Northvolt Bankruptcy Sparks Reassessment of Europe's EV Battery Strategy

Northvolt’s collapse marks a pivotal moment for Europe’s ambitions in the electric vehicle (EV) battery industry, raising urgent questions about how to build a competitive, low-carbon industrial base. The company, founded by two former Tesla executives and once hailed as Europe’s best-funded startup with $15 billion in commitments from investors and governments, filed for U.S. Chapter 11 bankruptcy in 2025. Despite substantial capital, its failure has been attributed to operational missteps, including geographic expansion before mastering production efficiency and an inability to match the maturity and cost-effectiveness of Chinese battery manufacturers [1].

The company’s struggles were compounded by a lack of consistent financial backing from its home country, Sweden, which raised concerns among shareholders and former executives. Meanwhile, Chinese state aid has long helped its battery industry reduce unit costs by 30% compared to European counterparts, making it hard for startups like Northvolt to compete. Craig Douglas of World Fund noted that Northvolt’s failure stemmed not only from the difficulty of catching up with China but also from flawed execution—delays in yield improvements, missed delivery timelines, and a loss of customer confidence, particularly from BMW and Scania [1].

The consequences of Northvolt’s downfall have reverberated across the industry. Volkswagen, a major investor holding a 21% stake, took a significant writedown and shifted focus to its in-house battery subsidiary, PowerCo. This shift underscores a growing trend of automotive companies seeking to secure battery supply chains closer to home, highlighting the strategic importance of self-sufficiency in high-growth, low-carbon industries [1].

Northvolt’s collapse has also cast a shadow over future large-scale investments. According to Douglas, it will make investors more cautious about supporting new production scale-ups in commoditized markets like batteries, where execution excellence is paramount [1]. However, Benoit Lemaignan of Verkor, another EV battery startup backed by Renault, cautions against concluding that the window is closed. Verkor is still in the early stages of production, having secured $2.15 billion in funding, and the European Commission has announced $1 billion in grants for six battery projects, including Verkor and Cellforce, to support the continent’s transition to clean energy [1].

The International Energy Agency (IEA) has emphasized that Europe is at a “make or break” moment in building a competitive battery industry. While China dominates global battery production, the IEA argues that a strong domestic market, clear policy signals, and reduced investment risks can help Europe develop resilient industrial ecosystems [1].

For Europe to succeed, industry experts like Andreas Fischer suggest moving beyond selecting “winning” companies and instead investing broadly across the EV sector. Protectionist measures, such as the EU’s Carbon Border Adjustment Mechanism (CBAM), may also help level the playing field by ensuring imported goods pay for carbon emissions. However, Craig Douglas cautions that Europe will likely struggle to compete in the two dominant lithium-ion battery technologies—LFP and NMC—and should instead focus on high-end cells and emerging chemistries [1].

Dr. Herbert Mangesiu highlights another key challenge: Western venture capital ecosystems must better understand the complexities of building economically viable production systems at the scale and sophistication seen in China. He stresses the importance of risk management and governance in early-stage projects and notes that cheap energy and skilled labor are foundational for long-term competitiveness. China’s consistent industry policies have enabled it to build thriving clean-tech sectors, a model Europe may need to emulate [1].

Northvolt’s failure is a wake-up call for Europe’s industrial strategy. The continent’s ability to develop self-sufficient, competitive supply chains will not only determine the future of its EV industry but also its broader energy sovereignty. As the race for clean energy accelerates, the lessons from Northvolt must be heeded to avoid similar pitfalls in the future.

Source: [1] What can Northvolt’s failure teach us about Europe’s competitive future? (https://fortune.com/europe/2025/08/04/what-can-northvolts-failure-can-teach-us-about-europes-competitive-future/)