The Investment Management Corporation of Ontario (IMCO) announced today that it is piling US$400 million into Sweden-based Northvolt, joining a raft of other public pension funds including provincial stablemate OMERS that have invested in the battery manufacturing giant. The investment is being conducted through convertible notes, which provide it with regular interest payments and enable it to convert debt into equity should Northvolt struggle to repay.

Northvolt fits well with IMCO’s strategy to diversify its portfolio away from North America by increasing investment in Europe, while at the same time aligning with the global energy transition. Europe also benefits from strong regulatory support for a shift to electric vehicles (EVs) and the onshoring of manufacturing.

IMCO is not alone in seeing Northvolt and other suppliers to the EV industry as a means to diversify and decarbonize. In July 2020, the Netherlands’ public pension fund manager APG joined corporate pension heavyweights PFA and Danica Pension – the pensions subsidiary of Danske Bank – in backing a US$1.6 billion financing package for the lithium-ion battery maker as part of a consortium of global investors including banks and public financial institutions.

Last July, OMERS and Swedish funds AP1 and AP4 invested in a US$1.1 billion convertible note, which is financing the rollout of battery cell and cathode material manufacturing in Europe. Along with IMCO’s latest investment, Northvolt has now raised around US$9.5 billion in equity and debt since 2017 and was valued at US$12 billion in 2021. According to Reuters, Northvolt has been in talks with banks about an initial public offering that could value it at more than US$20 billion.

The integrated battery manufacturer began production at its first facility, the Ett gigafactory in Skelleftea, Sweden, in late 2021 and has won orders totalling US$55 billion from customers including BMW, Fluence, Scania, Volvo Cars and Volkswagen Group. Since 2021, it has established the Northvolt Volvo Cars joint venture gigafactory in Gothenburg, Sweden, and Northvolt Drei, its third gigafactory, in Heide, Germany and is constructing a cathode factory, Northvolt Fem, in Borlange, Sweden. Future gigafactory additions will support Northvolt's goal of delivering 150 GWh of annual production capacity by 2030.

Indonesia and Saudi Arabia: Fuelling EV Acceleration

Northvolt is by no means the only integrated battery producer winning support from sovereign capital. Beyond Europe, the US$8 billion Indonesia Investment Authority (INA) – which has won US$27 billion of commitments from global investors including ADIA, APG, CDPQ and DP World - is seeking sovereign capital to support its low carbon energy transition. Last year, it launched a US$2 billion green fund initiative, which is part of a broader government strategy to position Indonesia as a major player in the electric vehicle (EV) market. Indonesia holds 22% of the world’s nickel reserves and is set to become a heavyweight in global nickel production, supplying around 50% of the world’s refined nickel by 2030, according to INA.

Initially, the green fund will focus on battery development and nickel mining to create the basis for a sustainable EV industry. The fund will include investment by Contemporary Amperex Technology Company Ltd (CATL) and CMB International (CMBI) to create a US$2 billion investment fund, focusing on the full value chain. CATL is a leading EV battery supplier to global auto majors.

While state-owned investors have sought exposure to growth in EV battery markets, Saudi Arabia has led the way in investing directly in the manufacture of EVs, which is spurring the demand for batteries. The development of EVs is part of Saudi Arabia’s Vision 2030, which aims for 30% of vehicle sales to be electric by the end of the decade, supported by locally manufactured cars. Its Public Investment Fund (PIF) also aims to reach net zero by 2060 and is deploying various efforts in the development of renewable energy and sustainable communities. The automotive industry is one of the main targets for carbon emissions reductions, but also it sees the sector as an opportunity for economic diversification with plans to export over 150,000 EVs in 2026.

PIF began its involvement in Lucid in 2018 when it invested US$1 billion in the Tesla rival. In February 2021, PIF, BlackRock and others invested another US$2.5 billion in Lucid as part of its merger with special purpose acquisition company Churchill Capital Corporation IV ahead of its IPO in 2021. Since then, PIF has through the EV maker lifelines, including a US$1.52 billion capital raise in late 2022 and more recent talk that it will take Lucid private.

Lucid is not the only focus of PIF’s domestic EV ambitions. In November, it confirmed the launch of its own indigenous brand, Ceer, in a joint venture with and Taiwan-based Hon Hai Precision Industry Company (Foxconn). The first models are scheduled to roll off the production line in 2025 and the brand is projected to contribute US$8 billion to Saudi GDP by 2034, creating 30,000 jobs.  Meanwhile, Saudi Arabia’s plan to develop a domestic green hydrogen sector – notably with plans by Air Products and ACWA Power to develop a 4GW green hydrogen project scheduled for completion by 2025 - should also help support the planned production of hydrogen fuel cell trucks by Hyzon Motors.

The main obstacle to the development of the Kingdom’s automotive industry is the lack of an integrated auto supply chain. Investment is being channelled into developing a complete EV supply chain and in August 2022 the government announced it was planning to develop a US$2 billion battery metals plant, capitalizing on the country’s growing mining industry.  Australian battery technology company EV Metals has begun the construction of processing plants for lithium hydroxide monohydrate in Saudi Arabia and there is potential for domestic mining of EV battery metals in the medium- to long-term, emulating Indonesia’s model.

Image source: Northvolt

Related funds AP Fonden APG IMCO INA OMERS PIF