Morrow Batteries AS is opening the doors to Europe’s first major factory for lithium-iron phosphate batteries, as it ramps up production in the hunt for 1.5 billion kroner ($140 million) in government funding and enough customers to cover its first full year of output.

“This is the year for us,” Chief Executive Officer Lars Christian Bacher said Thursday in an interview. “We need to finalize this factory, start it up, and demonstrate to ourselves, to our owners, to the market, that we’re actually able to produce.”

Global manufacturing capacity for LFP batteries is surging, underpinned by output from major Chinese producers including CATL, the world’s biggest battery maker. With sales growth for electric vehicles — the biggest source of demand for batteries — experiencing a marked slowdown, producers of LFP batteries, with their lower cost and long cycle life, are tapping a boom in the stationary-storage market.

Batteries from closely held Morrow will be initially used in energy-storage installations, including residential, commercial and utility scale projects, as well as rail and heavy transport. Cells for storage systems now account for a growing share of total demand, making up an expected 13% this year, from 6% in 2020, according to BloombergNEF.

The Norwegian battery producer, founded in 2020, signed its first sales contract in April to deliver 5.5 gigawatt hours of LFP batteries over seven years to Nordic Batteries, with shipments due to start later this year. Morrow is in “advanced discussions” to secure firm off-take agreements to cover at least the first full year of production, or 1 million batteries, the CEO said.

With an abundance of cheap and clean hydropower, the Nordic region is home to battery makers including Sweden’s Northvolt AB and Freyr Battery Inc., though it remains to be seen whether European manufacturers can compete with suppliers in China or the US.

A recent wave of onshoring in the US and Europe — sparked by concerns about the effect geopolitical tension and trade wars on industrial supply chains — may help bolster the outlook for European-based manufacturers, according to Bacher, who began his career working on oil platforms for Norwegian oil giant Equinor ASA before rising to the role of chief financial officer.

The executive reiterated that he doesn’t see Morrow competing directly with Asian suppliers, but instead carving out a niche for customers keen to diversify away from China to batteries with a low-emissions value chain from a maker that can satisfy bespoke needs.

For Morrow’s customers, “derisking of supply chains, sustainability, local-for-local, these are the things that are important for them,” said Chief Commercial Officer Christin-Marie Boudgoust. “If they wanted to buy from China, then they will do that. To buy from Morrow, you have different reasons.”

Located 300 kilometers (190 miles) southwest of Oslo in the coastal town of Arendal, Morrow’s new factory stretches over 33,000 square meters and is a first for a country that has for decades profited from the sale of oil and gas. 

A few years ago, battery makers and other companies fueling the green transition were able to take advantage of the high demand for renewable investments. With the bumpy development of the EV market and a jump in funding costs, producers have been forced to assume a more industrial pitch when securing funding. 

“The financial market today is almost dried up,” Bacher said, adding that among bankers and analysts, “the first question is: Do you have a battery we want? Yes or no. Second question: Can you demonstrate gigawatt scale production history? And unless you can tick off those, they’re not interested.”

Shareholders including power producer A Energi, which owns about 50% of the battery maker, ABB Ltd. and Siemens AG have invested more than 3 billion kroner in the company, most recently with a €48.4 million ($52.8 million) private placement approved in May. 

The company wants to secure government funding to pay off the cost of the Arendal factory by the end of this year. Commercial-scale production is due around the same time, with a long-term aim to ramp up output in 14 gigawatt hour increments to 43 gigawatt hours by 2029.

“These kinds of projects must be carried by and live with private industry interests — they can judge the technology, commercial risk, they understand the market,” Prime Minister Jonas Gahr Store, who laid the cornerstone for the building back in 2022, said Friday at the official opening. “But we are preoccupied that this is a success and that we have a good dialog with them.”

He declined to comment on the detail of the talks with the company.

“We have from day one said that battery cell manufacturing is difficult,” Bacher said. “People are waiting to see who is going to make it.”

--With assistance from Julius Domoney.

©2024 Bloomberg L.P.