Northvolt’s collapse highlights Europe’s battery struggle

Europe’s pride in battery manufacturing, Northvolt, has filed for bankruptcy in Sweden, marking a major setback for the EU’s efforts to compete with Chinese dominance in the electric vehicle battery market.

Despite years of substantial investment from automakers, financial institutions, and government subsidies, the company failed to secure the $1 billion needed to sustain operations at its flagship plant in Skellefteå.

A court-appointed administrator will now oversee the sale of Northvolt’s assets, including its production equipment and remaining battery materials. Unfortunately, the bankruptcy underscores the broader difficulties of building a fully integrated battery supply chain in Europe.

Nortvolht spearheaded the effort to bring that goal within reach as the EU tried to push for independence from Chinese and South Korean suppliers—a pillar of its ambition to ban the sales of combustion-engined cars in 2035.

Overambition?

Looking at the reasons for Northvolt’s downfall, these were largely self-inflicted. The company attempted to juggle too many activities simultaneously, constructing a new gigafactory, developing its own cathode materials, and investing in battery recycling. These are complex, capital-intensive operations.

At the same time, the company faced the familiar challenges of scaling up manufacturing, a process that had already brought several automotive EV start-ups to their knees (Lightyear, Sono Motors, HiPhi, Nikola, and Canoo, to name a few).

Northvolt struggled to deliver high-quality battery cells at scale for the demanding automotive market. The company’s ambitious promises to customers, including Volkswagen and BMW, ultimately proved unrealistic with several of them.

Consequently, BMW and Volvo pulled out early of their contracts, aggravating momentum. Volvo secured its assets and took complete control of the joint venture Novo Energy, a battery manufacturing plant in Gothenburg, only last month.  

Is Europe’s battery strategy flawed?

Northvolt’s failure highlights broader structural issues within Europe’s battery ambitions. Unlike its Asian competitors, the continent lacks an established supply chain for key battery materials. Efforts to build this infrastructure have been made, but they evolve slowly and remain fragmented.

The European Commission launched a major initiative in 2017 to close the gap, bringing together companies to develop a competitive ecosystem. However, funding was spread thin, and the billions in subsidies barely scratched the surface of what is needed.

Meanwhile, China, home to industry giants CATL and BYD, has already moved ahead, scaling up production of newer, cost-effective battery technologies like LFP and sodium-ion to maintain its lead.

Northvolt’s collapse only strengthens China’s position, as Western automakers now have little choice but to rely on Asian suppliers to meet EU emissions targets.

The more the EU tries to distance itself from China, the more reliant it becomes on Chinese battery technology for its EV transition. With Northvolt failing to secure the funding needed to stay afloat, confidence in Europe’s battery independence is sinking fast.

Lay-offs at ACC

Industry peers affirm these doubts about the viability of a European battery industry. The Automotive Cell Company (ACC), a joint venture between Stellantis, Mercedes, and Total, paused its further expansion of factories in Germany and Italy last year.

In its only factory in France, ACC announced this week that it is starting to implement a strategy of voluntary layoffs due to weak demand. Stellantis has partnered with CATL to build an LFP battery plant in Spain, further entrenching Chinese influence.

According to the think tank Transport & Environment (T&E), at least 100 gigawatt-hours of planned battery production capacity in Europe were canceled in 2024 “due to the difficulties European manufacturers face in competing with global rivals, the subsidies granted elsewhere, and the lack of fair regulations.” The dream of a fully independent European battery supply chain appears increasingly out of reach.