The Fall of Northvolt: Who is Responsible for Europe’s Battery Setback?

Not long ago, Northvolt — once a beacon of hope for Europe’s battery technology — filed for bankruptcy. This collapse erased nearly 20% of Volkswagen and Goldman Sachs’ stakes, and much of the $2.5 billion in EU and member-state financial support has gone to waste. While Nortvolt’s assets may find new ownership — potentially by a Chinese rival — the repercussions go beyond the company itself. This event marks a significant setback for Europe’s climate technology ambitions and industrial policies.

Founded by Peter Carlsson, a former Tesla executive, Northvolt was seen as Europe’s answer to the growing global battery demand. Carlsson, who served as Elon Musk’s Vice President of Manufacturing until 2015, aimed to scale Northvolt rapidly. Beginning with a factory in Sweden, the company announced plans for expansions in Poland, Germany, and Canada. With substantial EU subsidies and eager investors, Northvolt raised billions, portraying itself as Europe’s bold response to the U.S. Inflation Reduction Act, which has fueled advancements in climate technology.

However, manufacturing is not just about advanced equipment; skilled labor is equally critical. Europe’s labor market struggled to meet this demand, particularly for production engineers. As in the case of Taiwan’s TSMC factory in Arizona, Northvolt had to recruit experts from abroad, including China and South Korea. Communication hurdles were evident at its Swedish facility, where production teams relied on WeChat’s translation tools to collaborate.

Scaling new manufacturing operations proved overwhelming. The lack of cohesive teams undermined Northvolt’s ability to address crises efficiently. An external blow compounded these internal struggles: Europe’s demand for electric vehicles fell short of projections. BMW’s cancellation of a $2 billion order was a turning point, triggering Northvolt’s financial collapse. Lacking the scale and experience of Chinese competitors, Northvolt’s ambitious vision ultimately failed, jeopardizing Europe’s climate technology aspirations.

Northvolt’s downfall also highlights broader systemic issues in Europe. Wolfgang Münchau’s book Kaput explores Germany’s institutional decline, recounting how local resistance and regulatory delays derailed a Dutch entrepreneur’s vertical farming project in Germany. Vertical farming, which involves growing crops in vertically stacked layers within urban environments, offers a more sustainable approach to agriculture by optimizing limited natural resources. However, the project faced opposition at every turn. In North Rhine-Westphalia, residents resisted the plan, citing concerns about increased truck traffic. Moving to Bavaria, the entrepreneur encountered protests from traditional farmers who rejected vertical farming as unnatural. Finally, near Berlin, regulatory indecision stalled progress further as authorities debated whether the facility should be classified as agricultural or industrial. Additional delays arose when Bronze Age archaeological remains were discovered at the proposed site. After countless bureaucratic hurdles, the project was ultimately abandoned eight years later.

This tale reflects the challenges of Europe’s state-centric governance, which often stifles innovation. Etatism—where governments craft policies through established sector associations—may work in stable industrial contexts but fails to nurture the dynamism required for emerging industries. Northvolt’s story underscores the need for Europe to rethink its industrial policies, mainly because geopolitical dynamics demand competitive alternatives to China’s manufacturing dominance.

For countries like Türkiye, this moment presents a unique opportunity. Strategically positioned between East and West, Türkiye could attract investments and become a key player in high-value manufacturing. However, its statist legacy — modeled on Europe’s — remains challenging. Türkiye must foster a more entrepreneurial ecosystem and reduce bureaucratic constraints to capitalize on this opportunity.

Northvolt’s failure is more than just a corporate bankruptcy; it’s a cautionary tale about the limitations of traditional industrial policies in a rapidly evolving global economy. The lesson for Europe and emerging markets is clear: adaptability and entrepreneurial dynamism are critical to thriving in the new economic landscape.

This article is a translated version of “Avrupa’nın pil rüyası Northvolt’u kim batırdı?” which was initially published in Economic Daily (Nasıl Bir Ekonomi Gazetesi) on December 6, 2024.