German public financing of the Heide gigafactory

analysisAccording to the Schleswig-Holstein state audit office (Landesrechnungshof), the state government and Northvolt AB announced in March 2022 a planned battery cell gigafactory in the Heide region, with an investment volume of about €4 billion, an annual capacity of 60 GWh and about 3,000 jobs. A grant of €155.4 million was initially planned, with a state share of €46.6 million. In the second half of 2022, amid tougher competition for the site from the US Inflation Reduction Act, the company asked for a higher grant and for an equity-like bridge financing. The federal economics ministry (BMWK) then developed the idea that the federation and the state would secure a €600 million reverse convertible bond of Northvolt AB, subscribed by KfW. ¹

analysisThe federal government's answer to a parliamentary question (Bundestag Drucksache 21/4927 of 20 March 2026) lists meetings between the then federal economics minister Robert Habeck and representatives of Northvolt AB between 17 November 2022 and 9 October 2023. Those named include chief executive Peter Carlsson, Christofer Haux, described as German managing director, project lead Nicolas Steinbacher, Emma Nehrenheim and Sami Haikala; Jim Hagemann Snabe met the minister on 16 April 2023. The government states that no commitments were made in these meetings, and notes that its list rests on the available records and documents and may therefore be incomplete. ²

analysisBy a decision of 6 April 2022 the BMWK approved an IPCEI (Important Project of Common European Interest) grant of up to €155.4 million for the Northvolt project in Heide, split 70:30 between the federation and Schleswig-Holstein: the state's share was €46.6 million, and the audit office's table gives the federal share as €108.8 million. The aid intensity was 24% and the company's own contribution €492 million, according to the state audit office's special report. The IPCEI decision was later revoked and merged into a grant under the EU Temporary Crisis and Transition Framework (TCTF), and no IPCEI funds were paid. After the state's consent and that revocation, the BMWK approved on 1 December 2023 a TCTF grant of €700 million, about €563.6 million from the federation and €136.4 million from Schleswig-Holstein (80.5:19.5); the decision recognised €766 million of eligible costs with an own contribution of €65 million. According to the audit office, this grant was never paid out either, because Northvolt AB could not meet the payment conditions: the federal budget rules allowed payment only if the company provided valuable security against possible repayment claims, and this did not succeed throughout 2024. ¹

analysisThe European Commission approved on 8 January 2024 a German aid measure of €902 million for Northvolt's battery plant in Heide under the TCTF (State Aid SA.107936, 'Aid to Northvolt Germany GmbH'). A trade news report of 9 January 2024 said the aid took the form of a €700 million direct grant and a €202 million guarantee for a plant planned with an annual capacity of 60 GWh, and that without the aid Northvolt would have established the plant in the United States under the Inflation Reduction Act. Northvolt's 2023 annual report records, among events after the reporting date, that following this approval the municipalities Lohe-Rickelshof and Norderwöhrden in Schleswig-Holstein approved the construction of the Northvolt Drei gigafactory for lithium-ion battery cells in Heide; the audit office's chronology dates the municipalities' approval of the development plans to January 2024, giving 22 January 2024 as the second date. ^{2 1 3}

analysisThe audit office also examined the basis of the TCTF approval. It found that Northvolt Drei Project GmbH itself put the project's eligible costs at over €4 billion, €700 million from the grant and the rest from equity and debt, without supplying financing evidence; that the company's audited 2022 annual accounts were not part of the application up to the approval of 1 December 2023, the attached draft annual report of Northvolt AB having a blank page at that point; and that the BMWK approved the grant on a reduced cost plan of €766 million for 1 December 2023 to 31 December 2025, financed by the €700 million grant and about €65 million of equity. In the office's view this made the project formally appear fully financed, and it questioned whether the conditions for the grant were met when the first expansion stage alone was costed at about €3 billion; its special report (Umdruck 20/6536) says these remarks are not a conclusive assessment under grant law. In its response of 27 March 2026 the state government said the doubts about the TCTF grant were not directly connected with the guarantee, the grant being a separate, functional project. It relayed the BMWK's position that the project met all funding conditions at approval, that the notification proved it could not have been carried out in the European Economic Area without aid, that €766 million of eligible costs for the first and second production blocks could be recognised, and that a full or partial revocation was possible if the targets were missed. The audit office maintained that the costs of production blocks 1 and 2 were well above €766 million and that no financing confirmations existed for the difference. ¹

