Northvolt's Collapse Underlines Challenges for Europe's Battery Ambitions

Northvolt’s collapse has sent shockwaves through Europe’s ambitions to build a self-sufficient battery industry and compete with China in the low-carbon economy. The company, founded by two ex-Tesla executives and backed by over $15 billion in funding from both private and public sources, was once hailed as a flagship of European innovation. Its flagship factory near the Arctic Circle has now fallen silent, marking the end of a costly and ambitious experiment [1].

The failure of Northvolt highlights the challenges of scaling up in a commoditized market, particularly when facing the low-cost battery manufacturing capabilities of China. Craig Douglas, partner at climate tech venture capital firm World Fund, notes that Northvolt’s problems stemmed not from lack of funding but from poor execution. The company expanded too quickly without mastering its production processes, leading to low yields, delays, and ultimately, a loss of confidence from key clients [1].

BMW canceled a $2.15 billion order, while Volkswagen—Northvolt’s largest shareholder—eventually wrote down its investment and shifted to its own in-house battery subsidiary, PowerCo. These moves reflect a broader trend among European automakers to prioritize in-house battery solutions over relying on third-party suppliers [1].

Northvolt’s failure has not only shaken the company’s investors but also cast doubt on the viability of large-scale battery manufacturing in Europe. Douglas argues that it will make future investors more cautious about supporting similar scale-ups, especially in industries where manufacturing excellence is key [1]. However, European policymakers are not giving up. The European Commission recently announced around $1 billion in grants to support six battery projects, including Verkor, NOVO Energy, and Cellforce, as part of a broader strategy to build a competitive domestic industry [1].

Verkor, backed by Renault, has taken a more cautious approach than Northvolt, securing $2.15 billion for a gigafactory in Dunkirk. While it has already begun manufacturing battery cells in Grenoble, full-scale production in Dunkirk has yet to start. The company’s founder, Benoit Lemaignan, acknowledges that Northvolt’s failure does not mean the end of the game for Europe’s battery ambitions [1].

Experts agree that for Europe to succeed in this space, it needs more than just financial support. It requires a long-term, strategic approach that includes strong policy signals, protectionist measures such as the Carbon Border Adjustment Mechanism (CBAM), and investments across the entire value chain, not just in picking a single winner [1].

Andreas Fischer of First Momentum Capital argues that Europe must be willing to invest heavily in the entire EV industry, rather than trying to fast-track success through selective interventions. He also emphasizes the importance of building resilient domestic ecosystems that can compete with China’s scale and expertise [1].

The International Energy Agency (IEA) echoes this sentiment, stating that Europe is at a "make or break" moment in its battery industry. It underscores the need for clear policy frameworks that encourage domestic demand and reduce the risks for manufacturers [1].

Douglas sees Europe’s best chance not in competing on traditional lithium-ion battery types like LFP and NMC, where China and Asia dominate, but in high-end cells and new chemistries. He also points to related industries such as circular economy, biotech, and agritech, where Europe already has strong foundations [1].

Ultimately, Northvolt’s failure is a stark reminder of the challenges Europe faces in building supply chains critical to its energy sovereignty. As Herbert Mangesiu of Vsquared notes, Western venture capital ecosystems must better understand the complexity of scaling production systems that can rival China’s. He stresses the importance of governance with strong risk management and the need for long-term consistency in policy to build competitive industrial ecosystems [1].

Source: [1] What can Northvolt’s failure teach us about Europe’s competitive future? (https://fortune.com/europe/2025/08/05/what-can-northvolts-failure-can-teach-us-about-europes-competitive-future/)