[KH Explains] Will Northvolt's fall ease talent shortage for Korean battery makers?

Northvolt, backed by Volkswagen Group, was once hailed as Europe’s hope for an electric vehicle battery champion to challenge the creeping presence of Asian competitors. In a bid to spur growth, the Swedish battery maker hired dozens of battery researchers from Korean rivals, promising heftier salaries and a better quality of life -- until recently.

After years of financial struggles, however, the company last month filed for bankruptcy protection in the US and its employees reportedly seek to move jobs possibly to Korea's battery trio: LG Energy Solution, Samsung SDI and SK On.

Industry sources say Northvolt’s fall shed light on how power dynamics in the global battery market cannot be easily reversed.

Europe’s battery ambition falters

Founded in 2016 — the same year LG Energy Solution established its first European battery cell plant in Poland — Northvolt aspired to spearhead a global supply chain centered on Europe, which seemed to be a realistic goal. During its years of aggressive expansion, the company attracted researchers from LG Energy Solution and Samsung SDI.

“Researchers from LG Energy Solution and Samsung SDI chose Northvolt because they were swayed by the better work and life balance, holistic education for their children – compared to Korea’s exam-oriented education – and excellent public welfare systems in Europe as well as higher salaries,” said a former Samsung SDI researcher who requested anonymity. “They also received greater respect from the company and were able to minimize work-related stress.”

“At that time, it seemed plausible for a European battery company to gain a competitive edge in Europe – home to major German auto giants, over Korean firms,” the researcher added.

However, it was only a matter of years before Northvolt’s bold strategy faced setbacks, as its Korean rivals, which also included latecomer SK On, aggressively expanded in Europe. By the time Northvolt began operations at its gigafactory in northern Sweden in late 2021, the Korean battery trio had already gobbled up the market share in the region, with LG Energy Solution leading at 46 percent, followed by Samsung SDI’s 17 percent and SK On’s 12 percent, according to SNE Research.

“Northvolt struggled to improve its production yield, which was around 30-40 percent,” said a researcher from LG Energy Solution. “But overcoming the gap between them and Korean and Chinese companies’ 90 percent yield rate was difficult.”

“In order to improve factory production efficiency and do things right, it takes not only brain power but also cooperation, such as through Korea's deeply rooted 'ppalli ppalli' culture. In the labor market of Northern European countries such as Sweden, work hours are shorter and wages are higher than in the Korean market, so this would have been more difficult," according to the opinion of this researcher.

Irreversible market dynamics

Despite bankruptcy filings, Northvolt says it will continue operating and delivering to clients during the restricting process but a talent exodus seems unavoidable.

“Some Korean engineers at Northvolt could move to rival companies’ European or Korean research branches,” said the former Samsung SDI researcher. “It would be a boon for Korean battery makers as they struggle to retain high-tech talent who can handle key projects either overseas or at home. Korean firms prefer Korean nationals due to technology leak issues.”

The shortage of skilled workers has been a longstanding issue for Korean battery manufacturers in their global expansion. Samsung SDI operates three research centers in Germany and Austria to attract local talent, while LG Energy Solution’s “Frontier Research Lab” program in Europe collaborates with academic and research institutions. Both companies also hold regular job fairs in Europe to recruit Korean students for local Master’s or Ph.D. programs for their research centers in South Korea.

Northvolt’s failure is an example of how even a European champion backed by big name investors Goldman Sachs and Volkswagen can have difficulty narrowing the gap with rapidly expanding Asian rivals.

In June this year, as the Swedish company could not deliver EV battery cells on time, German luxury carmaker BMW canceled a long-term supply agreement worth 2 billion euros ($2.1 billion) signed in 2020. Samsung SDI, one of BMW’s major suppliers, reportedly secured Northvolt’s supply commitments.

Landing orders from leading German carmakers, including BMW, Volkswagen and Audi, Samsung SDI’s sales in Europe soared 27 percent to 10.8 trillion won ($7.7 billion) last year, surpassing the 10 trillion won mark for the first time.

In terms of market share, SNE Research projected LG Energy Solution to achieve 15 percent this year, becoming the world’s second-largest supplier in Europe after China-based CATL. Samsung SDI and SK On are expected to secure 5.1 percent and 4.5 percent, respectively.