Battery Technology Companies receive a record amount of investment in 2020

Last fall, Swedish lithium-ion battery producer Northvolt reported that $600 million in equity had been collected to invest in capacity expansion, R&D, and large-scale recycling.

Institutional investors Baillie Gifford, Baron Capital Group, Bridford Investments Limited, Norrsken VC & PCS Holding and private investors Cristina Stenbeck and Daniel Ek were involved in the capital raise. It was joined by Goldman Sachs, IMAS Foundation, Scania, and Volkswagen AG, the current shareholders of Northvolt.

For a firm that is not exactly well known in the U.S., the $600 million marked a significant capital increase, but Northvolt CEO Peter Carlsson had previously made known the company's intent to change China's supremacy in the European market: “There’s a pretty significant export flow of used batteries to China, and that’s stupid. It’s important to keep these flows within Europe.”

In 2020, Northvolt made the largest deal in battery space, but for the fast-growing market, it was a significant year pretty much across the board. Mercom Capital Group, a cleantech-focused global communications and research and consultancy company, recently released its Q4 and Annual 2020 Funding and M&A Report for the sectors of battery storage, smart grid and energy efficiency.

Some of the report's main conclusions include:

- Battery storage, smart grid and energy efficiency companies brought in $8.1 billion in corporate funding in 2020, compared to $3.8 billion in 2019.

- Corporate funding in battery storage was up 136% with $6.6 billion in 54 deals in 2020.

- Global VC [venture capital] funding for battery storage, smart grid and efficiency companies in 2020 was 12% higher with $2.6 billion. compared to $2.3 billion raised in 2019.

The study indicated that in 2020, with $649 million, lithium-ion based battery technology firms earned the most VC funding. Yet money also went to other storage types, such as solid-state batteries, downstream energy storage, energy storage systems, and flow batteries.

The interest of investors in the space is evidently growing. In 2020, relative to 78 in 2019, 105 VC investors invested in battery storage deals. In 2020, the biggest investor was Breakthrough Energy Ventures. In the same year, utilities and oil and gas firms were interested in four funding deals for battery storage.

The report also noted:

“In 2020, announced debt and public market financing for battery storage companies was up significantly with $5 billion in 22 deals compared to $1.1 billion in 10 deals in 2019. This is the highest amount raised in public market financing since 2014. Northvolt's $1.6 billion and Plug Power’s PLUG -2.8% $1 billion loan were the largest public market financing deals in 2020.

There were 19 M&A transactions in the Battery Storage category in 2020, of which two disclosed transaction amounts. A total of 24 battery storage and solar plus storage M&A transactions were announced in 2020 compared to 11 in 2019.”

China has been a leading player in the lithium-ion battery space. The country has a huge advantage of low - cost labour, plus China has more reserves of lithium and higher production of lithium than other nations. Chinese lithium production was 7,500 metric tons in 2018, third among all nations and over eight times the production of U.S. lithium.

However, some of the deals announced in 2020 mark a significant shift in the growth of a robust battery industry that is not fully dependent on China.

The investment in battery recycling by Northvolt represents a significant part of this strategy. A recent Markit Study from IHS noted:

“Large waves of end-of-life batteries (batteries at the end of their usable life) are set to begin this year, creating a sizeable repository of recyclable material. IHS Markit expects that over 500,000 tons (57 GWh) of batteries will reach their end-of-life point in 2020. That figure is expected to rise to 1.2 million tons (121 GWh) in 2025 and reach 3.5 million tons (350 GWh) in 2030—a seven-fold increase.”

With the world heading more and more in the direction of electric cars, and with the anticipated explosion in the number of batteries needing recycling, Northvolt's substantial investment seems to make excellent strategic sense.