analysisPwC's final due-diligence report of 15 June 2023 for the BMWK, published by the Landtag as Umdruck 20/4945, describes the planned financing as a €600 million bridge financing that the federation would grant to the parent company Northvolt AB through KfW, as a mandated transaction in the form of a convertible bond, with the default risk to be shared internally between the federation and Schleswig-Holstein. The bond was earmarked for building the Heide battery factory, repayable by 2028 at the latest, and could in principle be repaid in cash or in shares of Northvolt AB. Under the draft term sheet cited by PwC, as negotiated in June 2023, the proceeds were to be transferred by Northvolt to a designated account of the project company; repayment would be made in Northvolt AB shares at fair market value or in cash, at Northvolt AB's choice, except that in an insolvency KfW could demand cash repayment; the bond would rank ahead of all shares, equally with other convertible instruments and behind the Volkswagen convertible and other debt; and KfW would receive information rights but no governance rights at the level of Northvolt AB, and certain information and governance rights at the level of the Northvolt Drei project company. The executed agreements were not inspected. According to the state audit office, the BMWK classified the report as confidential (VS-Vertraulich) on 5 December 2024, so that Landtag members could see the related documents only under the Landtag's secrecy rules, while documents, some redacted, were later made public as Landtag papers; the federal government says the report was made available unredacted to the members of the Bundestag budget committee on 5 December 2024 in the Bundestag's secure reading room and sent to them on 24 June 2025 with a few redactions and without classification. ^{1 2 3}

analysisThe audit office's special report lists the contractual basis of the convertible: a memorandum of understanding between Northvolt AB and KfW and a side letter between them dated 26 June 2023; the convertible note terms and conditions between Northvolt AB and KfW; a Convertible Side Letter of 26 June 2023 among Northvolt AB, KfW, Volkswagen Finance Luxemburg S.A., West Street Capital Partners VII Investments Offshore II S.à r.l. and others; the Investment Agreement between Northvolt AB and KfW; and an Account Pledge and Control Agreement among Northvolt AB, KfW and BNP Paribas S.A. According to the federal government's answer (Drucksache 21/4927), KfW subscribed the €600 million convertible bond in October 2023 on behalf of the federation as a mandated transaction (Zuweisungsgeschäft) under section 2(4) of the KfW Act, on the strict condition that the funds be passed on in full as equity to the German project company Northvolt Drei Project GmbH in Heide. KfW signed the agreement on 30 October 2023 subject to full indemnification by the federation; the bases were the allocation letter of October 2023, the Investment Agreement of 30 October 2023 between KfW and Northvolt and the administration and indemnity agreement of 12 December 2023 between the federation and KfW. ^{2 3}

analysisAccording to the audit office, the convertible closed on 20 December 2023, when KfW paid the first tranche of €200 million to Northvolt AB on the basis of a BMWK allocation letter of 25 October 2023, at that time secured by the federation alone; the second tranche of the remaining €400 million was paid on 27/28 February 2024, so that the full €600 million was disbursed. Northvolt AB was required to pass the funds, earmarked for Northvolt Drei, to Northvolt Drei Project GmbH, where they could be used only with KfW's release. The bond's maturity is stated differently in the records: the audit office's special report says it ran until 31 December 2028, with repayment and interest due at maturity under the Investment Agreement between KfW and Northvolt AB and early repayment possible at any time, whereas PwC's final report of 15 June 2023 and the debtors' first-day declaration in the US Chapter 11 case give 30 June 2028. The PwC report adds that if conversion into listed shares took place, a maturity date falling within KfW's 180-day holding period would be postponed to the end of that period, at most to a 31 December whose year is not legible in the retained copy; the records do not say whether this explains the audit office's date. Before either date was reached, the opening of Northvolt AB's Chapter 11 proceedings on 21 November 2024 caused the bond to be declared due (fällig gestellt) while Northvolt AB was not permitted to repay it, according to the audit office; the debtors' first-day declaration gives the outstanding principal at the petition date as about $670 million. ^{2 1 4}

