In his seminal report on the future of European competitiveness presented in September 2024, Mario Draghi identifies a fundamental challenge: a lack of unicorns. What the former European Central Bank president’s unicorns lack in hair or horns, they make up for in deep pockets and intellectual property; only startups valued at over $1 billion with “high-tech” R&D capabilities qualify. In 2023, Europe was home to 8 percent of the world’s active unicorns, compared to 66 and 26 percent in the United States and China, respectively.
By these standards, Northvolt—a Swedish battery manufacturing firm—stood out even among unicorns, acting as the cornerstone of Europe’s industrial strategy for battery production. Over nearly a decade, Northvolt secured more than $15 billion in investments, with $50 billion in scheduled orders. Major investors included Volkswagen, Goldman Sachs, and Germany’s state-owned investment bank, KfW.
In September, the firm remained committed to commissioning five production facilities across Europe and North America. A month later, Northvolt filed for Chapter 11 bankruptcy in the United States and reported just $30 million in cash on hand—enough to keep the lights on for one week. Now short a CEO and $5.8 billion in the red, Europe’s best hope for domestic battery capacity faces a four-month restructuring process and an uncertain future.
The Northvolt saga presents more than a bump in the road for a continent struggling to find its footing in a new age of industrial policy. It demands answers to uncomfortable questions: How could Europe’s clean tech darling keel over so quickly, and should its backers have done more to prevent its fall? Brussels must confront these quandaries if it hopes to hold space for domiciled battery producers, as foreign firms eagerly eye market chunks once earmarked for Northvolt.
The Rise and Fall of Northvolt
Co-founded by two ex-Tesla supply chain executives in 2015, Northvolt (originally SGF Energy) emerged as a fit-for-purpose company on a mission: fill Europe’s widening battery production gap. Its promise grew alongside ballooning battery demand from European automakers. By 2030, Volkswagen aims for fully electric vehicles (EVs) to constitute 70 percent of its European deliveries—over 2.6 million units, based on 2023 sales. Volkswagen’s European ambition alone could require as much as 156 gigawatt-hours (GWh) of battery manufacturing capacity.
Brussels jumped at the opportunity to stand up a neighborhood supplier, awarding nearly half a billion dollars in European Investment Bank (EIB) grants to the startup before 2020. On top of the public pile, Northvolt raised over a billion dollars in its 2019 Series B funding—driven by Volkswagen and Goldman as lead investors. Between 2020 and 2023 it drew in a further $5.8 billion in Series C and D.
Armed with public and private capital, the firm broke ground on its flagship manufacturing site, located in Sweden’s remote Skellefteå municipality. Channeling the country’s abundant hydropower generation, Northvolt promised the world’s “greenest” batteries, seeking to reduce the carbon footprint of production by 90 percent while reusing battery waste with advanced hydrometallurgical recycling processes.
Logistical Challenges
Unfortunately, noble intentions could not overcome basic logistical challenges. The factory’s isolation left the company heavily dependent on imported labor and struggling to acquire the necessary talent for the projected 15,000 jobs that would have been required to fill by 2038.
Managerial missteps, bad luck, and myopia also contributed to the company’s strife. Spearheaded by CEO Peter Carlsson, Northvolt’s rapid expansion was originally an attractive pitch. Assessments from 2019 called the firm’s strategy “aggressive,” and that was the point. To compete with established companies, Northvolt needed to grow, but in retrospect, Carlsson admitted the strategy “[was] overambitious on the timing” of rollout.
Early signs of falter came in June of this year when BMW cancelled a roughly $2.15 billion production contract. In its press release, BMW announced that the companies had “jointly decided to focus Northvolt’s activities on the goal of developing next-generation battery cells.” The contract’s annulment was in large part due to Northvolt’s inability to produce lithium-ion batteries at scale and on time; the purported 2023 capacity of 16GWh fell dramatically short with only 79.8MWh produced in the first nine months and a concurrent loss of €1 billion.
Former employees blame the startup mentality for its evidential failure as the “just start to build it, we will figure it out as we go” approach lacked a long-term commercialization plan. Dramatic staff cuts—roughly 25 percent of its total workforce—in September coupled with a halt of factory expansion were last ditch efforts to preserve viability, but it was too little too late.
Beyond floundering production, Northvolt has also found itself at the center of legal challenges following the deaths of two employees onsite. In unrelated incidents, four others working at the Skellefteå factory have died offsite—three at home and one from drowning. In late September, the Financial Times reported that Northvolt was expected to receive a “suspicion of gross manslaughter” notice. The warranted investigation and associated bad press only intensified scrutiny into the company’s flailing leadership team.
Dependence on China
But the true kicker was Northvolt’s ironic dependence on China. Despite being hailed as Europe’s unicorn in the race to green de-risking, Northvolt remained heavily reliant on foreign labor and Chinese machinery provided by Wuxi Lead Technologies. There were early concerns about the efficacy of formation equipment provided by Wuxi Lead, and significant operational challenges once it was installed. Former engineers blamed machines that “could never work” and the “grossly inexperienced” employees hired to operate a “hodgepodge” of equipment for the company’s inability to deliver. Speculation about Chinese government sabotage also circulated online, but Wuxi Lead has denounced the allegations. Regardless, the strategic lapse of relying on Chinese technology to achieve green tech sovereignty speaks to a broader naivety on the part of Northolt’s leadership.
