What Has Happened To Europe’s Biggest Battery Manufacturer?

The 2020s has been a fascinating half-decade when it comes to electric vehicles, which has had a consequential effect on raw material suppliers for the huge battery packs that power them,

Whilst most of the news has been very positive, with a significant and growing portion of cars being bought being battery electric units, some companies within the ecosystem have had a rather more uncertain time, which has coloured the financial picture of EVs as a whole.

A good example of this in 2024 was a downturn in the market as a whole which turned out to equate to a market collapse of Tesla, then the leading manufacturer of electric cars in most of the world, whilst other manufacturers were seeing steady increases in sales.

An even better example of why the fates of the few do not illustrate the overall market can be seen in the sad fate of Northvolt, which was once Europe’s largest battery manufacturer but has now applied for Chapter 11 bankruptcy protection.

There have been a lot of conclusions drawn very quickly based on preconceived biases, but the truth behind Northvolt’s collapse is linked far more to its unique, individual failings.

Dying North Star

The first, and most important point to note is that a Chapter 11 bankruptcy does not mean that Northvolt is completely out of business.

It is a complex legal process, more akin to the administration in the United Kingdom where a company that is going through financial difficulties (which can include insolvency), will go through a process of reorganisation and restructuring.

Northvolt stressed that they are continuing to run their business and this is, in no small part, a preventative measure intended to stop creditors from forcing a liquidation or to stop the company from running out of money.

According to their Chapter 11 petition filed in Houston, Texas, the company has enough money to survive another week in operation.

However, whilst defining the type of reorganisation is important, it does not hide the fact that Northvolt is going through some serious problems, requiring at least $1bn in investment to survive as a going concern.

Part of the issue was overexpansion; the company was formed in 2016, it started production of its batteries in 2021 and planned to rapidly expand in the following three years, based on the belief that Europe needed a complete electric battery supply chain.

However, not only is expansion of battery production extremely expensive in its own right, but there were also issues with quality control, quantity delivered and relationships with many major customers.

The first domino to fall in that regard was German car manufacturer BMW, who cancelled a contract worth €2bn due to an inability to deliver enough EV batteries of a high enough quality on time.

At the time, it was barely reported, with BMW switching to Samsung batteries and Northvolt still having a huge ten-year contract with Volkswagen to supply batteries for their Scania, Porsche and Audi brands, as well as a company which owns nearly a quarter of Northvolt.

The former of these, a lorry manufacturer hoping to use electric batteries as part of a long-range emissions-free logistics future, expressed frustration with Northvolt’s difficulties scaling up production volumes, and an internal document revealed that the company had continued to miss shippable battery cell targets.

Volkswagen themselves have suffered from their own financial problems, under pressure to close factories, lay off thousands of staff members and severely reduce production output. 

These were all moves that Volkswagen have almost never needed to do in its history and have led to fears about the German car industry as a whole.

Relevant to EV battery production, however, this meant that providing Northvolt with more equity was largely out of the question, leading Northvolt to look elsewhere for a rescue package.

Even with all of these problems, Northvolt appeared on the surface to be the biggest and most capable producer of batteries in Europe, and even with missing targets it still has amongst the biggest output in the EU.

However, the problems started over a year ago with overly ambitious expansion plans and gigantic contracts with some of Germany’s biggest car makers and continued with these grand plans despite issues with their initial factory in Skelleftea, Sweden.

The issues with delivery were, according to leaked documents and whistleblowers, caused due to a business model that focused purely on delivering on time, irrespective of quality. It was similar to the infamous “move fast and break things” motto used by Facebook and parrotted by Silicon Valley.

What will happen next is uncertain, but it will almost certainly end the more ambitious plans that are less than a year old, ideally replaced by a more sustainable manufacturing model that will ensure that electric batteries are produced at scale in Europe.

Whilst characterised as a crisis for the industry as a whole, in practice it more closely mirrors the collapse of Britishvolt, a UK battery startup company that collapsed into administration, its ambitious factory redeveloped as an AI data centre.