analysisAccording to the audit office, the federation commissioned PwC in October 2022, under an existing framework mandate agreement, to report on the Northvolt AB financing. On 14 October 2022 a working-level note of the Schleswig-Holstein finance ministry's guarantee unit ('Hintergrund Northvolt') pointed to Northvolt AB's low capital base against its expansion plans with several gigafactories in parallel, judged raising equity through an IPO as probably uneconomic in the market environment and further equity-like bond financing as problematic given rising interest rates, assumed that the main plant had not yet reached regular operation, noted that there were no financial reserves to absorb operating difficulties, and concluded that the financing of the liquidity need was open; the audit office summarises it as a working-level assessment drawn largely from public sources at the time. On 4 January 2023 the heads of the state chancellery and of the economics and finance ministries decided to rely on the same PwC report alone, without a review by the Bürgschaftsbank Schleswig-Holstein and without a separate review by the ministries' departments. The audit office concluded that, even after the PwC report, a year-long review and considerable efforts by the working level to obtain information on long-term financing, most of the challenges and questions raised had received no satisfactory answers, and that the decision-makers, though aware of this, made no attempt of their own, according to the files, to counter it decisively. ¹

analysisPwC's draft report of 7 May 2023 found that, for repayment in shares, the company value would suffice to repay the bond with interest in full in 89% of simulated cases; the final report of 15 June 2023 gave 86% and added that a total loss of capital threatened in fewer than 1% of simulated cases and that less than 50% would be repaid in about 5%. Without an IPO, repayment from Northvolt AB's free cash flows would not have been possible according to PwC, which described raising the necessary liquidity on the capital market as 'possible' or 'plausible'. The federal government answered in March 2026 that, because the PwC report expressly classified the risk of the convertible and the repayment prospects as acceptable (vertretbar), the BMWK considered a further review unnecessary, that according to PwC no liquidity shortages were foreseeable at the time of the decision, and that it had judged the ramp-up difficulties known from the report typical for the industry and manageable, as had more than 30 private investors who invested at the same time on identical terms. The bond fell due when Northvolt AB's Chapter 11 proceedings opened, without Northvolt AB being permitted to repay it, and Schleswig-Holstein paid its €300 million share to the federation on 7 April 2025 after the Landtag's finance committee approved the payment on 6 March 2025, according to the audit office. As the audit office reports, the 86% figure is conditional on a successful IPO and on Northvolt's company plan; the federal government's answer dates the final version of the report to 6 November 2023, while the audit office says the version formally provided on that date was unchanged from that of 15 June 2023. The state chancellery and the economics and finance ministries decided, against the recommendation of their departments, not to seek written answers to the state's 149 questions on the PwC draft but to discuss them in four video conferences on 24, 30 and 31 May and 7 June 2023. From the incomplete notes on file the audit office found that about a third of the questions were not discussed at all, and that the conferences made clear that serial production at Northvolt's Swedish main plant had not yet begun and that PwC had only limited information on the existing offtake contracts. It objected (beanstandet) that the conferences were not properly minuted and that the decision to accept the answers and the final report was not recorded in writing. The economics ministry told the office that the conferences dealt with supplementary and explanatory questions, that information from them was used, and that the leadership was informed indirectly through notes and finally through cabinet submission 219/2023; asked who decided that no further changes to the report were needed, it said the federation, as the report's client, had decided. ^{1 2 3}

analysisKfW commissioned a law firm in early 2023 to review the legal risks of the convertible, according to the audit office; the federal government's answer names the firm as Linklaters, engaged by the BMWK through KfW. Its 'Legal Red Flag Due Diligence Report', completed on 12 June 2023, noted among other things that the offtake contracts contained competition clauses with high quality requirements that could impair debt financing, that the Northvolt Drei project was at a very early stage so that disbursements might be tied to milestones, that there was no secured financing for Northvolt Drei's project costs, and that a joint venture between Northvolt AB and Volkswagen AG had been terminated in June 2021, which press reports cited in the legal report linked in part to project delays attributable to Northvolt AB; that reason is the press account, not a finding. In a video conference on 19 October 2023 the offtake-contract clauses were described as market-standard, and the law firm had no further information on the overall financing or on the cooperation with Volkswagen. According to the audit office, the BMWK had told the state before that video conference that the legal report would not be amended because of the state's questions and that no need to amend the PwC report would follow from it; the office objected (beanstandet) to the documentation of how the state discussed and assessed the legal due diligence. The federal government's own account of its decision basis is that PwC ran a Monte Carlo simulation with 20,000 random samples, in which the bond amounts were not fully repaid in only 14% of simulations; that PwC's analysis of cash flows to 2028 found repayment from current operations without refinancing would not be possible, while refinancing on the capital market was considered plausible if the plan was met; that the BMWK considered the risk acceptable on the basis of the PwC report; and that the bond was assessed as a market-standard instrument free of state aid. The government adds that the later crisis was triggered by external, unforeseeable factors. ^{1 3}

