What Northvolt's bankruptcy means for Europe's battery ambitions
Northvolt’s grand battery expansion plans ran into the reality that cash can’t overcome lack of experience, or of lasting policy.
Image credit: Lisa Martine Jenkins (Photo credit: Northvolt)
Image credit: Lisa Martine Jenkins (Photo credit: Northvolt)
From the start, Northvolt set out to build something unprecedented. It didn’t just promise to build batteries in Europe, but to create an entire battery ecosystem, from scratch, in a matter of years. It would build the region’s biggest battery factories, develop and source its own materials, and recycle its own batteries. And, with some help from government subsidies, it would do so while matching prices from Asian manufacturers that had dominated global markets.
Northvolt’s ambitious attempt to compress decades of industry development into just eight years culminated last week, with its filing for Chapter 11 bankruptcy protection and the departure of several top executives, including CEO Peter Carlsson. The company’s downfall is a setback for Europe's battery ambitions — as well as a signal of how challenging it is for the West to challenge Chinese dominance.
In many ways, Northvolt’s problems seemed to appear suddenly. Just 12 months ago, the Swedish startup was raising billions of dollars in new funding and eyeing a $20 billion IPO. It was also breaking ground on new factories, flush with contracts from Volkswagen, Volvo, and Stellantis. It landed on every list of climate tech unicorns.
But the problems that ultimately led the company down the path to bankruptcy were already present. They go back to the company’s inception, and were much more intractable than a cancelled contract or equipment missteps.
“The fundamental problem that [Northvolt] had that was kind of baked into their DNA from the very beginning was that they are a venture capital-backed company with a venture capital-backed model, and that model does not work for making a battery manufacturer,” said Sam Jaffe, a battery industry analyst and consultant who currently serves as director of business development for Addionics. That model, he said, is likely largely responsible for the company’s strategy of rapid expansion, as opposed to focused growth.
A problem of pace
Northvolt aimed to mimic the success of legacy battery makers like LG and Samsung, who have already begun standing up battery production in Europe on a short timeline and within budget.
But those companies, Jaffe said, have been able to achieve high production rates, even in new facilities, based largely on having experience in established markets.
The Swedish company didn’t have the decades of experience that Chinese manufacturers have in building up intellectual property and perfecting their processes, said Caspar Rawles, chief data officer at London-based research and consultancy firm Benchmark Mineral Intelligence. Not even billions of dollars and a high-profile orderbook in hand, he said, can make up for that lack.
“This is very high-volume, very low-tolerance for imperfections, very slim-margin manufacturing that is very hard to get right," Rawles said. "There's a huge amount of IP that has been built up, particularly in the East... And there's a huge gulf in terms of Western knowledge compared to those companies."
Northvolt’s investors, though, “were very impatient,” said Jaffe — and therefore the timeline Northvolt was working on was “nearly impossible.” The company had production targets of more than 50,000 deliverable cells per week by the end of 2024; Jaffe thinks that would have been achievable if the company had just two extra years to get there.
After all, despite the company’s decline in the last year, Northvolt has undoubtedly been a pioneer, as the first European company to design and manufacture lithium-ion cells in the region. And if they’d maintained a narrower focus, the outcome could very well have been different.
“There's nothing wrong today with building a 30 gigawatt-hour battery factory — that's kind of the norm,” Jaffe said. “But trying to build six of them at the same time is an enormous ambition and clearly too much for a startup company to chew.”
And actually, even the established Asian manufacturers building out their presence in Europe have moved more slowly than Northvolt attempted to do — and that slow pace combined with experience yielded more success. LG, for example, now produces over 20 GWh in Europe, according to Benchmark’s data. Samsung produces more than 10.
A slower pace of ramp up might have been to Northvolt’s benefit, said Max Reid, who leads Wood Mackenzie’s EV and battery supply chain practice. "I think if [Northvolt] just focused on cell production at one plant…they had a greater chance, rather than expanding... and having eyes bigger than their belly."
As for what type of environment would allow for a vertically integrated battery manufacturer to be stood up and expand at Northvolt’s target pace? “The simple answer to that is: China’s,” Jaffe said.
Battery balancing act
Warning signs of Northvolt’s forced restructuring have been dripped throughout the last six months, starting with BMW’s decision to cancel a $2 billion border for battery cells in June
In August, the company decided to shutter Cuberg, the lithium metal startup it acquired in 2021.
