(Bloomberg) -- When Northvolt AB’s clean-energy star was on the rise, Sweden’s political class took every opportunity to bask in its glow.
Prime Minister Ulf Kristersson called the battery-making startup one of the “European giants in the green growth engine,” alongside sustainable producers of steel and critical raw materials. “Sweden can show the way” in the climate transition, Kristersson said in a November 2022 parliamentary speech.
Other politicians followed suit. As Sweden took its turn in the European Union presidency early last year, European Commission President Ursula von der Leyen was invited to the country’s north to hear about the electric-vehicle supplier and other key members of its “Green Industrial Revolution.” Deputy Prime Minister Ebba Busch hailed northern Sweden, where Northvolt has built its factory, as a “showcase to the world when it comes to green industry transition.”
But since Northvolt’s troubles began trickling out to the public this past summer, Swedish officials have tempered their enthusiasm, repeatedly assuring constituents that the government won’t spend taxpayer funds to rescue the cash-strapped company. Busch, who is also Sweden’s energy minister, has explicitly ruled out direct financial aid — even as she contends battery manufacturing has a “bright future” in Europe.
Sweden’s leaders were dazzled by the idea of building a stronghold of green capitalism, said Fredrik Erixon, director of the European Centre for International Political Economy in Brussels. Yet few had a realistic view of Northvolt or the feasibility of building a large-scale business in an industry where competition is already fierce.
“There were clearly many politicians who wanted to bask in the glory of it without having any real skin in the game,” the Sweden-born economist said. “Swedish politicians are now trying to wash their hands of it.”
Representatives for Busch didn’t respond to requests for comment. Kristersson’s office had no immediate comment.
The reluctance to step in on Northvolt’s behalf has roots in prior missteps in the Nordic nation, including a doomed foray into shipbuilding in the 1970s that has served as a deterrent to private-company bailouts ever since. Sweden’s maritime manufacturing sector employed some 30,000 workers at the time and was the second largest in the world. The government plowed billions of dollars into its rescue, to no avail.
If history is a guide, Sweden would be loath to take over troubled private assets today. Lessons from that episode carried through to the global financial crisis, when the government allowed carmaker Saab, with 4,000 jobs, to collapse in 2011. SAS AB, partly owned by Sweden and Norway, was restructured under court supervision in 2022 and is now in the orbit of Air France-KLM.
“We shouldn’t invest directly in companies,” said Elisabeth Thand Ringqvist, a spokesperson for the Center Party, part of Sweden’s opposition. “That is for owners to decide.”
Northvolt has taken in some $10 billion in debt and equity financing since its founding, including support from the European Investment Bank, Sweden’s Export Credit Corporation and the Nordic Investment Bank. The company expanded rapidly to build the scale seen as necessary to compete with lower-cost Chinese and Korean producers, but hit snags in ramping up output at its main plant near the Arctic Circle.
Its cash-flow problems grew urgent after it was unable to draw down a $5 billion loan package announced in January. The company has slashed jobs in Sweden, pared back expansions and offloaded ancillary projects to save cash. It’s now focused on increasing battery-cell volumes while working to raise $300 million in short-term funding and over $900 million in long-range capital support.
Finance Minister Elisabeth Svantesson told national news agency TT that it’s not up to the government to rescue Northvolt, and said speculation about huge amounts of taxpayer money at stake is unfounded. The battery maker has received some 600 million Swedish kronor ($56 million) in government grants.
The limits to Sweden’s intervention-light approach are now coming into view. Busch told reporters last month that she’d contacted both the Commission and the German government, where Northvolt is building a factory. She stressed the risks arising when defense and security are prioritized over civil infrastructure that can end up in with foreign firms. “There is a large value in having domestic European battery manufacturing,” she said.
Yet catching up is only becoming harder. Chinese competitors such as BYD Co. and Contemporary Amperex Technology Co. have lower costs and years of experience with complex battery technology. State subsidies helped give those companies a head start, while the Inflation Reduction Act has attracted clean-industry investment to the US.
That’s put Sweden at a disadvantage. Otto Gernandt, the chief financial officer of green-steel startup Stegra, said he doubts whether his company would have chosen Sweden for its €6.5 billion ($7 billion) plant if support programs that have been launched elsewhere were in place when it was founded.
“The playing field has changed completely over the last four years,” he said in Stockholm this past week. “Unfortunately, the more support the US, European countries and China provide, the more we have to compete with that, one way or another. You can’t just say that we are ideologically opposed to this.”
As Northvolt’s crisis has deepened, political winds are also shifting in ways that chip away at support for green-technology projects. Kristersson's government came to power with the support of the nationalist Sweden Democrats, who have opposed funding for climate initiatives, including the limited amounts given companies such as Northvolt.
Germany cut EV subsidies last year, hampering sales and weakening demand for Northvolt and other suppliers. Italy is shifting €4.6 billion in funding from the auto industry to defense. EU countries are already preparing to spend more on armaments as US President-elect Donald Trump prepares to take office.
Among Northvolt’s owners, top shareholder Volkswagen AG hasn’t said whether it will invest more. BMW AG canceled a contract with Northvolt this year and has ruled out pitching in more funds.
With Sweden on the sidelines, Chief Executive Officer Peter Carlsson is tweaking his earlier investment pitch, which centered on European independence for a vitally important emerging industry. The CEO said this week that the company is looking for partners as part of its long-term funding plan, including in Asia. When asked, he didn’t rule out joining forces with a Chinese firm.
The idea that Northvolt will provide security benefits to Europe sounds increasingly hollow, Erixon said.
“All that rhetoric around Northvolt has been tremendously inflated,” the economist said. “Northvolt is going to produce batteries with production technology that is still heavily dependent on raw materials and inputs coming from China.”
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