What went wrong at BritishVolt?
This is the story of the rise and fall of BritishVolt, and a case study of bad governance.
In response to the ever-worsening and ever-present threat of the climate crisis, the UK Government in 2020 promised to ban the manufacturing and sale of new petrol and diesel cars in the UK by 2030. This flagship policy would be essential to Britain meeting its 2050 net zero goals, as transport makes up 24% of total emissions, of which 91% is produced by road vehicles, according to Government figures.
Naturally, batteries are a critical element of this electric transition – and in turn, the production of vehicles is vital to the UK economy at large. Eight hundred thousand cars and 1.6 million engines were made in the UK in 2021, of which 80% were exported, making up 10% of all exports and hundreds of thousands of jobs directly and indirectly.
To ensure the resilience of this industry while preparing for the 2030 Internal Combustion Engine (ICE) ban, domestic battery production had to ramp up – and fast. The Faraday Institute calculates that there will need to be five UK-based gigafactories by 2030, each producing 20GWh per year of batteries. There is currently just one.
The jewel in the crown
The jewel in the crown of the UK EV industry, and therefore all the future car industry, would be BritishVolt – a company founded by Swedes Orral Nadjari and Lars Carlstrom. Since its launch, it had amassed nearly $2.5 billion in promised funds – including £100 million from the government and preliminary deals to supply batteries to Aston Martin and Lotus.
The jewel has faded. The company fell into administration in late January 2023, just four years since its formation and nine months since it unveiled the Northumberland’ gigafactory’. It is worth just £32m – over 90% less than in 2022.
BritishVolt’s demise was not down to one single factor – but rather a myriad of failures in governance and leadership. Due to the centrality of batteries to the future of global decarbonisation, and Brexit tariffs making the import of batteries unsustainable, this isn’t just another story of a single company failing. The failure of BritishVolt threatens Britain’s position as the third-largest tech ecosystem and global leader in decarbonisation.
However, this was not inevitable. Across the pond, the Inflation Reduction Act exemplifies effective industrial policy. At home, the government’s stewardship of the steel industry shows it can be done here too, but it begs the question, why steel over electric batteries? Ultimately, the decision to favour steel rather than future-proof the car industry will be yet another mistake in this story.
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Too fast, too soon
As stated, there are many reasons for BritishVolt’s failure. The first is the timeline of events. David Bailey, professor of business economics at Birmingham Business School in the UK, commented that they “hadn’t secured all the funding needed to build out the factory for about £3.8 billion. And they didn’t have any big customers” initially.
After the company announced its costly factory, the government promised £100 million due to its alignment with the much-discussed and little-acted-upon’ levelling up’ strategy. Only after this funding was pledged did the first customers arrive – Lotus and Aston Martin, and the big investors, which through five funding rounds, invested $2.4 billion.
Lotus only sold 1,710 cars in 2021, and Aston Martin 6000. Assuming that by 2030 these will all have to be electric, we start to see why things didn’t add up. At 30 gigawatt hours, the promised factory would have been big enough to make hundreds of thousands of batteries a year.
By 2022, things weren’t looking good. The company had a £3 million a month payroll and, in October, announced it needed £200 million in emergency funding to last until the summer of 2023 when it expected to receive its first orders from vehicle manufacturers. The government rejected a request for an early helping hand of £30 million.
The two founders flew around in private jets. They spent money they didn’t have – and not just on huge factories. The company leased a £2.8 million mansion for executives to stay in while visiting the site. Each staff member was given a £900 computer monitor. Budgets were not managed like a startup looking to scale but an established, profit-generating company.
BritishVolt didn’t have the customers to promise such a project or such an expensive payroll. Poor governance was central here: lofty aims and over-ambitions aims should have been restricted from the start, which is a significant responsibility for the board.
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Consulting fees and the old boy’s network
The second factor here is due to consulting. The startup paid Ernest and Young (EY) £500,000 a month for advisory and consulting services, according to two staff, which at one point, was more than they paid all employees.
EY and BritishVolt were too close for comfort. Its chief financial officer, its head of finance systems and innovation, and the chief of staff to its chief executive were all hired from the consultancy in 2021.
You’d be right to wonder if it’s sensible to have someone who profits from your failure be the same person you pay to help you succeed. To make matters worse, who oversaw BritishVolt’s insolvency and administration? You guessed it: EY.
