June 15, 2018 / 7:00 AM / 5 months ago

RPT-Northvolt cuts cost estimate for European battery plant as seeks investors

(Repeats JUNE 14 story. No change to text.)

* Factory to cost “significantly less” than 4 bln euro guidance

* Company looking to raise 1.2-1.5 bln euros this year

* EIB expected to provide loan, but institutional investors wary

By Esha Vaish

STOCKHOLM, June 15 (Reuters) - Northvolt has cut the estimated cost of building Europe’s largest battery factory, giving a boost to a project that faces a battle to attract investors worried about Asia’s head-start in the industry.

The Swedish company, set up by former Tesla executive Peter Carlsson, will spend “significantly less” than its previous guidance of 4 billion euros ($4.7 billion), chief operating officer Paolo Cerruti told Reuters, without giving a new figure.

Cerruti, who co-founded the battery start-up with Carlsson, said Northvolt had identified ways to increase equipment productivity and lower raw material costs as well as the amount of energy needed to produce each gigawatt of battery power.

European politicians and industry are keen for home-grown battery producers to emerge as rivals to Asian players such as CATL and Samsung, which are building a dominant position in the industry.

Demand is expected to surge over the coming years as the production of electric vehicles rises, with Northvolt investor InnoEnergy projecting the market will be worth up to 250 billion euros here a year by 2025.

Northvolt plans to build a factory in Sweden to produce 32 gigawatt hours (GWh) of battery capacity a year by 2023.

It is preparing to raise 1.2-1.5 billion euros in debt and equity this year to help build an initial 8 GWh of capacity, and expects the European Investment Bank - an existing backer - to provide a chunk of the debt.

It has also hired banks to tap institutional investors for the equity portion. But that may prove a harder sell.

When asked if he would put money into a battery project, Jeremy Kent, a portfolio manager with Allianz Global Investors, said: “It would be difficult from our perspective.”

The reason: battery manufacturers face low margins and high risks due to competition from Asian companies that have already built up technical expertise, supply chains and relations with carmakers, he said.

HIGH RISKS

In comparison, Northvolt is a startup without any distinguishing know-how, said Gerard Reid, founder of Alexa Capital, which advises firms in the energy sector.

“I don’t believe Northvolt will attract any (institutional money) because the risks are so high.”

Investors lost billions funding European solar projects that were unable to compete against cheap Chinese entrants, and the experience has made some skittish about battery investment.

Cerruti acknowledged battery manufacturing was similar to solar cells in terms of the risk-reward analysis, but said the investment case was different.

With solar cells, China subsidised production while Europe inflated market demand by subsidising purchases, allowing Chinese players to win expensive European products.

This time, Europe is funding battery projects, much like China, creating a level playing field, Cerruti said.

Northvolt exceeded its 80-100 million euro target in its initial funding, but the process took longer than expected.

Although partners it signed such as ABB and Scania made 10 million euro investments each, the EIB’s 52.5 million euro loan, made along with the Swedish government, was easily the biggest contribution.

Cerruti declined to specify how much would be raised through debt in the upcoming financing round, but said the EIB had “expressed a willingness” to participate in the debt fundraising. That was confirmed by an EIB spokesman.

“The bank stands ready to support this kind of innovation in Europe,” he said, adding Northvolt could ask for a loan covering up to 50 percent of the project’s cost.

$1 = 0.8457 euros Additional reporting by Laurence Frost in Paris; Editing by Niklas Pollard and Mark Potter

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