The Northvolt facility in Vasteras, Sweden, on Sept. 29, 2021.Helena Soderpalm/Reuters
Europe’s last great hope to roll majestically into the global car battery business, Northvolt, has crashed. Another European wannabe tech giant has been humbled. China wins.
On Thursday, the nominally Swedish company – it was backed by a broad range of investors and lenders, from Germany’s Volkswagen to Canada’s pension funds – filed for Chapter 11 bankruptcy protection in the United States. What was Europe’s best-funded startup, one that was to be an industry champion, could not live up to its own hype.
Northvolt had raised some US$15-billion from investors and governments, yet found itself desperately short of cash in recent months, making the bankruptcy filing inevitable. It will try to keep its echo-chamber main factory in northern Sweden open while it hunts for fresh survival loans – a few bucks have arrived already. The odds do not look encouraging. “Northvolt’s liquidity picture has become dire,” the company said in its bankruptcy court petition.
Northvolt was founded by two former Tesla executives in 2016, when the electric-vehicle business was pretty much a zero in Europe. But the ex-Tesla boys, aware that Tesla itself was destined for greatness under the hard-charging magician Elon Musk, evidently determined that European automakers would soon plunge headfirst into the EV pool and enjoy having a homegrown supply of battery materials.
The idea proved more grandiose than realistic. Over the years, Northvolt was hobbled by severe production problems, a shortage of funding and skittish customers, a few of whom lost patience with the low output. Last summer, BMW cancelled its US$2.15-billion order for Northvolt battery cells.
An overambitious and costly expansion strategy, including plans for a Canadian plant, was responsible for much of the rot. Northvolt chief executive officer Peter Carlsson, who resigned on Friday, told the media, “I should have pulled the brakes earlier on the expansion path to make sure the core engine was moving according to plan.”
The subsequent upheaval in the European car business did not help. European EV sales are going in reverse as high prices, range anxiety, lack of charging points, waning EV purchase subsidies and a thin range of models that appeal to young drivers – they want iPhones on wheels – repel buyers.
Europe has a sorry history of competing with the Americans and the Chinese on the tech front. In his September report on European competitiveness, or lack thereof, former European Central Bank president Mario Draghi said that no European Union company with a market value of more than €100-billion (about $145-billion) has been set up from scratch in the past half century. The six American companies worth more than €1-trillion (about $1.45-trillion) were all started over the same period. “Europe is stuck in a static industrial structure,” he said.
Europe has seen this wretched playbook before.
Its once-ambitious photovoltaic industry was destroyed by low-priced Chinese solar products. European consumer electronics all but vanished too. European semi-conductor companies, with the exception of ASML of the Netherlands, are relatively small (the American AI chip maker Nvidia has a stock-market value of US$3.6-trillion ($5-trillion), well north of the combined value of all the FTSE 100 companies in London). The hydrogen-fuel industry is going nowhere fast.
And now Europe’s homegrown battery industry is dying. There are battery component plants in the EU, but they are mostly Chinese. One of the biggest, worth €7.3-billion ($10.6-billion), is under construction by Contemporary Amperex Technology Co. (CATL) in Hungary. China’s plants are heavily subsidized and their technology and production efficiency is well ahead of European factories. Europe simply can’t compete in this industry – as the bankruptcy of Northvolt shows. China, less so South Korea (LG) and Japan (Panasonic), own the show.
The cost of Chinese batteries is falling fast, just as the Chinese solar panels did two decades ago and Chinese EVs are today. BloombergNEF says the average cost of lithium iron phosphate batteries (the ones that need no cobalt and that are gaining market share) has fallen by half in the past year to US$53 per kilowatt-hour. Not long ago, US$100 was considered virtually unattainable.
The European battery industry may just as well give up. Prices of Chinese batteries and their components are unbeatable, and China dominates the supply of the critical metals, including nickel, graphite and lithium, as well. China has become The Wall. Breaching its defences is nearly impossible.
The Europeans would be foolhardy to drop more billions into battery plants, though they may out of conceit or because naive governments or investors will keep throwing money at them. Herbert Diess, the Austrian who was boss of Volkswagen until 2022, has more or less said that the European battery companies are spinning their wheels. “We should do what we can do best, and we should have China making what they can do cheapest and in good quality,” he told a BloombergNEF event.
The Northvolt dream is dead. European carmakers will be happy to buy cheap Chinese batteries, as they are now, for their EVs. The key question is whether European EVs are doomed too as the Chinese come on strong. Northvolt’s fate is a warning that is about as subtle as a high-speed car crash.