
My Opinion | 122657 Views | Aug 14,2021
Feb 1 , 2025
By Ricardo Hausmann
Investing in electric-vehicle battery production may seem like a sure thing. At first glance, Northvolt – the Swedish EV battery developer and manufacturer that filed for bankruptcy protection in November – appeared to have all the advantages and capabilities needed to succeed.
For starters, the market fundamentals are undeniably strong. EV production is projected to grow exponentially. Tesla is trading at more than 100 times its earnings, whereas Toyota, the world's largest manufacturer of gasoline-powered cars, has a price-to-earnings ratio of 10. Supporting these optimistic market projections, Northvolt had already secured 50 billion dollars in sales orders, and raising capital proved remarkably easy.
Northvolt attracted a star-studded roster of investors, bringing in an unprecedented 15 billion dollars in startup funding, with Goldman Sachs and Volkswagen leading the charge.
Expertise was another major strength. Northvolt's founders, Peter Carlsson and Paolo Cerruti, were former Tesla executives with deep experience managing global supply chains. Battery production seemed like a logical extension of their expertise. Northvolt also established partnerships with leading suppliers from Japan, South Korea, and China, bringing seasoned professionals to its facilities and enabling technology transfers.
Concerning human capital, Sweden consistently ranks among the top-performing countries in the OECD's Assessment of Adult Competencies. As a member of the European Union (EU), it has access to talent from 26 other developed economies, while its flexible immigration policies attract skilled professionals from around the world. At its peak, Northvolt employed nearly 7,000 workers from more than 100 countries, including experts from South Korea and China.
Northvolt's base in Northern Sweden offered abundant renewable hydropower, proximity to key mining resources, and a strong metallurgy tradition, making it an ideal foundation for building a sustainable, low-carbon battery supply chain. Buoyed by its initial success, Northvolt's leadership pursued aggressive expansion, unveiling ambitious plans to build new facilities in Canada and Germany. For a time, the company seemed unstoppable.
Then, seemingly overnight, it spiralled into crisis and collapsed.
What went wrong?
According to a Financial Times investigative report, the cause of Northvolt's downfall was shockingly simple. The company's primary battery plant in Skelleftea operated at less than one percent of its intended capacity. With sales far below projections, the company struggled to fulfil contracts, haemorrhaging cash in the process.
Northvolt's inability to ramp up production stemmed from the difficulties of integrating its complex supplier network, which included China's Wuxi Lead, Japan's Marubeni, and several South Korean firms. Although each supplier was an industry leader, their employees and equipment had never worked together. The diverse technologies, manufacturing methods, and languages created insurmountable barriers, resulting in a disjointed operation that never jelled.
If a Global South country attempted such an ambitious project and failed, it might have been dismissed as a classic example of a developing economy biting off more than it could chew. But when a highly developed country like Sweden, with its abundant financial, human, and technological resources, stumbles so dramatically, it points to a deeper issue that warrants closer attention.
Contrary to conventional wisdom, technology is not just about machines, blueprints, and financial capital. Its successful deployment depends on the tacit, hard-earned knowledge that exists within experienced teams and enables people to collaborate seamlessly. Consider, for example, an orchestra: even with a renowned conductor, top-quality instruments, and flawless sheet music, the real challenge lies in creating an ensemble capable of performing in perfect harmony.
Northvolt failed to recognise how much it did not know. The company underestimated the steep learning curve it needed to climb to integrate a complex manufacturing operation across cultures, technologies, and work practices. Most critically, it failed to give itself the time to acquire that knowledge before scaling. That is why it failed to integrate its various components, while Japan's Panasonic achieves this daily with similar resources and expertise.
But these challenges are hardly unique to Northvolt. Across the developed and developing world, companies and policymakers often assume that having the right resources ensures success. They overlook the invisible yet vital learning process, which involves bridging knowledge gaps through trial, error, and adaptation.
The key takeaway from Northvolt's collapse is that companies should recognise and address knowledge gaps before pursuing ambitious growth strategies. Otherwise, they risk overextending themselves before mastering the fundamentals, leading to disaster.
This lesson applies equally to national industrial policies. Northvolt's failure serves as a cautionary tale about the perils of corporate miscalculation. But, it also offers a valuable lesson about the time required for complex industries to develop the tacit capabilities needed to operate at scale.
Ignoring this reality – whether due to overconfidence or external pressure – can doom even the most promising, best-funded projects. In business and policymaking alike, success requires patience and a clear understanding of knowledge gaps. Northvolt lacked both – and suffered the consequences. For everyone else, it is a case study of what to avoid.
PUBLISHED ON
Feb 01,2025 [ VOL
25 , NO
1292]
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