STOCKHOLM (Reuters) - Sweden’s Northvolt has secured a partnership with German carmaker BMW and is seeking more funds from the European Investment Bank (EIB) to help its plans to build Europe’s largest battery factory.

The BMW logo is seen on the second press day of the Paris auto show, in Paris, France, October 3, 2018. REUTERS/Regis Duvignau/File Photo

The firm’s new plant is seen as central to Europe’s effort to compete with Asian rivals such as CATL, Samsung and LG Chem, which have gained a lead in the battery market by locking in supply deals with carmakers.

Northvolt said on Monday it had teamed up with BMW and Belgian materials and recycling firm Umicore to design and commercialise a process that would give vehicle batteries a second lease of life as storage products before recycling them.

BMW will provide expertise in battery cell development and Umicore will be responsible for developing active anode and cathode materials and recycling, the companies said.

The German carmaker, which has supply deals with Samsung and CATL, is investing an undisclosed sum in the partnership.

BMW spokesman Niklas Drechsler said the deal opened the door to the possibility of buying batteries from Northvolt in future.

“We have this consortium because we see great potential and Northvolt could be another supplier of battery cells for us,” he said, adding that Northvolt had to “build up and ramp up” cell production before any supply deal could be reached.

Northvolt, set up by former Tesla executive Peter Carlsson, needs to raise close to 4 billion euros ($4.6 billion) in equity and debt to finance its plans of building a factory to produce 32 gigawatt hours (GWh) of battery capacity a year by 2023.

Securing a partnership with a large carmaker like BMW is likely to boost its credibility with equity investors who have been skittish due to the head start Asian firms have in the business.

The race to develop battery production has created some uncertainty in the global market. Consultants BCG forecast that global capacity will exceed market demand by about 40 percent in 2021, which it said was likely to drive down prices.

Northvolt exceeded its 80 million to 100 million euro target in its initial fund raising, but the process took longer than expected. A 52.5 million euro EIB loan, made along with the Swedish government, was the biggest contribution.

The company aims to raise about 1.5 billion euros in debt and equity this year to build an initial 8 GWh of capacity.

Northvolt spokesman Jesper Wigardt said it had applied to EIB on Sept. 19 for a further 400 million euro loan. He also said the company wanted to deepen its relationship with BMW.

“We obviously hope this is the first step of a long partnership,” he said.

An EIB spokesman said it could take three to six months for the bank decide on Northvolt’s new loan request, adding that on average EIB loans did not exceed 100 million euros.

“This is absolutely within what we should be financing ... It clearly has Europe’s sustainable growth and creation of jobs in mind,” the spokesman said, adding the bank had to ensure the plan was “financially sound and technically viable.”

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