Complicit in similar myopia are the European governments that financed an ill-managed startup. Pouring billions into a European company propped up by Chinese technology under the guise of supply chain independence was a self-defeating strategy. To truly onshore, Northvolt needed to establish independence from battery giants, rather than rely on them. The public sector cannot, however, write off Northvolt as an isolated sunk cost. There’s still hope that restructuring efforts can empower the company to assert itself in the international battery market—if it adopts a different strategy.
What’s Next for EU Competitiveness
Northvolt’s collapse is an acute manifestation of a broader sectoral decline. Announced battery manufacturing capacity in Europe fell by 176GWh in 2024 as producers balked at a slowdown in EV sales volumes. Europe’s battery sector owes what juice it has left to the bloc’s protective tariffs and its far-off 2035 zero-emissions car goal.
Industrial policy calls for difficult decisions, and Brussels is faced with a choice: spend lavishly to prop up a battery industry “10 years behind” or cut it off, relinquishing its share to foreign producers. Giving up the potential for 100,000 jobs, losing billions in committed funds, and relinquishing control of over 7 percent of the continent’s GDP to foreign influence is a non-starter. And seriously competing with the United States or China—which have mobilized hundreds of billions in public assistance for lithium-ion battery producers—would require a drastic uptick in funding from the bloc.
Neither are compelling options. Sweden made the difficult choice to cut its losses, declining to invest in its home-grown firm only a month before its bankruptcy. The EU on the other hand seems intent on keeping with its current funding strategy for incumbent manufacturing, though it will in all likelihood fall short of sufficient support. The EIB’s recently announced €200 million loan guarantee program, paired with the EU Innovation Fund’s €1 billion grant portfolio and the existing €3 billion battery fund may succeed in bringing online some additional capacity, but it will be dwarfed by US or Chinese capacities.
Given the national security and economic implications associated with battery manufacturing, it makes sense to ensure a degree of onshore production for incumbent lithium-ion technologies, but the options outlined above are lose-lose for Europe. Its best chance at achieving meaningful battery manufacturing in 2030 and beyond rest with the next generation of chemistries.
Leapfrog Technologies
Despite its woes, Northvolt was at the cutting edge of next-generation designs on the continent. Its R&D center in Västeras, Sweden focused on new recycling processes, advanced sodium-ion batteries, and solid state designs. Northvolt’s faults should not stall next-generation ambition on the continent, as firms in Belgium and Germany are positioned to move forward with lithium-metal and lithium-sulfur production lines.
Commercializing these endeavors will require substantial early-stage capital and is not without risk, yet they offer the greatest opportunity for EU funds to compete with US or Chinese resources. Existing investment vehicles—from the EU Innovation Fund to the Horizon fund and national R&D platforms—should focus resources on these leapfrog technologies, rather than waste resources supporting an incumbent industry focused on the “wrong design, the wrong process, and the wrong equipment,” according to Robin Zheng, CEO of China’s battery behemoth CATL.
Betting on innovation, however, requires fast and decisive action. EU funds must move quickly to catalyze domestic intellectual property and expertise, as leading US firms are already entering the market. In July, Lyten—the global leader in lithium-sulfur battery technology—announced the launch of its European headquarters alongside equity investment from Luxembourg’s Future Fund 2. Meanwhile, Volkswagen Group’s battery subsidiary PowerCo signed a licensing agreement to manufacture 40-80GWh of solid-state lithium metal anode batteries using technology from US-based QuantumScape.
Partnerships with US firms are not subject to the same skepticism as those with Chinese producers, but Europe would do well to avoid the same pitfall of abject reliance on foreign technology—the mistake that doomed Northvolt’s lithium-ion rollout. To successfully rehabilitate the company, executives, private investors, and public sponsors alike must hold Northvolt and the industry at large accountable. Together, they must jointly work toward the shared strategic goal of establishing a competitive battery firm on the continent—a feat that can only be achieved through intensive restructuring and targeted financing for the future.
Launching the Next Chapter
Northvolt’s tumble leaves an embarrassing mark on European industrial policy, but it by no means signals the collapse of European competitiveness. After all, the US produces more solar panels now than it did prior to Solyndra’s Chapter 11 filing in 2011, and China has moved far beyond the lackluster launch of BYD’s first electric taxi—the e6—in 2010.
Come March, when Northvolt’s bankruptcy veil is scheduled to drop, the once-proud Swedish corporate could have another chance to compete for a share of Europe’s market, albeit with a bruised ego and smaller portfolio. Brussels should be prepared to invest in its future, rather than attempt to claw back its past. Laboratories should be scaled up and partnerships with leading US firms should be encouraged to better understand the next generation of battery technologies. Northvolt need not be the nail in Europe’s competitiveness coffin; rather, its resurrection could be the launch of the continent’s next chapter.
Emily Hardy co-writes IPQ’s CARBON CRITICAL column and is a master’s student at the University of Oxford. She was a James C. Gaither Junior Fellow in the Sustainability, Climate, and Geopolitics Program at the Carnegie Endowment for International Peace.
Dan Helmeci co-writes IPQ’s CARBON CRITICAL column. He is a researcher and former James C. Gaither Junior Fellow in the Sustainability, Climate, and Geopolitics Program at the Carnegie Endowment for International Peace.
