Battery maker Northvolt has filed for bankruptcy in Sweden, dealing a blow to Europe’s battery manufacturing capabilities.

The firm said that it had made an “exhaustive effort…to secure a viable financial and operational future for the company”, but it had experienced a number of “compounding challenges”.

It cited rising capital costs, geopolitical instability, supply chain disruptions, and shifts in market demand.

“Further to this backdrop, the company has faced significant internal challenges in its ramp-up of production, both in ways that were expected by engagement in what is a highly complex industry, and others which were unforeseen,” Northvolt said in a press statement.

The battery firm previously sought Chapter 11 bankruptcy protection in the US last November as it found itself in a rocky financial position.

The move provided the firm with a temporary financial lift, although Northvolt was unable to turn its balance sheet around.

A court-appointed trustee will now sell off the firm’s assets in Sweden.

The demise of Northvolt, founded in 2016, is a setback for Europe’s attempts to develop its own technology for electric vehicles – competing with global leader China.

The firm was once viewed as an integral part of Europe’s green transition, managing to secure around $15 billion (€13.8bn) from governments and investors.

Lacklustre demand for EVs, partially linked to changes to state subsidies, prompted some investors to scale back funding.

The Swedish government also declined to offer Northvolt major subsidies last year.

Northvolt’s production capacity had been expected to rise about fourfold by the end of the decade from 192GWh to 1,142GWh, according to Benchmark Minerals Intelligence.

Now, Europe will have to increase its reliance on foreign battery makers in the region, including Chinese and South Korean firms, until homegrown companies can build capacity.

“Three years after the US IRA, Europe still doesn’t have a comprehensive policy to localise battery production,” Julia Poliscanova, Senior Director at Vehicles & Emobility at T&E, told Euronews.

“Negligible battery tariffs and no production aid and content requirements mean it’s easy just to import. The Auto Plan has some vague language on all of this, but what we need is urgent action now.”