analysisSchleswig-Holstein was not a direct contracting party of KfW or Northvolt AB for the convertible. Instead it issued a guarantee declaration (Gewährleistungserklärung) securing 50% of the federation's risks from the Northvolt mandated transaction up to a maximum of €300 million, according to the audit office, which reports that within the federal government the finance ministry had insisted on a 50% state share and that the state's letter of intent of 12 July 2023 made its participation conditional on clarity about its total financing commitment. Cabinet submission 219/2023 stated that the investment needs communicated by the company for the full build-out in Heide ranged from about €5 billion to over €6 billion, that no financing plan existed so that debt-service capacity was unclear, and that no plans existed for the company's 250 GWh scenario; it then stressed the project's chances, citing the successful construction of the main plant in Skellefteå and equity raisings of €4 billion, and cited PwC's 86% repayment probability. The audit office considered the submission a comprehensive presentation of chances and risks but found the simulation method and assumptions not transparent, and calls the statement on the 250 GWh scenario misleading, since PwC had a company plan, though no financing plan, for that scenario. The cabinet approved the submission on 5 December 2023, and the Landtag passed the authorisation in the second supplementary budget act 2023 on 15 December 2023. After Northvolt AB's final site decision for Heide on 15 January 2024, the cabinet decided on 16 January 2024 to issue the guarantee; the Landtag finance committee approved it on 25 January 2024, and the economics minister and the head of the state chancellery signed it on 5 February 2024. ¹

analysisAt the joint session of the Landtag's finance and economic committees on 25 January 2024 that approved the guarantee, the audit office reports from the committee minutes and printed papers, its president asked for an expert opinion showing the size of the state's risk; the BMWK's representative and the federal and state government representatives left the question unanswered, the committee members asked no follow-up questions before the finance committee's unanimous decision, and the PwC report was neither named nor presented. The office first saw the report in early 2025 and considers that a valid assessment of the project was not possible without it. The state government responded that, according to an internal ministry e-mail of the same day, the federal ministry had referred to a completed due-diligence review at the start of the session, that the Landtag minutes are not verbatim, and that the president had been free to ask further questions. The audit office said the response did not change its findings and confirmed that the decisive report was neither named in the minutes nor presented in the parliamentary procedure. ¹

analysisThe opening of Northvolt AB's US Chapter 11 proceedings on 21 November 2024 caused the KfW-subscribed reverse convertible of Northvolt AB, with a nominal amount of €600 million, to become due, while Northvolt AB was not permitted to repay it. The federation had indemnified KfW and guaranteed repayment, and Schleswig-Holstein had guaranteed €300 million to the federation. On 6 March 2025 the Landtag's finance committee, in a joint session with the economic committee, unanimously approved the state's share of €300 million, according to a Landtag release and the audit office. The release stated that Northvolt had received about €600 million from KfW, guaranteed half each by the federation and the state, and the finance state secretary told the committee that the government was legally obliged to meet the federation's payment demand within the contractual deadlines. According to the release, the Landtag had already budgeted the €300 million payment in the current budget, as well as the state's share of €137 million in the subsidy for the project in Dithmarschen, which was still to be implemented despite the financial difficulties; the audit office gives the state's TCTF share as €136.4 million, and the release does not specify which commitment the €137 million line covers. Schleswig-Holstein paid its €300 million share to the federation on demand on 7 April 2025 from budget title 1104.00.871 08 ('call on the guarantee to the federation in connection with the Northvolt convertible'), according to the audit office's special report. ^{1 2}

analysisA further instrument was prepared but never used. A large federal-state guarantee (Großbürgschaft, shared 50:50 by the federation and the state) for debt financing of Northvolt Drei was considered from the start of negotiations; Northvolt AB filed a precautionary pro forma application in July 2023 in connection with the EU notification, and the state budget act 2024 of 21 March 2024 authorised a guarantee commitment of up to €1 billion. According to the audit office, credit negotiations with potential lenders never became concrete enough for an application, and no such guarantee was granted. ¹

