BOCHUM — Swedish EV battery cell manufacturer Northvolt aims to outcompete rivals by lowering costs through greater vertical integration rather than product innovation.

The company, founded by two former Tesla engineers, believes the key to surviving as new player dwarfed by Asian manufacturers is to focus on the most energy-intensive part of component production using affordable renewable power found in Sweden.

Northvolt is currently building the first half of a 32-gigawatt hour “Ett” cell plant at an investment cost of 1.6 billion euros and one aspect of the value chain it will address will be production of the cell’s cathode.

“You want to control the heaviest relative weight bill of materials and cathode is clearly heavier than anode,” said Paolo Cerruti, Co-Founder and Chief Operating Officer, on the sidelines of the annual CAR Symposium held in Bochum.

Estimates vary, but roughly 80 percent of a cell’s costs or more derive from materials costs. The bulk of which is required for a cathode’s active materials, often comprised of metals like nickel, manganese and cobalt.

Entering into cathode production could give the company a better opportunity to lower costs and improve quality control. Once production of these electrodes is stripped out, the actual manufacturing process of lithium ion battery cells themselves comprises as little as 5 percent of the total industrial value chain, according to German chemicals giant BASF.

Anodes, by comparison, may also be the next technology to change in the medium term after solid-state cells unite the separator and electrolyte into one combined element.

“Cathode is expected to be a very long-lasting part of the equation, and what you want to do is invest in assets with a very high longevity to make sure the money you are deploying will continue to work for a long time,” Cerruti said.

By comparison, the executive said that Northvolt would not, at least initially, compete in terms of technology, but rather in the production process through its vertical integration.

“We are not trying to be the first to introduce solid-state batteries, someone will do it probably before us — we want to do very well and very efficiently what others are planning to do,” he said.

Cerruti also indicated that the Ett plant could just be the beginning, citing a need to scale up production.

“In this business, you go big or you go home,” Cerruti said.

Asked when Northvolt might break ground on further sites, he replied: “it’s too early to give precise dates, but the market is there. Our customers are urging us to start thinking about that.”

For that reason, Northvolt is concentrating on making its industry facilities modular, in order to easily replicate them quickly and efficiently if need be.

Partially funded by the European Investment Bank, the Swedish battery cell supplier has formed partnerships with industrial groups like ABB, Scania and BMW ahead of Ett’s start of production next year.

Even though he acknowledged that scale in this sector was key to surviving, Cerutti said Northvolt wasn’t concerned about Asian companies like LG Chem setting up plants in Europe. Indeed, just the opposite - he believed it was necessary for his business plans, since the big names would attract more suppliers to the region.

“We are building from the ground up an industry in Europe and while we certainly have high-quality academic research, we have zero experience at scale. All the experience is coming from Asia,” he said.

“Regardless of how successful, how big Northvolt is going to be, we will not generate the critical mass (on our own) to have those supply chains and those investments happen in Europe."