Investment Surge in Battery Technology

Recent weeks have witnessed a significant influx of investment into the battery sector. Two companies, specifically, have announced intentions to enter the public market through mergers with special purpose acquisition companies (SPACs).

FREYR and Microvast Pursue Public Listings

European battery manufacturer FREYR unveiled plans on Friday to become a publicly traded entity via a SPAC, achieving a valuation of $1.4 billion. Shortly thereafter, Houston-based startup Microvast announced its own SPAC deal, valued at $3 billion.

A combined valuation of $4.4 billion for these two companies, despite limited revenue – FREYR has not yet begun battery production – might appear substantial. However, this is driven by the anticipated surge in battery demand.

Automakers Drive Demand

Established automotive manufacturers, such as GM and Ford, are dedicating billions of dollars to transitioning their vehicle lineups to electric models. GM committed $27 billion last year for electric vehicle and automated technology development.

Furthermore, emerging electric vehicle companies are either preparing for production or actively scaling up operations. Rivian, for example, is slated to begin delivering its electric pickup truck this summer and has secured a contract with Amazon for thousands of electric vans.

Government Initiatives and Global Electrification

The U.S. government is poised to further stimulate demand. President Biden announced a plan to replace the entire federal vehicle fleet – 645,047 cars, trucks, and SUVs – with domestically manufactured electric vehicles.

This will necessitate a substantial increase in battery production to supply not only GM and Ford, but also U.S.-based companies like Fisker, Canoo, Rivian, Proterra, Lion Electric, and Tesla.

Major global cities are also implementing electrification initiatives. Shanghai aims for electric vehicles to comprise roughly half of all new vehicle purchases by 2025, with all public transport and government vehicles becoming zero-emission by that time.

China's Leading Role in the EV Market

China represents one of the largest and most progressive electric vehicle markets globally, with policies significantly ahead of other nations.

The potential benefits from China’s EV market are a key factor in the significant investment in Microvast, attracting investors including Oshkosh Corp., BlackRock, Koch Strategic Platforms, and InterPrivate.

Microvast benefits from backing by CDH Investments and CITIC Securities, prominent private equity and financial services firms in China.

Microvast's Focus on Commercial Vehicles

Microvast is specifically targeting the commercial and industrial vehicle market, estimating a near-term opportunity of $30 billion. Currently, commercial EV sales account for only 1.5% of the market, but are projected to reach 9% by 2025.

According to Yang Wu, Microvast’s chief executive, “We set out to power a mobility revolution by building disruptive battery technologies that would allow electric vehicles to compete with internal combustion engine vehicles.”

Approximately 30,000 vehicles currently utilize Microvast’s batteries. The recent investment, totaling $822 million in cash, will fund the expansion of manufacturing capacity to 9 gigawatt hours by 2022, enabling the company to fulfill existing contractual obligations valued at $1.5 billion.

FREYR Attracts American and Japanese Investment

While Chinese investors are poised to benefit from the Microvast public offering, a group of American investors and Japanese corporation Itochu Corp. are anticipating FREYR’s public offering.

Northbridge Venture Partners, CRV, and Itochu Corp. will all realize gains from FREYR’s exit, even without being direct backers of the European company.

The Role of 24M Technologies

These firms, along with the International Finance Corp., are investors in 24M, a Boston-based startup that licenses its technology to FREYR for battery production.

FREYR’s public offering also represents a win for Yet-Ming Chiang, a serial entrepreneur and MIT professor with a long history of innovation in battery and materials science.

Professor Chiang has dedicated the last two decades to sustainable technologies, working with companies like A123 Systems (now owned by Wanxiang Group), Desktop Metal, 24M, Form Energy, and Baseload Renewables.

Desktop Metal went public last year through a SPAC merger, and 24M is now poised for a boost from investment in its European manufacturing partner, FREYR.

FREYR's Manufacturing Plans and Technology

FREYR plans to construct five modular battery manufacturing facilities in Norway, aiming to develop up to 43 gigawatt hours of clean batteries within the next four years.

According to FREYR’s chief executive Tom Jensen, the 24M technology was chosen for two key reasons: “It’s the production process itself…they mix the electrolyte with the active material, allowing for thicker electrodes and reduced inactive materials.”

Jensen further explained that this process reduces production steps from 15 to 5 compared to conventional lithium battery production.

Funding and Future Outlook

FREYR estimates it will require $2.5 billion to fully realize its plans, with the SPAC merger providing a significant portion of the necessary capital. The company is merging with Alussa Energy Acquisition Corp., backed by investors including Koch Strategic Platforms, Glencore, Fidelity Management & Research Company LLC, Franklin Templeton, Sylebra Capital and Van Eck Associates.

These investments are crucial to achieving global vehicle electrification targets.

As noted in a December report by the Royal Bank of Canada, battery electric vehicles (BEVs) represented approximately 3% of 2020 global demand, with plug-in hybrid-electric vehicles (PHEVs) accounting for another 1.3%.

RBC projects significant growth, with BEVs reaching 11% global penetration of new demand by 2025 (a 40% CAGR from 2020) and PHEVs reaching 5% (a 35% CAGR). Penetration rates are expected to be higher in Western Europe (20%), China (17.5%), and the U.S. (7%).

*Correction: This story was updated to clarify that A123 Systems was acquired by the Wanxiang Group and no longer operates as an independent entity.