Analysis: What Northvolt’s Collapse Means for Chinese Battery-Makers

Northvolt AB, founded in 2016, represented Europe's ambition to break China's dominance in the electric vehicle (EV) battery market and to produce eco-friendly batteries for the EU's green transition [para. 1]. However, the company's bankruptcy in November highlighted the difficulties the EU faces in establishing a competitive EV battery industry and reducing reliance on China's advanced technology and sales networks [para. 2].

Former Tesla executives Peter Carlsson and Paolo Cerutti founded Northvolt, garnering support from prestigious shareholders, including Volkswagen AG, BMW Group, and Goldman Sachs. The Swedish startup raised over $13 billion and secured $55 billion in orders from major European EV manufacturers. Despite these achievements, Northvolt filed for bankruptcy protection in the US after earlier successes, such as establishing Europe's first battery gigafactory and beginning commercial production [para. 3].

The company's decline began in the summer when reports surfaced about BMW canceling a $2 billion deal due to Northvolt's inability to meet quality standards on time. This setback, coupled with rapid expansion and significant investment, led to a severe capital shortage, causing Northvolt to downsize and halt growth plans. They filed for bankruptcy protection with only $30 million in cash and over $5.8 billion in debt [para. 4][para. 5].

Speculation ensued about Chinese lithium battery companies potentially stepping in, though many, including CATL, expressed no intent to invest, preferring partnerships or technology licensing instead [para. 6][para. 7]. An investor noted that Northvolt’s production capacity pales in comparison to even smaller Chinese battery manufacturers [para. 7].

CATL, the world's leading EV battery producer, already has manufacturing bases in Europe and recently announced a joint venture with Stellantis to build a lithium-iron-phosphate battery plant in Spain [para. 8]. CATL discussed a technology licensing partnership with Northvolt but clarified it had no plans to invest in the company during negotiations [para. 9].

Chinese industry insiders were unsurprised by Northvolt's failure, attributing it to overly ambitious growth strategies, unrealistic deadlines, and a pursuit of numerous technological avenues that diluted its resources. Northvolt had ventured into various battery technologies, including sodium-ion and sustainable batteries, without mastering essential lithium ternary batteries. This attempt to match Chinese firms' technological capabilities overstretched the company [para. 10][para. 11][para. 12].

In its bankruptcy filing, Northvolt revealed challenges in finding skilled local workers, which increased labor costs. Compelled to rely on Chinese suppliers for crucial battery components due to China's dominance in the supply chain, Northvolt partnered with several Chinese manufacturers for essential materials [para. 14][para. 15].

Northvolt's founder acknowledged the competitive challenge posed by China's established scale and supply chain strength, emphasizing the importance of scale in battery manufacturing [para. 17]. With a growing EV market in Europe, Chinese manufacturers cannot ignore the region despite challenges such as tightened EU battery regulations and increased tariffs, which complicate market entry for Chinese companies [para. 18][para. 19][para. 21].

As a result, some Chinese companies, like CATL, are exploring joint ventures and technology transfers as effective market entry strategies, aligning with new EU green standards and market demand. This cooperative approach may eventually facilitate cleaner technology worldwide without disadvantaging technology providers [para. 25][para. 26][para. 28].

Despite Northvolt's struggles, the EU's booming EV market remains attractive, and Chinese companies must adapt by forging partnerships and transferring technology to penetrate this lucrative market [para. 29][para. 30].