Europe has already lost the battery race

Failure of Brussels’ plan for industrial rearmament leaves the bloc facing difficult choices

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Europe’s battery strategy is disintegrating, a prime exhibit of hubris and inflated rhetoric.
Its flagship Northvolt gigafactory in northern Sweden has run out of money and is talking solemnly to creditors. The Swedish press reports that it may seek bankruptcy protection within days.
More than half of the EU’s big battery projects face delay or cancellation. Europe still relies almost entirely on China, Korea and Japan for cathode and anode material, electrolytes and polyolefin separators, the real value in the lithium-ion supply chain.
Northvolt tried to produce its own cathode chemicals in the frozen wastes of Skellefteå but the task proved harder than it looked. The company closed the cathode plant in September, switching the supply contract to Korea’s Samsung SDI.
Europe’s semiconductor renaissance is scarcely in better shape and its make-believe hydrogen strategy will soon deflate too. Ursula von der Leyen’s grand plan for industrial and technological rearmament is mostly stuck on the drawing board.
Northvolt is Europe’s best-funded tech start-up, drawing in €15bn (£12.6bn) of subsidies, loans and capital, and backed by Volkswagen, Siemens, JP Morgan and Goldman Sachs. It was billed as Europe’s new Airbus, the vertically-integrated pioneer able to cover every stage of the production process and build the world’s first 100pc green battery. It was the great hope of those pushing for a muscular and fully-sovereign industrial Europe.
The Northvolt plan made perfect sense. Peter Carlsson, its chief executive, cut his teeth at Tesla. Sweden has some of the lowest power prices in Europe, thanks to hydro. What the gung-ho managers did not realise is how long it would take to master the intricacies of lithium-ion manufacturing. Asia had made it look easy.
“What is so tricky about battery production is the incredibly small tolerance levels. There has to be just the right humidity and nanometer precision on the machines,” said one Swedish expert with close knowledge of the company.
“There are about 20 steps from when you put in the raw materials until the battery is finished. Nothing can go wrong. If a small weld ends up half a millimetre wrong it’s unusable and it’s very difficult to detect these errors as you go along,” he said.
Nine years after the company was founded and three years after its first battery was assembled, the company has reached just 25pc of its weekly production target. Creditors refused to provide another €15bn earlier this year.
The dream died in June when BMW cancelled a €2bn order. Volkswagen has now withdrawn its representative from Northvolt’s board.
The Swedish government has refused a bailout. Some wish to blame this car crash on sluggish demand for electric vehicles (EVs) in Europe (not globally) but Northvolt had a €50bn backlog of orders earlier this year.
Mr Carlsson told a closed-door meeting in my presence that the EU had not offered his company “a single inch of flexibility” on financing, which exposes the limits of the European Battery Alliance. If this bureaucratic construct – run by EU commissioners and touting a headline €180bn – cannot make Northvolt a success, what is it for?
Northvolt undoubtedly got ahead of its skis, trying to do everything at once and expanding wildly as if easy credit would never end. Its Skellefteå plant pushed staff in breakneck 24/7 working conditions, with casualties to match. But the problem is larger.
BloombergNEF says world demand for batteries last year was 950 GWh (gigawatt hours), yet China’s production capacity was 2,600 GWh and will more than double again to almost 6,000 GWh next year under current plans. This colossal surplus is landing on Europe.
Only one of Volkswagen’s six planned gigafactories has got off the ground. The company will now build just three by 2030, and that is not “set in marble”. France’s Automotive Cells Company has shelved planned plants in Germany and Italy. Like Northvolt and the other European hopefuls, it bet on the “old” technology of NMC batteries made with nickel, manganese and cobalt, prized in the early days for range and energy density.
China has in the meantime stolen a march with safer lithium iron phosphate (LFP) batteries that need no cobalt or nickel and are now so good that they can do the job for the mass market at a far lower cost.
BloombergNEF says the average cost of LFP batteries in China has halved over the last year to $53 per KWh (kilowatt hour). Not long ago doubters insisted knowingly that $100 per KWh was fantasy.
Automotive Cells has torn up its plans and is switching to LFP batteries. But how can it compete unless the EU imposes a tariff wall? It has done so with EVs but not with batteries.
Europe is coming face to face with some harsh truths. It did not see the EV threat coming because the incumbent car industry had captured Berlin and Brussels. It missed the digital revolution and is ill-adapted to the new reality of computers on wheels.
The commission does not have the debt-raising or tax-raising powers of a genuine government. The EU budget is tiny and member states are at odds on everything.
The Centre for International and Strategic Studies in Washington estimates that China has spent $230bn in state support nurturing its EV ecosystem. Brussels has neither the money nor the legal mandate to replicate this.
The recent Draghi report says the EU needs joint debt issuance and extra investment of €800bn a year to restore wider competitiveness. But this too evades another harsh truth: the ideology of the EU itself is not fit for purpose. Korea is outcompeting and outgrowing Germany and France even though it is a mid-sized country and is not a member of any bloc or union. Why might that be?
As it stands, the companies producing batteries in Europe are mostly Chinese or Korean. Tesla’s German plant at Grünheide relies on batteries from Chinese rival BYD.
Herbert Diess, ex-chief executive of Volkswagen, says Europe should stop wasting money trying to catch up with Asia. There is no profit in this business. It should cut its losses, let Asian companies make the batteries and focus on what it does best.
There are risks to this. Beijing has just weaponised batteries by cutting off deliveries to Skydio, America’s top drone maker, allegedly for selling drones to Taiwan’s fire service. Skydio also supplies drones to Ukraine.
Europe faces a choice: either it puts real money where its mouth is and reallocates a large chunk of GDP from social welfare to economic rearmament; or it accepts a Faustian bargain with China to save part of its car industry on the cheap, replicating the bargain with Russia’s Gazprom that went so badly wrong.
Brussels can at least take pride in something. The EU has “the most advanced battery regulation in the world”. Commendable. All that is missing are the batteries.
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