Then, in September, they announced a series of moves aimed at right-sizing the company and narrowing focus to deliveries for existing customers. Those included a 20% reduction in global workforce, a decision to buy cathode active materials rather than make its own, and the sale of an industrial site that was to be an expansion of its flagship factory in Sweden. At the time, the company cited “headwinds in the automotive market” and the “wider industrial climate.”
Exactly one month ago, the subsidiary Northvolt had created to manage the planned 30-GWh expansion of the main factory, called Northvolt Ett Expansion AB, filed for bankruptcy in Sweden. That move was an attempt to contain the financial damage from canceling the expansion and appears to have been a precursor to the full company bankruptcy filed last week.
Northvolt’s troubles are forcing a reality check of Europe’s battery ambitions. The region aims to process 40% of its own cleantech equipment by 2030, and also to have 100% of new vehicles sold be zero-emission by 2035.
“To achieve that 2035 target is essentially impossible without China,” Reid said. That’s less about the batteries themselves, he explained, and more about the cathode and anode active materials, which are the most valuable components in a battery and have supply chains currently dominated by China.
What the Northvolt bankruptcy makes clear, Reid said, is that Europe can either meet its climate targets (or at least get close), or have solely domestic supply chains for its cars and other products, but not both. A compromise, he said, is what’s already happening outside of the Northvolt ecosystem: Chinese companies producing equipment in Europe, and providing some economic benefit to the region — even if it’s not as much as Northvolt promised.
Further integration would be a problem for other Western battery makers, said Ben Campbell, who oversees the battery team at research and consulting firm E Source; they may not have been moving as fast as Northvolt, but they still have a tremendous stake in manufacturing in the West.
“I think we'll see a bit of a shift towards potentially…lowering the bar for domestic supply chains, to bring in Chinese sales,” Campbell said. "We're going to see a lot of pressure from all European and North American companies to prevent that, because they've already invested so much, and they are going to really struggle to compete without tariffs and subsidies to help them while they're getting over this learning curve."
Questions for Europe
In some ways, Northvolt’s story isn’t all that different from other startups that grew too fast, too soon — just on a more dramatic scale, given the eye-popping amount of money the company had raised, and spent.
(Though as Jaffe pointed out, it’s not the case that Northvolt raised $14 billion in cash and spent it all. “The vast majority of that was in the form of tax credits and special payouts from government agencies, both Swedish and EU-based,” Jaffe said. “But they’re never going to see that money, and they’re never going to spend it, because it was all production based.”)
Regardless of where the money comes from though, the reality of building any first-of-a-kind factory is that it’s very expensive, said Jaffe.
“The original Panasonic Tesla gigafactory in Nevada cost a total of about $5 billion for a 40-gigawatt hour factory,” he explained. That’s roughly in line with the $4 billion Northvolt spent on its Swedish factory. Chinese or Korean companies today spend much less setting up factories of similar sizes, and can do it faster, he added — because they’re no longer building first-of-a-kind projects and have the benefit of repetition.
Creating enough space for Northvolt and others to build up that repetition, said Rawles, will likely take more lasting action by European governments.
“Post-COVID we saw some pretty significant subsidies put in place for consumers, and gradually many of them have been removed,” he said, pointing in particular to the U.K.
Rawles’ question for governments post-Northvolt bankruptcy, then, is “how serious are you about creating this industry?”
“It’s very competitive now and it’s not a level playing field,” he said. “You’re playing catch-up to the East and particularly China.” Bridging that gulf of experience won’t be “something in place for one year or two years or three years,” he added. “It’s decades-long support.”
As far as what’s next for Northvolt itself, Reid expects the company will be sold, potentially to a competitor. “I think that’s probably the most likely outcome, purely because Northvolt is unique in that it has a factory set up, it has capacity installed,” he said. “It could be quite a cheap factory that [another company] can then come in and boost production with its own order base…and its own expertise.”
And the lesson for other battery startups, Campbell said, is more focus on cell manufacturing, and less initial emphasis on vertical integration.
“Put those to the wayside until some of the startups are able to get their first factories ramped,” he said. “Leave the experimentation to the more experienced manufacturers. Startups should focus on the basics.”
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