The news comes as a blow to Europe’s hopes for a domestic battery champion in the EV sector and highlights the challenges that new Western entrants face in a fiercely competitive environment where competitors are far from standing still.  

Some of the challenges are technical.  Northvolt wrestled with constant manufacturing challenges on the path to full commercial production.   After opening its primary gigafactory in Skelleftea in 2021, Northvolt struggled to improve its production yield at the site owing to inconsistent cell batches and high material losses.  Naturally, with high levels of production scrap, introducing recycling capabilities was accelerated, but there were again significant execution hurdles.   

Reports also suggest issues with operating machinery imported from China and Korea without securing sufficient in-house technical understanding – compounded by the challenge of luring workers to a remote sub-Arctic location.  This was particularly difficult during the COVID-19 period, when the company had hired senior experts from the APAC region but could not secure work permits for nearly a year.   

Technical problems begat economic problems: running a battery plant at low capacityisn’t economically viable and becomes especially problematic when capital providers arenot prepared for such contingencies.  As a result, the company started to eat through funding at a rapid rate.   

Meanwhile, plans to add additional operations in Sweden, Germany, Poland and Canada, were perhaps overly ambitious (and expensive).  “I should have pulled the brakes earlier on the expansion path to make sure the core engine was moving according to plan,” noted outgoing chief executive, Peter Carlsson.  

Problems worsened for Northvolt because many of its key strategic backers in the EV supply chain were also struggling due to overall market conditions.   

In June 2024, BMW cancelled its EUR2Bn order from Northvolt, citing insufficient production volumes and inadequate performance as the primary reasons behind the decision. BMW instead turned towards Samsung SDI to ensure a reliable supply of cells to meet demand from its future EV production.   

Meanwhile Volkswagen, which holds a~20% stakeinNorthvolt, was unable to provide follow-on funding as it faced budget challenges of its own. It was announced in October 2024 thatthe carmaker is planning to shut at least three factories in Germany and implement pay cuts and redundancies.  

Finally, as always, there were macro challenges. Since its inception in 2016, Northvolt has developed amidst increasingly low cell prices from China and elsewhere in Asia.  Raw material prices have been declining, while the steep profile of expected EV production has flattened.   It is a hugely competitive environment, dominated by Tier 1 players such as CATL, BYD and LG – with deep experience of construction execution and production. 

Today’s geopolitical environment hasn’t helped either.  In Europe, following the 2024 European Parliament elections, many populist politicians are questioning the energy transition agenda for a myriad of reasons including job losses in certain sectors/regions and the transition’s inflationary impacts.  Meanwhile, in the USA, the recent election result has thrown the US EV market into greater uncertainty.  While the electrification of transportation is unlikely to go backwards, the path forward will certainly be less intense than expected a few years ago.  

These dynamics could have a direct impact on Northvolt’s restructuring efforts.  It is unlikely to survive in its current form, with advisors already in place to divest segments of the company.  The question is which aspects of Northvolt remain valuable to the next iteration of battery sector developers in Europe and North America.