Beyond Northvolt bankruptcy, a story of the West struggling China tightening its grip on EV, clean tech markets

The bankruptcy of Swedish battery maker Northvolt is set to have a lasting impact for some of Europe’s biggest names.

The company, once heralded as Europe’s answer to China’s dominance in EV batteries, was backed by nearly $15 billion in investments, including nearly $1 billion in German subsidies.

When it filed for bankruptcy protection, it left its backers in a sticky spot. German automaker Volkswagen said that its stake in Northvolt is now worth less than half of the €1.4 billion invested. Banking major Goldman Sachs, too, will reportedly take a $900 million loss, according to Semafor.

But Northvolt’s story isn’t just about the big bucks of its big backers. It has doled out some important lessons about what’s wrong with current strategies Western nations are using to compete with China in the electric vehicle (EV) supply chain.

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Northvolt, at one point armed with $50 billion in battery orders, had lofty ambitions to rival Chinese manufacturers. Its fall from grace spotlights the pitfalls of trying to compete with China on scale and cost.

First mistake: The hurry

Northvolt poured resources into four gigafactories across three countries before its first plant was fully operational. While Chinese battery makers like CATL have established global dominance by leveraging vast manufacturing ecosystems and resource pipelines, Northvolt was spread too thin.

The company’s strategy to outpace its rivals by diversifying into battery recycling and sodium batteries—fields less dependent on Chinese raw materials— backfired.

Northvolt’s attempt to innovate and compete on technology, while simultaneously scaling operations, placed an unsustainable burden on the company.

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On the one hand, it rapidly burned through cash; on the other, it could not solve operation inefficiencies even at its flagship Swedish plant, which was reportedly running at just 1% capacity.

The result? Northvolt accrued $6 billion in debt.

Second mistake: Reliance on China, South Korea

Ironically, while it tried to compete with Chinese manufacturers, Northvolt also continued to rely extensively on Chinese and Korean equipment and workers.

Cultural and technical clashes, coupled with hardware incompatibility, hampered production. Despite its focus on avoiding Chinese raw materials, Northvolt could not escape the reality that Chinese firms control much of the necessary technology to produce EV batteries.

The problem that led to this, in hindsight, is clear: the West’s lack of manufacturing expertise.

The lesson learned is perhaps clearer still. Trade barriers and subsidies aren’t enough. You can’t simply cut off China and expect domestic industries to thrive without the foundational expertise and infrastructure.

Third mistake: The push to build from scratch

Companies like Tesla, which have succeeded in battery manufacturing, focused on refining existing lithium-ion technology and forging partnerships (e.g., with Panasonic) rather than attempting to reinvent the wheel.

In Northvolt’s case, the West’s ambition to give competition to China, resulted in that route being all but closed off. Building on top of existing technology could not effectively be done.

Analysts quoted by Semfor believe the way forward is for Western policymakers to invest in replicating and enhancing Chinese manufacturing techniques. Instead of starting from scratch, governments could focus on public-private partnerships to transfer and adapt advanced manufacturing knowledge.

As such, Northvolt’s collapse is a cautionary tale for Europe and the US.