Last week, Swedish battery manufacturer Northvolt announced 1600 layoffs – 20% of its workforce – and a general rescoping of its operations. “The decisions are, however, necessary to adjust for current realities and enable the long-term success of Northvolt,” stated Peter Carlsson, CEO of the company.
Northvolt has often been dubbed Europe’s beacon of hope in the global race for electric vehicle (EV) battery production, a market dominated by Chinese producers CATL and BYD. In the eight years since its existence, the company has raised $15 billion—more than any other European private startup—signing deals with automakers such as Volkswagen and Volvo.
Why this is important:
Most electric car batteries are produced in China, with Europe lagging in manufacturing. A local battery production chain is needed to keep Europe competitive and less dependent.
Despite its rapid growth, Northvolt is struggling to increase its production capacity. At the beginning of 2024, the company announced that it tripled its production capacity to 60,000 battery cells per week. Yet, this amount is far from the announced annual output of 1 GWh of batteries—needed to power 17,000 cars. Frustrated by the slow buildup, in June, BMW—one of the top shareholders—canceled a $2 billion battery cells contract, resorting to Samsung instead. The lower-than-expected demand growth also forced the company to cut its costs.
Struggle to compete
With the European battery champion navigating headwinds, the Old Continent battery industry’s unpreparedness is exposed. “We are trying to build European capacity based on a global free trade system and business as usual. We could pick many more examples of companies working on the net zero transition, and they cannot succeed,” underlines David Peck. He is an associate professor of critical materials and product design at the Delft University of Technology.
Julia Poliscanova, senior director of vehicles and electric mobility at NGO Transport & Environment (T&E), also stresses the role of global dynamics in hampering Norhvolt’s growth. “China is prepared to sell excellent technology that we don’t have in Europe yet for cheaper. This makes it incredibly hard for European companies to compete.”
Having established an efficient production chain, Beijing dominates battery manufacturing, having more production capacity than the rest of the world. According to EV Volumes, over 680 GWh of battery cells were produced in 2023. Chinese company CATL was by far the largest producer, with over 243 GWh of manufactured cells, followed by compatriot firm BYD with 117 GWh.
All in for Europe’s battery industry
What is the way out, then? According to Poliscanova, Europe should go “all in; otherwise, it will not happen.” Underscoring Europe’s lack of a clear strategy to support local manufacturing, in her view, three things can be done to foster the sector. Firstly, keeping current CO2 regulations to force automakers to comply. Secondly, import tariffs should be increased, rewarding local producers. Finally, cash from €3 billion-worth EU Battery Fund should start flowing to finance European battery companies.
And there is more: keeping a door open to Asian investments. “These are the companies that know how to scale up production. This way, we can get factories and expertise in a way that Europe can benefit from, with actual technology transfer and not merely final assembly in Europe. We need stronger policy around Chinese investment on joint ventures and licensing deals,” she adds.
A few months ago, T&E also published a blueprint for battery production in Europe, showing that manufacturing would be greener yet calling for significant investments to make it happen.
Changing the framework
Peck is unsure that simply pumping money into companies would solve the problem. “I’m unsure that throwing money at these companies solves the issue. You would still set up a for-profit business in the global market, which is neither fair nor sustainable. Is throwing money into that pot a sensible use of taxpayers’ euros and economic borrowing? The answer is probably no. It will be difficult to succeed in the endeavor in a business-as-usual scenario.”
The professor calls for a change of framework. Rethinking the global trade order and forgetting about a local material and manufacturing supply chain are the two options presented by Peck. With measures like the Critical Raw Materials Act, the EU clearly stands for local production, yet challenges remain. “It might seem unrealistic, but if we are going to try and build multi trillions of euros of capacity production in Europe, we will do it in a different trade order,” he remarks.
Carmakers’ role
Much of the fate of Europe’s battery production in the future will depend on the decisions car manufacturers make. “If carmakers want a resilient supply, they should offer firm offtakes and invest and support local manufacturing in Europe; put your money where your mouth is. The biggest problem is that automotive companies are global ones, trying to maximize profit. They go for cheaper contracts elsewhere as soon as possible,” warns Poliscanova.
The latest developments
The most significant Northvolt cutbacks affect Skellefteå’s manufacturing plant, where 1000 workers have been laid off. Northvolt previously announced that it was suspending plans to add 30 GWh of capacity production at this location. Furthermore, 400 people lost their jobs at the R&D facility in Västerås and 200 at the company’s headquarters in Stockholm.
Investor Harald Mix—founder and one of the major Northvolt shareholders—announced it would provide new capital to the company, given its role in European competitiveness. Bloomberg reported that lenders could give Northvolt access to a $5 billion green financing facility.
Volkswagen, which owns a fifth of the Swedish company, earlier said that it would keep supporting the battery company amid reports of uncertainty around future investments in the company. The German carmaker giant is going through tough times, pondering the shutdown of some of its German plants.
The coming months sound like a defining moment for the European automotive and battery industry. Electric car sales are expected to ramp up as new, cheaper EVs hit the market in the upcoming months—T&E battery electric vehicles (BEVs) could represent up to 24% of new cars sold in Europe by 2025. Time is ticking.
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