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Wrong men for the right job
In general, the company was managed like a startup rather than a massive industrial project – by entrepreneurs rather than industrialists. David Bailey commented that they “didn’t have a track record in technology development” – or, more specifically, electric vehicle or battery manufacturing.
To make matters worse, they didn’t have a particularly good legal track record either. In December 2020, founder Lars Carlstrom stood down after hearing that the PA news agency would publish details of his past. He was sentenced to eight months in prison and given a four-year trading ban for tax fraud in the late 1990s, which a higher court later reduced to a conditional sentence and 60 hours of community service. Later, he was also accused of acting negligently by Sweden’s tax authority over a separate unpaid tax bill for one of his companies in 2011.
In August 2022, Orral Nadjari, the other co-founder, also stepped down.
One has to ask if these two were the right people, with the right experience, to be put into such a position.
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A tale of two industries
Unlike Britain’s shambolic approach to supporting the EV industry, one industrial policy is essential to decarbonisation and looks, at least for now, like a success. The companies running the UK’s four remaining steel blast furnaces have been offered £600 million to ditch carbon-intensive smelting methods that use coal and adopt electric arc furnaces. This can be totally carbon neutral.
It is also understood that any government support would be conditional on the companies also committing to investing in the plants themselves and will be tied to investments in other areas of environmental improvements, so it complies with state aid rules.
Questions remain – and critics say it is not nearly enough to save the industry, which has been declining for decades. Although the exact figures may be insufficient, the strategy is a sound one. It invests in incentivising decarbonisation while incentivising further investment from the companies themselves – both generally and on other improvements to sustainability. This is holistic and rational.
The approach to BritishVolt didn’t share such qualities. The government did not do enough to fully support the company to ensure it reaches a stage at which it could display value to investors while also not letting the hand of the market choose the perfect suitor. The latter would have been effective if the industry at large was supported – by tax incentives open to anyone looking to produce batteries in the UK.
This begs the question – why would the government choose steel over electric cars? Why was £600 million available to steel firms but not producers of electric vehicles, batteries, or components? Of course, the steel industry already existed, so it is not quite the same, but as electric cars are the flourishing industry of the future, and British steel has been on life support for quite some time, it does show a severe case of misplaced priorities.
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A tale of two countries
If you’d like to see an example of good, rational, effective industrial policy, then look no further than the Inflation Reduction Act, Biden’s flagship policy passed in the US in 2022. By combining a ban on the sale of new ICE engines by 2035, the finish line was set, and to help America get there, both consumers and manufacturers were incentivised to go green.
If people want a discount on purchasing their electric car, they’d have to choose a vehicle with a certain percentage of its components and battery elements sourced from either the US or a free trade partner. If the manufacturer wanted that boost to sales, they’d have to produce said cars on US (or an ally’s) soil. Effectively, this supercharges America’s car industry while reducing its climate impact.
Some critics say it is stuck awkwardly in the middle. It will be hard for the US to find so many elements and components from domestic (or allied) producers, which will then impact the incentives available to consumers, reducing the Act’s climate credentials.
This may be true, however, it is promising legislation, both future-proofing American industry while boosting it – all while making it affordable to American consumers. It also encourages other countries to seek free trade agreements with the US.
However, Britain has not been so cunning – and currently, there is nothing to encourage consumers to buy British electric cars or manufacturers to make them here. Brexit has made the importing of batteries uncompetitive, so without domestic production or unlikely trade agreements, UK-made electric vehicles will not be competitive compared to America’s or China’s established industries.
To make matters worse, the Inflation Reduction Act will incentivise manufacturers to make batteries and cars on US soil instead of the UK. That is if EV manufacturers don’t head to Eastern Europe to benefit from the low-cost, skilled, and EU-adjacent economies there.
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Lessons in governance
There are some critical implications for governance and lessons to be learned.
For governments, they shouldn’t pick individual winners from an entire industry; and they should either fully commit to supporting said winners or let market forces decide.
They shouldn’t have expected to revolutionise an entire industry or even get a gigafactory up and running in just a few short years, and if they want to become a global leader in science and tech, then keeping up with global investment in Research and Development would undoubtedly have helped.
For businesses and board members, this debacle shows why you shouldn’t use the same consultancy service for both consulting and managing administration; why you should keep ambitions forever rooted in possibility; why you should only spend the money you have; and why those at the top must be the right men for the job.
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