Sweden's green industry hopes hit by Northvolt problems

Heavy snow merges with white, dense clouds in Schelefteo, a riverside town in northern Sweden that is home to 78,000 residents.

It is also the location of what was to become Europe's largest and most environmentally friendly electric battery factory, powered by the region's abundance of renewable energy.

Swedish start-up Northvolt opened its flagship production plant here in 2022 after signing multibillion-euro contracts with carmakers including BMV, Volkswagen and Scandinavian truck maker Scania.

But last year it ran into serious financial problems, reporting debts of 5.8 billion. dollars (£4.6bn) in November and filed for bankruptcy in the US, where it had hoped to expand its operations.

Since September, it has cut about a quarter of its global workforce, including more than 1,000 employees at Schelefteo.

“A lot of people have already moved out,” says 43-year-old Ghanaian judge Day-Seshier, who moved to Schelefteo to work at Northvolt after previously studying and working in southern Sweden.

“I need to get a job to extend my work permit. Otherwise I will have to leave the country, unfortunately.'

Many researchers and journalists tracking Northvolt's decline share the view that it is at least partly caused by the global decline in demand for electric vehicles (EVs).

In September Volvo abandoned its goal to produce only electric cars by 2030 arguing that “customers and markets move at different speeds.” Meanwhile, China, the market leader in electric batteries, managed to undercut Northvolt's prices.

Missing production targets (a key factor in BMW's withdrawal from a €2bn deal in June), too-rapid expansion and the company's leadership have also been widely cited as factors fueling the crisis.

“Building batteries is a very complex process. It takes a lot of capital, it takes time, and they obviously just didn't have the right staff running the company,” said Andreas Cervenka, business writer and economic commentator for the Swedish daily Aftonbladet.

At Umeå University, Madeleine Eriksson, a geographer who studies the impact of so-called “green industries”, says Northvolt has presented a “save-the-world mentality” that has impressed investors, the media and local politicians.

But this now-or-never approach, she argues, glosses over the fact that this is a risk-taking startup that has “never finished raising investment.”

Northvolt did not respond to multiple requests from the BBC for comment on its collapse or future plans.

The firm has hired German Markus Dangelmeier from global electronics company TE Connectivity to lead Northvolt's operations in Skellefeå from January as it seeks to attract new investment.

Northvolt co-founder and CEO Peter Carlson — a former Tesla executive — resigned in November.

As the postmortem of the crisis continues, there is debate about the potential impact on Sweden's environmental ambitions.

Northern Sweden, called the “Northern Silicon Valley of Sustainability” from the consulting firm McKinseyquickly gained a global reputation for new industries designed to accelerate Europe's green transition.

The region is a center for biotechnology and renewable energy. Along with Northvolt, high-profile companies include Stegra (formerly H2 Green Steel) and Hybrit, both of which are developing fossil-free fuel using hydrogen.

But Mr Cervenka, the economic commentator, argued that Northvolt's downfall had damaged Sweden's “very good brand” when it came to green technology.

“There was a huge opportunity to build this champion and build this Swedish icon, but I think investors who have lost money will be hesitant to invest again in a similar project in the north of Sweden,” he says.

Some local businesses say the publicity surrounding Northvolt's crisis is already having a negative impact.

“Personally, I feel when I travel now – even to the southern parts of Sweden – and abroad that people really ask me questions,” says Joakim Nordin, CEO of Skellefteå Kraft, a major supplier of hydroelectric and wind energy, which was an early investor in Northvolt.

Based in Malmö in southern Sweden, Cleantech for Nordics is an organization that represents a coalition of 15 major investors in sustainability-focused startups.

Climate policy analyst Eva Andersson believes the nation's long legacy as an environmental champion will remain relevant.

“I think it would be presumptuous to say, well, now we're doomed here in the Nordics because one company failed,” she argued.

Cleantech for Scandinavian research suggests that in 2023 in Sweden there have been more than 200 investments in clean technology projects.

Another Dealroom surveywhich collects data on startups, shows that 74% of all venture capital funding for Swedish startups went to so-called impact companies that prioritize environmental or social sustainability, compared to a European average of just 35% .

“Sweden still punches above its weight in this sector. And I think we can expect it to continue to do so going forward,” Anderson predicted.

There are growing calls for increased state support to help Sweden maintain its position. The Swedish government refused to bail out Northvolt, suggesting that all startups – sustainable or not – should be subject to market forces rather than bailed out by taxpayers. But as other parts of the world ramp up battery production and other carbon-reducing industries, the decision has faced backlash.

“The US and China have massive support packages for green industry and they are definitely catching up and ahead in some sectors. So it's definitely a threat to be reckoned with,” Anderson said.

Only 3% of global battery cell production currently takes place in Europe – according to research for international consulting firm McKinsey – with market-leading Asian companies.

Sweden's Minister of Energy, Business and Industry Eba Busch argued that the answer was more support from the EU than funding from individual governments.

Last month she told Swedish television the situation at Northvolt was “not a Swedish crisis” but rather a reflection of a Europe-wide challenge when it comes to competitiveness in the electric battery sector.

But while the government insists it wants Sweden to play a key role in Europe's battery industry and the wider green transition, it has been accused of sending mixed messages. The right-wing coalition that came to power in 2022 cut gasoline taxes and diesel, and subsidies for electric cars removed.

“This is a very sensitive political area,” says journalist Chervenka. “The Swedish government has actually been criticized internationally for not fulfilling its climate obligations. And this is a stark contrast to Sweden's image as a pioneer.”

The BBC approached Bush's media team but did not receive an interview.

Back in Schelefteo, where it has been dark since shortly after lunch, Joachim Nordin prepares to head home in the snow.

He says there is strong industrial will for Sweden to remain a role model in green technology, although politicians are “not as ambitious” as previous administrations.

The criteria that lured Northvolt to set up its first factory in Schelefteo will also attract other major global players to the region, according to the power company's CEO.

“It's 100% almost renewable energy up here… and that's pretty unique if you compare it to the rest of Europe. But on top of that, we are among the cheapest places in the world for electricity prices. So if you combine those two things, it's a huge opportunity.”

Skellefeå Kraft recently announced a collaboration with the Dutch fuel company Sky NRG. Their ambition is to open a large factory by 2030 to produce fossil-free jet fuel (made from hydrogen combined with carbon dioxide captured from biogenic sources).

“The publicity surrounding Northvolt doesn't help now, of course. But I hope it's just something that will be remembered as a little bump in the road when we look back on it in 10 years,” says Mr Nordin.