In recent times, the European battery landscape has encountered a significant upheaval, with Northvolt, a prominent player and frontrunner in Sweden's burgeoning electric vehicle (EV) battery sector, announcing drastic measures to recalibrate its operationsThis shift will involve cutting approximately 1,600 jobs, halting the production of cathode active materials, and delaying the planned construction of a new battery superfactory.

The decision by Northvolt has sent tremors throughout the industry, prompting concerns about the long-term viability of Europe’s battery manufacturing aspirationsIndustry analysts, such as supply chain consultant Andy Leland, have voiced their fears, suggesting that Northvolt’s struggles serve as a troubling bellwether for a European market that appears increasingly vulnerable to external dependencies“If Northvolt can’t produce, it indicates that Europe may continue to lack self-sufficiency for the foreseeable future,” he remarked.

Over the past few years, Northvolt had garnered immense attention and support, striving to position itself among the global leaders in the battery sector

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The company commenced its operations under an illustrious premise, attracting significant capital from high-profile investors, including BlackRock, Goldman Sachs, and the European Investment BankIn its first eight years, Northvolt amassed an astounding $15 billion in financing—the largest amount raised by any European startupThe company also fostered partnerships with heavyweight car manufacturers, with contracts for battery supplies totaling up to $55 billion signed with brands like BMW, Scania, Volvo, and Volkswagen.

In addition to financial backing and consumer interest, Northvolt enjoyed considerable support from the European Union and various national governmentsIn 2017, an EU initiative led to the creation of a battery industry alliance, with hopes pinned on Northvolt becoming the “Airbus of batteries.” Consequently, the company benefited from substantial funding backed by EU policies aimed at bolstering the regional battery sector

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In January 2024, the European Commission sanctioned a $986 million national aid plan to facilitate Northvolt’s efforts to establish a battery plant in Germany.

Yet, the reality of the situation has proven hauntingly stark, as Northvolt reported a staggering loss of nearly $1.2 billion in 2023.

This downward trajectory serves to highlight the multifaceted challenges Northvolt faces, particularly in production and operational capacityNorthvolt inaugurated its first superfactory in Skellefteå, Sweden, at the end of 2021, intending to reach a production capacity of 16 gigawatt-hours by 2023. However, current utilization is alarmingly low, with the factory output falling below 1 gigawatt-hour annually and full production now deferred to 2026. CEO Peter Carlsson admitted that the company may have been overly ambitious with its expansion plans.

Year-on-year production gaps have led to dwindling client relations

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For example, BMW secured a €2 billion contract with Northvolt in 2020 but had to cancel the order two years later when Northvolt failed to deliverSimilarly, Scania felt the repercussions of delivery issues that impeded the production and distribution of thousands of electric trucks earlier this year.

Moreover, issues concerning safety and environmental sustainability have compounded Northvolt's problemsInvestigations have revealed at least 26 serious incidents at Northvolt facilities since 2019, raising concerns about the company’s working conditionsToyota, expressing apprehension regarding safety, has prohibited its technicians from working in Northvolt's factoriesSwedish environmental authorities have launched probes into a gas leak incident, while local governments have pursued litigation against Northvolt for allegedly unsafe chemical storage practices at its Västerås laboratory, where the metal content in wastewater exceeded allowable limits.

Northvolt's internal hurdles serve as a poignant illustration of larger systemic challenges confronting the European battery industry as a whole

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The EU has remained acutely aware of these obstacles; earlier this year, the European Court of Auditors issued a report warning of the risks that Europe might lose ground in the battery competitionThe document criticized the European Commission's "Battery Strategy Action Plan," identifying several key areas of concern.

Foremost among these issues is the disparity in subsidies, which have led battery manufacturers to contemplate shifting operations away from the EU to regions such as the United States, where lucrative incentives facilitate growthUnlike European incentives, the U.Ssupports the mining of materials and battery manufacturing directly, encouraging consumers to purchase EVs built with American materials.

Additionally, Europe’s heavy reliance on imported raw materials poses significant challengesA staggering 87% of lithium comes from Australia, while 80% of manganese is imported from South Africa and Gabon, and cobalt is sourced predominantly from the Democratic Republic of Congo—68% of the total supply

Furthermore, existing contracts only guarantee raw materials for a span of two to three years, while the timeline from discovery to production of raw materials in Europe can extend anywhere from 12 to 16 yearsFor instance, Portugal, home to the largest lithium reserves in the EU, is not expected to commence production until 2026.

Another contributing factor is the escalation in prices of raw materials and energy, which jeopardizes the competitiveness of EU battery productionBy the end of 2020, the cost per kilowatt-hour for battery packs had soared to €200—over twice the intended costNotably, nickel prices alone have surged by more than 70% in just two years.

Auditors from the European Court have cautioned that if battery production capacity does not align with the anticipated growth, two critical scenarios may unfoldOne possibility is that the EU might have to postpone its ban on internal combustion vehicles beyond 2035, compromising its carbon neutrality goals

Alternatively, to achieve zero emissions by the target date, Europe may find itself unduly dependent on batteries and electric vehicles manufactured outside the EU, which would adversely impact the European automotive industry and its associated workforce.

Beyond the obstacles discussed in the report, technological stagnation remains a significant issue within the European battery sectorAlthough there has been considerable investment in research and development, breakthrough advancements are lagging behind, particularly in design and manufacturing processes, which diminish product reliability.

Sadder still, the battery industry is grappling with a noticeable slowdown in market demand for electric vehicles across EuropeRecent figures released by the European Automobile Manufacturers Association revealed a decline in EV market share from 21% last year to 14.4% in August 2023—marking a fourth consecutive month of decline after a year dominated by sustained growth