Europe's homegrown lithium battery sector is grappling with widening losses as electric vehicle (EV) demand slows and automakers face challenges in their transition to electrification.
Industry insiders note that Europe's earlier aggressive investment in the lithium battery market was fueled by optimism around EV growth and geopolitical concerns, as nations sought to reduce dependence on Asian battery suppliers. At that time, European carmakers held significant sway in the industry.
However, as EV sales fail to meet expectations, automaker-led investments have been gradually scaled back since the second half of 2023, with some projects frozen entirely. The situation worsened with the unexpected withdrawal of German government subsidies toward the end of the year, further destabilizing the supply chain.
Compounding the issue, Europe's inexperience in battery production is becoming glaringly evident. The region's lack of competitiveness against established Asian manufacturers has led to growing instances of capital stranded in stalled projects. In response, European automakers are increasingly relying on Chinese and Korean battery suppliers to mitigate the impact of a faltering transition.
Northvolt, once the crown jewel of Europe's battery ambitions, now finds itself in a financial bind, scrambling for cash as it struggles to meet payroll obligations for September. Efforts to secure emergency funding have so far been fruitless. Long-time backers, including key shareholders and the governments of Germany and Sweden, have shifted their stance, placing Northvolt under close scrutiny.
In the second quarter of 2024, Northvolt faced a series of setbacks, with production inefficiencies and rising costs driving one of its major shareholders, BMW, to cancel a significant order, reportedly shifting it to South Korea's Samsung SDI. Volkswagen's Scania unit has also been affected, with delays in the delivery of over 1,000 electric trucks due to Northvolt's production issues, pushing deliveries back by a year.
Volkswagen, now closely monitoring the situation, has reportedly formed a task force to assess Northvolt's delivery capabilities. With Northvolt teetering on the brink of insolvency and no clear rescue in sight, market observers speculate that bankruptcy could be on the horizon.
A potential Northvolt collapse could have severe ripple effects, impacting partnerships with companies such as Portugal's Galp Energia, with which it set up a lithium conversion plant, and Swedish battery recycler Revolt Ett. Northvolt's joint venture battery recycling plant with Norway's Hydro, Hydrovolt, may also face collateral damage.
Volkswagen itself is under mounting pressure as its operations continue to underperform, compounded by a shrinking market in China. The company is implementing layoffs and closing plants, including scaling back plans for its lithium battery plant in Salzgitter, Germany. While the first 20GWh production line is complete, expansion plans for a second line have been shelved.
Previously, Volkswagen had aimed to build six lithium battery plants across Europe, with an annual capacity target of 240GWh and a goal of supplying 30% of the continent's battery needs by 2030. One of these projects, originally entrusted to Northvolt, has since been handed over to China's Gotion. To date, three Volkswagen battery plants have been planned, including the capacity-reduced German facility, along with others in Spain and Canada.
