Northvolt flags European batteries’ growing pains

In the slow lane. A setback at one of the most valuable startups in Europe is exposing the region’s struggle to build homegrown battery champions. Swedish startup Northvolt, last valued at $12 billion, launched a strategic review after BMW cancelled a $2 billion contract. The EU's conflicting green strategies and a glut of cheap cells from China mean Northvolt is not the only battery maker in Europe having to scale back its ambitions.

Northvolt looks like a natural battery champion. Its ability to power its Swedish factory with renewable hydroelectric power should make it appealing to environmentally-conscious carmakers. It has attracted over $15 billion in debt and equity funding from investors such as BlackRock and Volkswagen. Europe’s eagerness to create a homegrown electric vehicle supply chain has also helped, with the European Commission approving a 902 million euro grant from Germany in January.

But even with this flood of capital, Northvolt is struggling to manufacture high-quality batteries at scale. The Swedish group’s factories, including one in Skelleftea near the Arctic Circle, have failed to hit their annual target of 16 gigawatt hours of power. Analysts at Rho Motion reckon the total output last year may have been as low as 80 megawatt hours, although a person familiar with the matter says that production has increased this year. The longer than expected delivery time explains why BMW has had to cancel a contract and decided to source lithium-ion batteries from other suppliers instead. While the BMW contract made up less than 5% of Northvolt’s $50 billion order book, it’s a sign of a wider problem: Northvolt on Tuesday said it would review its timeline for rolling battery factories across Europe and Canada.

The teething pains are happening at a time when Chinese battery makers are flooding the continent with cheap products, and grabbing more market share. Half of the batteries deployed in electric vehicles sold in Europe came from China last year, according to data provider Rho Motion. One third of an electric vehicle’s cost comes from batteries, of which those from China are one-third cheaper than European made ones, according to Fastmarkets.

These problems may become more acute with demand for electric vehicles flatlining. EV sales in the EU grew just 3% in May compared with a year earlier, BNP Paribas data shows. That may discourage European battery makers from building more capacity. In June, ACC, a joint venture between Stellantis and Mercedes-Benz put plans to build another two battery factories in Germany and Italy on hold.

Europe’s muddled approach doesn’t help. The European Commission has slapped tariffs on Chinese electric vehicles, but failed to impose duties on Middle Kingdom batteries. And it is allowing Chinese and Korean companies such as CATL and LG Energy Solutions to build more factories in Europe. That may be a necessary step to get more electric vehicles on the road. But it means Brussels’ hope of nurturing homegrown battery champions looks increasingly like a pipe dream.

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Swedish lithium-ion battery manufacturer Northvolt said on July 2 it was conducting a strategic review, as it grapples with a series of setbacks including the loss of a contract with BMW. "A strategic review is underway at Northvolt, to be concluded in the autumn, involving evaluation of timelines and capital allocation to ensure we are pursuing the most effective build-out of capacity possible," the company said in a statement. Northvolt's first factory in Skelleftea, Sweden, has not yet reached its full production capacity, and a planned increase in output is behind schedule. The company now expects the facility to reach full capacity in 2026. German premium carmaker BMW on June 20 said it had cancelled a 2 billion euro order for battery cells for its electric vehicles with Northvolt. "Northvolt and the BMW Group have jointly decided to focus Northvolt's activities on the goal of developing next-generation battery cells. The BMW Group continues to have a strong interest in establishing a high-performance manufacturer of circular and sustainable battery cells in Europe," said BMW.