What can Europe learn from Northvolt’s bankruptcy?

After months of financial struggle, Swedish battery manufacturer Northvolt filed for bankruptcy last week. In September, the company restructured its operations, laying off 20% of its workforce. In November, the manufacturer declared bankruptcy in the US. Running out of cash, in January, CEO Peter Carlsson asked for $1.29 billion in the following 2 years to over 100 of its stakeholders. Ultimately, the firm didn’t secure the needed money, declaring bankruptcy in Sweden.

Northvolt secured €15 billion, more than any other European private startup, yet it did not ramp up production as expected. Founded by former Tesla executives, the company represented Europe’s ticket to compete in the electric vehicle (EV) battery market dominated by Chinese producers CATL and BYD, retaining nearly 60% of supply. While the news certainly is a blow to the creation of a European battery ecosystem, what can Europe learn from it?

Too many things going on at the same time

In announcing its bankruptcy, the Swedish firm stated it “experienced a series of compounding challenges in recent months that eroded its financial position” and “significant internal challenges in its ramp-up of production.” Northvolt was trying to accomplish three simultaneous goals: set up production, accommodate the demand, and build multiple manufacturing plants.

“It is an immense challenge just to get one of these goals right,” underlines Jaap Burger, EV specialist at the think tank Regulatory Assistance Project. Northvolt Ett plant, located in Skellefteå, was the first and only operating plant. The factory announced that it reached a production capacity of 60,000 battery cells per week last September–well below what it promised.

Production problems persisted at the plant. The local newspaper Norran reported that the assembly line was flawed because of quality problems in the materials used and communication with its Chinese machinery suppliers. “On top of that, many of their workers didn’t have enough experience to work in such a factory,” adds Jens Kärrman, a journalist at the financial newspaper Dagens Industri who closely followed Northvolt.

Nevertheless, Northvolt was looking to expand, putting energy and resources into other projects. The company announced it would have built new factories in Sweden, Germany, and Canada to accommodate the supplying contracts it sealed with Volkswagen, Scania, and BMW. Frustrated by the slow production buildup, the latter canceled a €2 billion contract in June.

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How to rethink Europe’s battery ecosystem

According to Burger, what happened at Northvolt shows no easy path to set up a European battery ecosystem. “It took 10 to 15 years for the current market leaders to become established and embed themselves into an ecosystem that made them succeed,” he adds.

In his vision, Europe needs to pool its academic and industrial resources to set up a battery ecosystem. “There should not be a European leader–an ‘Airbus of batteries’--but multiple players. The EU should empower knowledge sharing across academia and companies to nurture such an ecosystem,” underscores the analyst. “At the same time, it is essential to find fruitful ways to partner up with Asian companies.”

Chinese battery manufacturers have invested in building production facilities in Eastern Europe in the past few years. Hungary, in particular, has attracted CATL and Samsung, while automaker BYD is building a car production plant. These investments sparked geopolitical debates, with the critics exposing environmental risks, a jostling for subsidies, and Hungary’s dependence on China.

To this extent, Burger welcomes partnerships and investments that promote knowledge sharing at all levels. “Furthermore, there should be a quota of local management. Northvolt neither did get all of its knowledge from China.”

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What is next for Northvolt?

Despite talking with tens of potential investors in the past few months, no one stepped in. Nor did the local government. “In the last 40 years, Swedish governments–regardless of being left or right-wing–have been reluctant to support private companies,” explains Kärrman.

Yet, the minister of energy and industry, Ebba Busch, called on EU support to help Northvolt in the bankruptcy period. “The factory is still running, entailing high costs to be paid. They know the factory will be harder to sell if it shuts down completely. At the same time, for investors, it is cheaper to buy the factory once the bankruptcy trustee process is over,” says Kärrman.

According to the journalist, the government is pushing for a European buyer–or a pool of investors–to take over the company. The Swedish cabinet rules out the option of a Chinese acquirer. A decision should be made by next week.

The bumpy road to electrification

As global EV sales increased by 50% in February compared to the previous year, Europe saw a 20% growth, and the European Commission approved its Automotive Action Plan. The plan watered down car emissions standards, giving automakers two more years to meet the target of an average of 93.6 grams per kilometer for all new car deliveries in the EU. According to NGO Transport& Environment, this could result in 880,000 fewer electric vehicles sold between 2025 and 2027.

Burger is also doubtful about this decision and its impact on helping companies succeed in the long term. “There should be a more comprehensive view on the overall European car production, shifting production where more renewable power is available, for instance. This is also what Northvolt intended to do: build a gigafactory in the north of Germany, next to the big wind farms. Such a rethink would also help the industry transition and break free from fossil fuels.”

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