Funding for Northvolt: Economist doubts whether it makes sense

Funding for Northvolt: Economist doubts whether it makes sense

According to a report from www.ndr.de,

The Swedish company Northvolt plans to build a battery cell factory just outside Heide and create 3,000 jobs. The federal and state governments plan to support the settlement with a total of 700 million euros. However, an economist at the Kiel Institute for the World Economy (IfW) expresses doubts as to whether the subsidies make sense. The investment amount for Northvolt's Gigafactory amounts to 4.5 billion euros. Northvolt cannot raise this amount alone and is therefore dependent on funding. The EU Commission still has to finally approve the million-dollar subsidies, and the decision is expected in January.

The investment in Northvolt could significantly strengthen the structurally weak Dithmarschen region. The settlement would be noteworthy for Schleswig-Holstein and particularly important for the Dithmarschen region. The funding could help to strengthen the location conditions in the region. However, the question arises as to whether government subsidies are the right strategy to encourage companies to invest in certain regions. The funding could also have an impact on the regional labor market, particularly with regard to craft services, which could temporarily become more expensive.

The 700 million euros in funding from the federal and state governments as well as the 600 million euros loan in the form of a convertible bond involve certain risks. In the worst case scenario, the convertible bond would default if Northvolt suffered losses. The risk for the convertible bond could increase if there is an overproduction of battery capacity due to government subsidies.

The federal government justifies the funding with investments in climate protection. However, the economist points out that the subsidies promote the Heide region rather than climate protection. The switch to e-mobility is an important step for climate protection, and the dependence on a subsidy for this switch is doubtful.

Overall, it is important to closely monitor and analyze the potential effects of subsidies on the market and the financial sector in order to better assess the long-term effects. The EU Commission's decision in January will show whether the subsidies will be approved and how the situation will develop further.