Key Takeaways
Europe had its hopes dashed for a homegrown EV battery industry by the bankruptcy filing of Northvolt, an EV battery maker based in Sweden.
Northvolt was held in high regard as a breakthrough battery start-up, receiving a $5 billion EU loan last year despite filing for bankruptcy in the United States.
Northvolt still has plans to build factories in Germany and Canada, which those governments are heavily subsidizing. Still, the Swedish operation’s bankruptcy may question those expansions.
Europe continues to lose its share of its “green energy” market, including electric vehicles and their components, to China, which dominates the world’s production and supply chain for those products, partly by burning over half the world’s coal to provide the energy to do so.
Northvolt, an electric vehicle (EV) battery maker that was once one of Europe’s best-funded start-ups, filed for bankruptcy in its home country, Sweden. The company had contributed 76 gigawatt hours to the region’s gigafactory pipeline. Its failure reduces European-owned cell production capacity to 30% of Europe’s 2030 pipeline, benefiting Asian producers and raising doubts about the viability of Europe’s own battery sector. The company, which appeared to be Europe’s best chance to compete against China’s battery dominance, filed for Chapter 11 bankruptcy protection in the United States last year to buy it more time to raise money, but to no avail.
Northvolt was founded in 2015 by two former Tesla executives and has been struggling for months, cutting jobs and restructuring operations even before it pursued bankruptcy protection. A Swedish court-appointed trustee will oversee the company’s bankruptcy process, including the sale of the business and its assets and the settlement of outstanding obligations. The company’s subsidiaries, Northvolt Germany and Northvolt North America are not part of the bankruptcy proceedings in Sweden. Northvolt has plans to build factories in Germany and Canada.
Background
European carmakers get their batteries from South Korea’s LG Energy Solution and Samsung, and China’s world-leading producer, CATL. Northvolt’s goal was to capture 25 percent of the European battery market by 2030. Last year, the company secured a $5 billion loan from the European Union to expand its production. However, it was still not enough to counteract the company’s challenges, from accidents at a plant in Sweden to losing a contract with BMW worth $2.15 billion.
Northvolt’s main business was lithium-ion batteries, but in 2023, it said it had made a “fundamental breakthrough” in sodium-ion battery technology. 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 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.
Northvolt’s Plans for a Factory in Canada
The company has plans to build a $7-billion factory in Quebec, Canada. The electric vehicle battery plant would be located in the Montérégie region on Montreal’s South Shore. The Quebec government pledged $2.9 billion in financing to secure the deal with Northvolt in 2023 and the Canadian government committed up to $1.34 billion to build the plant and another $3 billion worth of other incentives. So far, the Quebec government has invested $270 million in the project alongside $200 million from the provincial pension investor. Quebec granted Northvolt a further $240 million for the purchase of land in the Montérégie region.
Northvolt’s Germany Factory
Operations for Northvolt’s German subsidiary are to continue, but because the Swedish parent company wholly owns the factory project, its viability after bankruptcy proceedings is questionable. Construction work on the Northvolt factory near the northern German town of Heide began last year. The first cell assembly at Heide is scheduled to start in the second half of 2027 before the factory ramp-up begins. Early last year the European Commission approved funding and guarantees of $984 million for the Schleswig-Holstein plant. German government subsidies for construction are expected to total around $765 million, with possible further guarantees of $220 million. Northvolt has already received around $656 million from the German state-owned development bank KfW, half guaranteed by the federal government and half by Schleswig-Holstein. Decisions regarding Northvolt assets and its future in Sweden and its subsidiaries will be made by an insolvency administrator appointed by the court.
China’s Battery Dominance
China leads the global EV production and battery manufacturing market, with CATL being the world’s largest battery producer by a wide margin. Chinese battery manufacturers are thriving, largely due to the surge in EV sales within China, where electric vehicles make up about half of all new car purchases. This market size gives Chinese battery makers a significant edge over international competitors.
Decades ago, China made a strategic decision to prioritize the development of electric vehicles and to support its domestic battery industry with substantial subsidies, which has put Western nations at a disadvantage. China’s focus on electric vehicles is partly driven by its limited domestic oil and gas resources, which it must import. It has turned a weakness into a strength, which Western nations have played to under the guise of climate policies. China expects most Western countries to become major importers of electric vehicles and their components as they progressively shift away from fossil fuels due to political policies, mandates, and subsidies stemming from their adherence to the UN’s Paris Accord. China, however, uses its massive fleet of coal-fired power plants to provide inexpensive energy to its manufacturing sector.
Conclusion
Northvolt’s bankruptcy is a significant blow to Europe’s desire to become self-sufficient and build its own EV battery supply chain to catch up to China, which has the world’s largest market for electric vehicles and dominates EV battery manufacturing. The company faced numerous challenges, including rising capital costs, geopolitical instability, supply chain disruptions, and shifts in market demand. Northvolt still has two subsidiaries in Germany and North America that have factories either under construction or on the drawing board, and the future of these factories is questionable. Decisions regarding its subsidiaries will be made by an insolvency administrator appointed by the court. The bankruptcy of Northvolt should alert Western lawmakers rushing to reach net-zero emissions regarding the implications of those policies upon the economic and national security of their countries.
