Key Takeaways
A fledgling Swedish battery manufacturer, the darling of European Union funding and touted as a counter to China’s world dominance in batteries, declared bankruptcy in the United States, prompting its CEO to resign.
Northvolt hopes to emerge from bankruptcy and is still building factories in Canada and Germany, but only because the governments there continue to invest money and other benefits in it.
Northvolt has had a difficult time scaling to meet its commitments to a range of customers, which in turn is causing delays in roll-outs of new products from vehicle assembly plants.
Consumers in the West are slowing their demand for electric vehicles as more people become familiar with the technology and some of its shortcomings.
China continues to push for EV sales in their homeland, in part because they lack the oil and gas resources enjoyed in North America and because it dominates the entire supply chain of battery and other “green energy” technologies, including mining and minerals and their refining and processing.
Northvolt, a Swedish battery manufacturer and Europe’s best-funded start-up has filed for bankruptcy protection in the United States. The company attracted nearly $15 billion in investments, secured over $50 billion in battery orders, and was aiming for a $20 billion public offering. However, its prospects unraveled due to a series of safety incidents, production delays, and missed deadlines. Recently, it was left with only $30 million in cash—roughly a week’s worth of operating expenses—and a staggering $6 billion in debt. Consequently, the company filed for Chapter 11 bankruptcy protection, and its CEO, Peter Carlsson, stepped down. Volkswagen’s $1.4 billion stake (21%) in Northvolt has now lost more than half of its value, while Goldman Sachs, which holds a 19 percent stake, is set to incur a $900 million loss. Once considered Europe’s main contender to challenge China’s dominance in battery manufacturing, Northvolt now faces an uncertain future.
Despite this, Northvolt is moving forward with plans to build new factories in Canada and Germany, bolstered by substantial government subsidies. Canada’s federal government and the province of Quebec are each contributing $1 billion, matching the incentives Northvolt would have received in the United States. These factories will be financed independently and remain unaffected by the bankruptcy proceedings. By filing for Chapter 11, Northvolt gains access to new financing options as it restructures. Its Swedish factories will continue to operate, fulfilling orders and maintaining payments to vendors and employees. The company expects to emerge from bankruptcy by the first quarter of next year.
In 2023, Northvolt reported a loss of approximately $1.2 billion, up from $285 million the year before, with revenue of only $128 million. Earlier in January, it secured a $5 billion loan from the European Union—the largest of its kind aimed at supporting green technologies.
Northvolt’s problems became more evident this year. In March, truck maker Scania said it was behind on its electrification plans because the battery maker had not kept up with its deliveries. In June, BMW pulled a $2.2 billion contract with Northvolt. Since June, Northvolt cut a quarter of its Swedish workforce, suspended an expansion project at Skellefteå, scrapped plans for a second factory in Sweden, and shut down a research and development center in California, moving it to Sweden.
Northvolt’s Chapter 11 filing will give it access to about $245 million, though the company will need as much as $1.2 billion to pursue an updated business plan once it restructures. Northvolt’s demise comes at a time when consumer demand for electric vehicles has weakened, leading some automakers to downsize or delay projects.
The company likely tried to move too quickly. Making battery cells is complex and expensive. New factories can take years to increase production and often have high failure rates because of problems during this process. Cells must be manufactured without any impurities on automated assembly lines in dust-free environments using highly processed metals and chemicals. Furthermore, battery factories cost billions of dollars to build, and there is a shortage of engineers with the required expertise.
China’s Battery Dominance
Chinese battery manufacturers like CATL and BYD are thriving, in contrast to their counterparts in South Korea, Japan, and Europe. This success is largely driven by the surge in EV sales within China, where EVs now make up about half of all new car purchases. This market size gives Chinese battery makers a significant edge over international competitors. In Europe, for example, the demand for battery electric vehicles rose just 1.3 percent in the first half of 2024, a sharp decline from 14.6 percent the year before.
China leads the global market in both EV production and battery manufacturing, with CATL being the world’s largest battery producer by a wide margin. Decades ago, China made a strategic decision to prioritize the development of electric vehicles and to support its domestic battery industry with substantial subsidies. This has put Western nations at a disadvantage because China’s focus on EVs is partly driven by its limited domestic oil and gas resources, which it must import. In contrast, Western countries were expected to become major importers of electric vehicles and their components, as they progressively shifted away from fossil fuels due to political policies, mandates, and subsidies.
To keep up with China, investors need to back the development of new battery technologies that could offer a competitive edge. One example is Lyten, a Silicon Valley company that is working on batteries made from low-cost sulfur, rather than expensive metals like nickel and cobalt, where China holds a dominant position. China’s advantage also stems from its control over key resources and its reliance on inexpensive coal-powered plants for processing metals.
Conclusion
Northvolt was part of Europe’s clean technology manufacturing renaissance and the foundation of European automakers’ EV goals, providing batteries manufactured on the continent. Europe wanted to show that it could compete with the United States for investment and subsidies arising from the Inflation Reduction Act and to compete with China on battery technology. But the massive public subsidies Northvolt received and the early skyrocketing customer demand for electric vehicles in Europe were not enough to break China’s dominance on EV technology. Western countries will have a hard time trying to compete with China’s dominance of EV battery production, electric vehicle manufacturing, and obtaining the metals needed for them. The United States is blessed with enormous energy resources of all kinds, which should make it easier to pursue an “all energy” strategy that helps our economy and strengthens our national security, which President-elect Trump emphasized during his successful bid for a second term. U.S. auto manufacturers should follow their strengths and realize that America has abundant oil resources and does not need to follow in China’s footsteps.