analysisThe audit office prepared a special report under section 88(5) of the state budget code (LHO) on the state's guarantee for the Northvolt AB convertible bond at the Landtag's request and delivered it to the Landtag and the state government on 11 May 2026; the Landtag's economic committee decided on 13 May 2026 to make it public as Umdruck 20/6536. The office did not assess whether parliament had been sufficiently informed during the decision, noting that a case on that question (Organstreitverfahren, LVerfG 1/25) was pending before the state constitutional court, and it left out data still classified as confidential. The office found that the state government based its guarantee decision essentially on PwC's due-diligence report, which rested on a limited data base and specific assumptions: its repayment simulation assumed a successful IPO and an optimistic company plan and did not adequately reflect start-up risks, so that the probability of a call on the guarantee was underestimated. Until the guarantee was given, financing of the Heide project remained unclear and the company supplied no reliable documents on the type, amount and source of the remaining debt and equity financing. The office acknowledges that the company could not or would not provide them and that the BMWK was satisfied with references to past financing rounds, but the state government did not insist on such documents, and the office concluded that the procedure did not comply with the economy principle of section 7 LHO. In its response of 27 March 2026 the state government argued that the office had not sufficiently explained how the economy principle was breached or presented its own calculation; that economy is an indeterminate legal concept leaving the government a margin of appreciation; that the PwC report constituted the required economic analysis and showed a high probability of repayment; that the cabinet submission mentioned both the PwC results and the critical points; that economy does not mean avoiding all risk, and that macroeconomic, climate, industrial and employment interests had to be weighed; and that the head of the state chancellery had pressed the federal ministry in April and July 2023 for clarity on the state's total financing commitment and for all documents. The audit office maintained its assessment that the economy principle was not complied with. ^{1 2}

analysisOn the simulation, the office found that PwC's 86% repayment probability was a conditional probability that assumed a successful IPO, a starting company value based on Northvolt AB's optimistic planning and a volatility of 0.3, equal to that of established listed battery makers. Recalculating PwC's simulation with other volatility values while keeping all its other assumptions, the office found that at a volatility of 0.62 the expectation of repayment would have turned from 'likely' to 'unlikely'; it notes that its critique does not mean a default had to be expected with high probability. It also reported that the state's own departments had estimated the bond's one-year default probability above the maximum of 8 to 13% allowed in a state-aid value tool. The state government's response describes the Monte Carlo simulation as an established statistical method that showed a high probability of repayment; the audit office agrees that it is a recognised method but says its value depends on the assumptions used. ²

analysisThe office found that at the time of the guarantee Northvolt AB's direct equity contribution to the Heide project, well below €100 million, covered only a negligible share of the financing need; the TCTF grant and the convertible, together €1.3 billion, were the main secured sources, leaving financing needs in the billions open for the first construction phase alone. It withholds the planning figures, which were classified as confidential in the ministry files. The state government told the office that it never received a reliable business plan and had no access to the data room because Northvolt did not consent; in its response to the report it rejected the criticism that it had not pressed hard enough for financing and planning information, citing letters of the head of the state chancellery to the BMWK in April and July 2023. Credit reports on Northvolt AB obtained from the end of 2022, the office reports while noting their limited informative value, showed at least satisfactory to good creditworthiness until early 2024 but also negative features. The economics ministry asked the BMWK on 12 January 2024 to inquire with Northvolt AB, whose answer was forwarded on 23 February 2024, after the guarantee had been signed: Northvolt AB explained the negative features mainly by organisational problems with timely tax (advance) payments and inefficiencies in invoice processing, which it said had already been addressed, and the BMWK considered the answer satisfactory. The total disputed value of the payment incidents was then in the middle six-digit range, and their number and value rose steadily during 2024. The state had no audited 2022 accounts of Northvolt AB when it decided; the 2023 accounts were published on 2 July 2024. According to the audit office, credit negotiations with potential lenders for Northvolt Drei never became concrete enough for an application under the federal large-guarantee programme, so no such guarantee was granted, and the TCTF grant was never paid out because Northvolt could not provide valuable security against possible repayment claims during 2024. ²

analysisAt federal level, a minor interpellation by members of the AfD parliamentary group in the Bundestag (Drucksache 21/4366 of 26 February 2026) states, citing concurring media reports, that the Federal Court of Audit (Bundesrechnungshof) heavily criticised the conduct of the then federal economics minister Robert Habeck in granting and securing the €600 million convertible for Northvolt, borne or secured half each by the federation and Schleswig-Holstein, and that according to the Court the then ministry had 'insufficiently identified and assessed essential risks' and acted 'largely on the principle of hope'. The interpellation consists of questions and contains no answer; it relies on media reports and calls the Court's report to the budget committee unpublished, and the report itself was not inspected. In its answer (Drucksache 21/4927) the federal government states that it takes the Court's criticism very seriously and is reviewing its processes using the Court's recommendations, that the economics minister will continue introducing an institutionalised multiple-eyes principle, and that the Court's report is available online on the Court's website. ^{3 4}