While many businesses worldwide are wringing their hands about Donald Trump’s plans for a “beautiful” tariff war – targeting Canada, Mexico and China on his first day back in the Oval Office – my attention was focused on the sub-Arctic town of Skelleftea in Sweden and the collapse of Northvolt, Europe’s electric-vehicle battery champion.
Richard Milne at the Financial Times called Northvolt’s resort to Chapter 11 bankruptcy protection, with US$5.8 billion of debts and just US$30 million cash in its coffers, a “Nordic noir thriller”. The collapse is nothing less than a dagger thrust into the heart of Europe’s future as a global automotive industry leader. Volkswagen has written down most of its 21 per cent stake in the venture. Goldman Sachs is writing off US$896 million in the venture. European taxpayers will have to provide $313 million because of EU guarantees.
The collapse threatens the European Union’s plan for its registered vehicles to reach net zero emissions by 2035 and to address the challenge from China as a world leader across the spectrum of clean energy industries.
The most direct impact of the Northvolt collapse will be on Europe’s critically important automotive sector, which has been a symbol of the continent’s economic virility for half a century. The sector accounts for 13.8 million jobs – over 6 per cent of Europe’s total employment. In Germany, Sweden and four other EU economies it accounts for over 10 per cent of manufacturing jobs.
Companies like Volkswagen, BMW, Mercedes and Porsche may have been global giants as car manufacturers for most of our lifetimes but their tardiness in addressing the shift to EVs has jeopardised not only their futures but those of the smaller manufacturing businesses that rely on them. Northvolt’s bankruptcy leaves them frantically searching for new EV battery suppliers, most of which are in Asia.
The Chinese EV challenge has been front of mind in Europe for some time. As worldwide EV sales rose to 14 million in 2023 – about 18 per cent of global car sales and up from a minuscule 2 per cent in 2018 – China’s share of the EU market for EVs leapt from less than 5 per cent in 2020 to 29.3 per cent. While many of those cars were made by European companies operating in China, the blow to pride and self-confidence has been palpable.
But the failure of Northvolt, as the main home-grown battery maker set to compete with Chinese, South Korean and Japanese battery makers, represents a competitive catastrophe on a new and humiliating scale. It is a reminder that there is almost no aspect of the EV (and clean technology) supply chain that is not today dominated by Chinese companies.
The failure is notable not only because of what it means for future car-making, but also because the battery sector has in its own right become globally important. Global battery demand has grown worldwide from 51 gigawatt-hours in 2016 to 772GWh last year and is forecast to grow to over US$200 billion by 2030.
As Fatih Birol, head of the International Energy Agency, recently told the Financial Times, “China is like Real Madrid in the Champions League. Almost every energy story today is essentially a China story.”
China dominates the biggest green industries, from battery cells, solar panels and wind turbines to refined minerals like lithium, cobalt and nickel. When it comes to batteries, Chinese companies account for 97 per cent of the world’s anode active material capacity and almost 90 per cent of cathode active material capacity.
Even if the EU were to be successful in keeping Chinese-brand EVs out of the European market – as it is trying to do with the imposition of additional duties ranging from 17 to 35.3 per cent – and manufacturing its own EV batteries, it would still be heavily reliant on Chinese companies for raw materials and components.
US car manufacturers are not immune from this pervasive challenge either. Raising tariffs on EVs made in China might keep Chinese clean tech companies at bay for a while but US carmakers also lack the refined materials and components needed in EVs.
Europe’s carmakers have limited options. They could slow their transition away from conventional internal combustion engines. However, this would profoundly frustrate EU ambitions to reduce carbon emissions, address global warming and grow an EV industry. It would also harm EU car export prospects when foreign markets are increasingly attracted to the low-cost, high-quality EVs they can buy from China.
Alternatively, the EU could invite investment from the Chinese and Korean companies that are leading the clean energy transition. This would ensure that European manufacturers keep pace with the technological changes linked to the clean energy revolution and would secure future job growth inside Europe. However, it would mean inviting Chinese investors to play a larger role in the EU, which might alarm those who are obsessed with China as a national security threat.
Perhaps the choice has already been made. BMW, which had an order with Northvolt worth US$2 billion, has turned to Korea’s Samsung. China’s CATL is building new plants in Germany and Hungary.
As Renault’s chief executive Luca De Meo warned last month: “We need to find a deal with China because we won’t be able to compete”. At present, Donald Trump thinks his proposed tariffs will suffice to keep China’s EV dragons at bay. But perhaps Europe’s sobering experience with Northvolt provides a warning US carmakers should not ignore.