Volvo halts battery factory construction as Europe faces fierce competition

Volvo Cars is suspending work on a project to build a battery factory in Sweden. The move comes after the company failed to find a suitable technology partner.

As reported by Euractiv, the Swedish carmaker’s decision highlights the growing challenges Europe as a whole faces in trying to build a competitive domestic battery industry. Costs and global competition in the sector are exceptionally high.

Volvo confirmed on Tuesday that operations at NOVO Energy, which was established to support Volvo’s electric vehicle ambitions, had been suspended indefinitely. According to Volvo Cars, the project cannot proceed without an external technology partner. The company has been trying to find one since last year.

NOVO Energy was established in 2021 as a joint venture between Volvo Cars and Northvolt, which was seen as a rising star in electromobility and a European battery industry leader. Volvo then took full ownership of the NOVO subsidiary last year after Northvolt went bankrupt in March.

Northvolt’s collapse has become a symbol of the difficulties facing European battery manufacturers, including high production costs, complex supply chains and fierce competition from established Chinese manufacturers. Europe had hoped that Northvolt would help the continent reduce local carmakers’ dependence on Chinese companies such as CATL and BYD.

The battery factory was intended to be a European “mega-battery” plant in the Gothenburg area, supplying batteries to European manufacturers, primarily Volvo Cars and Polestar, another carmaker owned by Volvo’s parent company. Last year, however, Volvo also announced it would reduce its stake in Polestar, which focuses exclusively on electric vehicles. Shareholders consider the company unprofitable, so Volvo gave up part of its stake, retaining only an 18% share in Polestar, down from 48%. This, too, points to a crisis in Europe’s electric vehicle industry.