Northvolt’s Collapse: A Wake-Up Call for Europe’s Electric Battery Industry
Northvolt, once a symbol of Europe’s ambition to lead the electric battery industry, has filed for bankruptcy protection, highlighting the immense challenges European manufacturers face. From declining electric vehicle demand and fierce Chinese competition to technological hurdles and lack of government support, Northvolt’s downfall reflects a broader crisis threatening the future of Europe’s battery and electric vehicle sectors.
Founded in 2015, Northvolt, once considered the European leader in electric battery manufacturing, is now facing a major crisis. On November 21, 2024, the company filed for Chapter 11 bankruptcy protection in the U.S., burdened with an estimated $5.8 billion in debt and a cash reserve reduced to only $30 million, which is enough to sustain operations for just one week. This critical situation led to the resignation of its CEO and co-founder, Peter Carlsson. Northvolt’s downfall has come to symbolize a deeper crisis affecting the European market for electric vehicles and batteries, highlighting the structural and economic challenges confronting the sector.
The Swedish company experienced a remarkable rise since 2015, establishing itself as a pioneer in the European electric battery industry. In 2017, its ambitious vision attracted major players like BMW Group, Volkswagen Group, Goldman Sachs, and Folksam, who collectively invested $1 billion. This was only the beginning: Northvolt went on to raise approximately $15 billion from various investors, reflecting the industry’s confidence in its potential. As the first company to produce batteries on European soil, Northvolt made a bold statement with its Swedish “gigafactory,” a flagship site designed to produce enough batteries to power one million electric vehicles annually. Northvolt’s goal was clear: to compete with Asian giants CATL and BYD, as well as Tesla, whose gigafactories dominated the global market. However, this ambition encountered major structural and economic problems that significantly weakened its position.
First, industrial challenges severely impacted the company. Since 2021, Northvolt has struggled to scale up its production capacity while attempting to manage the entire battery value chain, from material production to recycling. This dispersion of efforts, coupled with massive investments in overseas factories and related activities, resulted in mounting losses. These shortcomings became evident when BMW, one of its key clients, cancelled a €2 billion contract in 2024, citing issues with the quality and quantity of the batteries supplied. The batteries fell short of the automotive industry's strict standards, particularly in energy density and reliability which are key factors for high-end vehicles. Furthermore, Northvolt was unable to produce the volumes needed to fulfil the contract, raising doubts about its reliability as a supplier for major clients. This cancellation was a significant blow, not only financially but also to the company’s credibility in a highly competitive sector.
In response, Northvolt implemented drastic restructuring measures to mitigate the damage. As of September 2024, the company announced the indefinite suspension of several factory projects in Germany, Canada, and Sweden, opting to focus on battery cell production at its only active line in Sweden. However, this restructuring highlighted another problem: the extreme technical complexity of battery cell manufacturing, a domain where only Asian players, particularly Chinese and Korean companies, have genuine expertise. According to experts, despite an increase in production, Northvolt remains far from achieving its installed capacity, barely 10%. At this level, its monthly revenue of approximately €20 million is woefully insufficient to cover salary expenses, estimated to be double that amount. This precarious financial situation has triggered a significant talent exodus and left the company in a dire state, symbolizing the colossal challenges faced by European manufacturers. Exacerbating this crisis is the lack of government support. The Swedish government has explicitly stated that it would not intervene to save Northvolt, refusing to take an equity stake in the company. This decision has left Northvolt in a financially vulnerable position, deprived of the critical backing that public intervention could have provided to stabilize its operations.
The resounding collapse of Northvolt symbolizes the deepening crisis among European stakeholders in the market. First, European manufacturers are struggling to attract investors amidst declining demand for electric vehicles. This trend has been amplified by a global loss of confidence in financial markets, as evidenced by the collapse of electric vehicle-related stock values on Wall Street at the beginning of 2024. This waning investor enthusiasm has had immediate consequences, such as the cancellation or postponement of industrial projects, not limited to Northvolt. For example, ACC, a joint venture between Stellantis, Mercedes, and TotalEnergies, has delayed the construction of new plants in Germany and Italy. These setbacks underscore the difficulty European manufacturers face in securing the necessary financing to compete globally, particularly amid a market slowdown.
At the same time, European manufacturers are grappling with a drastic drop in battery prices, largely driven by overproduction in China. Chinese companies, in particular, are slashing prices to offload excess inventory in export markets, offering European automakers low-cost lithium-iron-phosphate (LFP) batteries. Although these LFP batteries provide less range than lithium-ion NMC (nickel-manganese-cobalt) batteries, they are appealing due to their lower cost and simpler manufacturing process. European manufacturers, like Northvolt, that focus on higher-performance but more expensive NMC batteries are struggling to compete. This price war creates unsustainable pressure on their margins, especially since their production costs remain high. The situation is even more critical given that Asian manufacturers have a decade-long advantage in industrialization and process mastery, compared to many European entrants still in the early stages of development.
These challenges place European battery manufacturers in an increasingly precarious position. While the European Union is aware of the problem and has imposed tariffs on Chinese-made battery vehicles, specifically customs duties ranging from 10% to 35%, Chinese and Korean dominance may prove indomitable. The collapse of Northvolt, once a symbol of Europe's ambition in the electric battery sector, underscores the scale of the difficulties. Without significant innovation and coordinated efforts to address these structural challenges, the European electric vehicle battery market risks falling further behind its global competitors, jeopardizing its long-term viability.
References
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