What can Northvolt’s failure teach us about Europe’s competitive future?

Economy·Electric vehiclesWhat can Northvolt’s failure teach us Europe’s competitive future?By Anna HeimBy Anna Heim Northvolt cofounder and former CEO, Peter Carlsson.Liesa Johannssen-Koppitz/Bloomberg via Getty ImagesJust below the Arctic Circle, Northvolt’s flagship battery factory once stood as a beacon of Europe’s ambitions to power its future with clean energy

But ing the company’s recent bankruptcy, its last duction lines have fallen silent

There is still hope that a buyer might emerge to revive the fortunes of the small Swedish town

Silicon Valley startup Lyten already took over Northvolt’s Polish plant, and Swedish truck manufacturer Scania has expressed interest in putting together a conium to acquire its R&D facility

How a company founded by two former Tesla executives managed to fail despite such a massive amount of capital will be a case study for schools for years to come

It also raises questions as to whether the government did enough to support its former battery champion, and how Europe should revise its apach to competing with China in high-growth, low-carbon industries

What went wrong? While Canada and Germany both vided significant support and grants to the Swedish company, its country largely abstained, understandably raising criticism from holders and former executives

However, it’s far from whether more financial support would have made a decisive difference, given that Northvolt was already so well-financed

According to Craig Douglas, a partner at climate venture capital firm World Fund, Northvolt’s blems had more to do with the difficulty of playing catch-up with China, and the missteps it made along the way. “If you want to scale up new duction capability in a commoditized market, your executions have to be spectacular; Northvolt’s were not,” says Douglas. “They continued to scale up and expand geographically before they had a good handle on their actual duction capability

They did not get their yield numbers up and their dery times were delayed, so they could not be competitive.” As a result, automotive customers started losing confidence

Scania had to secure alternative supply for its electric fleet as Northvolt struggled to ramp up output

Stepping down as CEO after the company applied for a Chapter 11 bankruptcy in the U.S., Northvolt cofounder Peter Carlsson said that while the company’s challenges were multifaceted, he had to take responsibility for the fact it had up in this situation

A make-or-break moment for Europe’s EV sector Northvolt’s failure is undeniably a blow to the wider ecosystem

For Douglas, it “will make a lot of the larger investors nervous future scale-ups, and stakeholders will be much more focused on the scale-up manufacturing risks than before.” “If you want to scale up new duction capability in a commoditized market, your executions have to be spectacular; Northvolt’s were not.”Craig Douglas, a partner at climate venture capital firm World Fund However, it’s important to remember that Northvolt wasn’t the only scale-up in the race. “It’s not because some have struggled, Northvolt, that it’s the end of the game

Europe needs to keep pushing,” French entrepreneur Benoit Lemaignan recently said

Once presented as the French Northvolt, Verkor has moved more slowly than its former peer

Although its pilot line located in Grenoble is manufacturing cells—the basic units that store energy in a battery—full-scale duction in Dunkirk hasn’t started yet

This means that Verkor is still in a critical transition phase, but it can at least now count on a little help from Brussels

The European Commission recently announced it will distribute apximately $1 billion in grants to six EV battery jects, as it seeks to level the playing field and support Europe’s transition to a clean, competitive, and resilient industrial base

These include Verkor, but also NOVO Energy, a former joint venture between Northvolt and Volvo Cars, the latter of which recently took full ownership; Cellforce, owned by Porsche; and ACC, backed by Stellantis and Mercedes-Benz. “It’s not because some have struggled, Northvolt, that it’s the end of the game

Europe needs to keep pushing”Benoit Lemaignan, French entrepreneur, Verkor “There are enough examples in history that show that it is seldom too late to catch up, but the question is whether we are willing to do what it takes to compete,” says Andreas Fischer, a founding partner at deep VC firm First Momentum Capital

For him, this would require heavily into the entire European EV industry, not trying to pick a ‘winning’ company. tectionism, specialization and long-termism It’s a view d by the International Energy Agency (IEA), which says that we’re in a “make or break” moment for the European battery industry

Although China—which has extensive manufacturing know-how and supply chain integration—now duces three-quarters of batteries globally, there are pathways for building a more competitive battery industry in Europe, beyond blanket subsidization. “All start with ensuring strong domestic demand, which gives manufacturers time to hone duction cesses and develop strong regional industrial ecosystems

On this front, policy that signals continued demand growth and reduces investment risks is essential,” the IEA wrote earlier this year

Douglas agrees—“things the CBAM or local content requirements could help create a level playing field with a er value add for being local”—but still thinks it is going to be difficult for Europe to compete in the two main types of lithium-ion batteries currently used in electric vehicles: LFP (Lithium Iron Phosphate), prices for which have dropped, especially in China; and NMC (Nickel Manganese Cobalt Oxide), in which Korea and Japan have developed strong expertise

Instead, Douglas believes that Europe stands a better chance at high-end cells and new cell chemistry

He also points to other, related industries where the price gap with China is either less, or just less important: “Decarbonized industrial manufacturing, recycling and circularity, bio and agri, and energy model innovations all have great starts in Europe.” Nonetheless, Northvolt’s collapse exposed scale-up shortcomings that need to be addressed if Europe wants to build the supply chains that are crucial for its sovereignty, in EV batteries and beyond

One of these, according to Dr

Herbert Mangesiu, a general partner at early-stage deep VC firm Vsquared, is that western VC ecosystems should better appreciate how hard it is to build economically viable duction systems at the scale and sophistication of China’s. “It is crucial to have appriate risk management and oversight engraved in governance structures, i.e., the ability to judge gress relative to budgets,” he cautions

At a system level, cheap energy and a skilled workforce are also a necessary “baseline” for competitiveness, Mangesiu adds

Achieving those can take time, but that itself is a lesson from how the Chinese built their own thriving industries

Says Mangesiu: “China shows consistency in industry policies which allows reliable and competitive ecosystems to build up, in particular in clean sectors.” Europe lags the U.S. and China in key growth sectors due to costly energy and stalled market reforms

This article series explores how nology, regulation, and innovation can revive its competitiveness.