to 76% in 2018 and to 100% in 2020, further inviting expression of interest from potential bidders

5)     Furthermore, in October 2020, Government relaxed limitations for buyers, providing them the discretion to fix the amount of Air India’s debt they wanted to absorb.

Way forward for Air India

1)     Currently, Tata Sons will own 84% share in Air Asia (Market share: 5.2%) and 51% ownership in Vistara (Market share: 8.3%). Combined with Air India’s market share of 13.2%, Tata can have strong strategic position in India’s airline industry with 27% market share, second in position to Indigo

2)     Tata Group will further seek to implement few measures in the airline including debt refinancing, negotiating high-cost vendor contracts, refurbish old aircrafts and set up an able leadership team to give Air India a strategic pathway. Tata Group has brought in TCS as technology partner to remodel the technological capabilities.

3)     However, concerns are still looming with Air India staff with respect to salary arrears, salary cuts and staff accommodations. Now, it’s for us to see the Tata Group’s response to these apprehensions.

* The opinions expressed in the article are personal and do not represent the opinions of the organization I work for * 

 

Chip Shortage: A New challenge to the automotive industry

I

nitially, in the spring of 2020, when COVID-19 pandemic swept across Europe and US, leading automotive players like General Motors, Ford Motor and Volkswagen took immediate measures to halt the production lines to being in tune with the receding demand. Forecasting a possible slowdown, carmakers cancelled all the chip orders which are usually required for driver assistance and navigation control systems. With this, semiconductor producers assigned their vacant production capacities to cater to other end markets like smartphones, laptops and other appliances. With Work-from-home and Learn-from-home models of operation gaining momentum in pandemic, it was evident that demands for smartphones and laptops had gained significant steam. Gradually, automotive industry also observed a reset in demand slowdown with pent-up demand and began to send in their orders to the chipmakers. With a gloomy future laying ahead, buyers started to stockpile the chips with rising uncertainties caused by US-China technology tussle.

This has put tremendous stress on the manufacturing capabilities of the semiconductor companies who are now unable to cater to the sudden rise in demand. Wafer fabrication plants are fine-tuned and are running 24 hours a day for 7 days a week. Setting up additional production lines is not easy as it requires entire year to commence operations and billions of dollars’ worth of investment. Besides, significant disruptions to the supply chain, fire in chip factory in Japan and halting of production due to winter in Texas, United States has further aggravated the issues. Currently, vendors are quoting lead times as long as 32 weeks for the delivery of chips, as per Andrew Feldman, CEO of a chip startup named Cerebras Systems.

Leading automotive companies are attempting to perform some serious damage control in order to cater to the global car demand. General Motors are building light duty full-size pickup trucks without the fuel management module. It has further extended production cuts to its three North American plants. Elon Musk has also introduced alternative chips to Tesla’s production capabilities. It has also considered rewriting the vehicle’s software to accommodate the alternates. The chip shortage is expected to wipe off USD 2 billion from Ford Motor’s 2021 profits. To keep the business afloat, Ford is also launching flagship F-15 pickup truck and Edge SUVs with absence of certain parts. However, chip shortage has led to significant price gains in the global used car market, also recording purchases equal to the new cars.

In case of the chip manufacturers, there lies an uphill task for them as well as they look to remodel and restructure their manufacturing processes to this ballooning demand. Taiwan Semiconductor Manufacturing Company, Limited (TSMC), a major player involved in production of up to 80% of chips worldwide, has announced an investment of USD 2.87 billion to set up additional production lines at its fabrication plant in Nanjing, China. Furthermore, Intel also has decided to allocate resources, particularly for automobile segment, which it had remained distant from until now. It has investment pipeline of USD 3.5 billion to expand its wafer fab in New Mexico, along with array of funds channeled to its plants in Arizona, Oregon, Ireland and Israel.

However, in future, buyers need to optimize their supply chain and operational efficiencies in order to avert a similar mishap going forward. Essentially, companies need to leverage on digital solutions like Big data, artificial intelligence and machine learning for efficient demand forecasting and production scheduling. NXP Semiconductors, a European chip maker is now working directly with automotive part suppliers like Bosch in order to understand future demand scenario. Buyers and sellers need to set up digital platforms in order to collaborate for seamless exchange of data including production schedules, order pipeline, demand forecasts, supply-chain data and many more.

This chip shortage, expected to snowball in 2022 as well, is a harbinger for companies to reinvent their procurement and production models to evade such aftermath in future. Data, being one of the strongest tools at their disposal should be analyzed to predict better outcomes. 

* The opinions expressed in the article are personal and do not represent the opinions of the organization I work for *