Sweden, long seen as a pioneer in sustainable automotive engineering and green industrial innovation, is facing a significant setback in its electric vehicle (EV) ambitions after Volvo Cars announced a pause in operations at its battery manufacturing venture, Novo Energy, because it has been unable to secure a crucial new technology partner. This move highlights broader challenges in Europe’s EV supply chain, cost pressures on industrial innovation, and uncertain prospects for Sweden’s role in future battery production.
At the heart of the issue is Novo Energy, a battery manufacturing start-up jointly founded in 2021 by Volvo Cars and Swedish battery maker Northvolt. The ambitious project set out to build a next-generation battery gigafactory in Gothenburg, Sweden, aiming to supply high-performance lithium-ion battery cells for Volvo’s electric cars. The factory was designed with the vision of making Sweden a central hub for EV battery production in Europe, strengthening technological sovereignty over a sector largely dominated by Asian manufacturers.
Why the Pause Happened
On January 13, 2026, Novo Energy told the market that its operations were being paused indefinitely because it had not yet found a suitable new partner with advanced battery cell technology — a key requirement for the project to proceed. According to company leaders, this is not due to lack of interest but rather the intensifying costs of battery cell production in Europe, combined with slowing EV demand and global industry uncertainties.
Novo Energy’s chair, Alexander Petrofski, who also heads Volvo’s small car programs, stressed that discussions with several potential partners have continued. Still, he argued that without concrete commitments for financial backing (including European Union support mechanisms such as credit guarantees), proceeding with operations under current conditions was not viable.
As a result of the pause, the remaining 75 employees have been laid off, ending the startup’s workforce after its earlier staff cuts in May 2025. For many workers and industry observers, the closures were a painful acknowledgment that sustainable manufacturing ambitions must be matched with solid commercial and technological foundations.
Background: Northvolt’s Collapse and the Battery Landscape
The troubles of Novo Energy cannot be understood without looking at the collapse of Northvolt AB, Sweden’s once-most-promising battery manufacturer — itself declared bankrupt in early 2025 after failing to secure sufficient funding and facing production setbacks. Northvolt’s failure directly impacted Novo Energy because Northvolt had been the original technology partner and a major investor. Volvo later took full ownership of Novo Energy amid Northvolt’s bankruptcy process, but the loss of a robust battery-tech anchor left the start-up exposed.
Northvolt’s bankruptcy and the stalled progress of Novo Energy mirror broader challenges across Europe’s EV supply ecosystem: high raw material costs, intense competition from China and South Korea, and the lingering effects of slowing global EV sales growth. Despite strong political support for local battery production, many companies are finding it difficult to realize their factories at commercial scale without major government or multinational technological partners.
Implications for Sweden’s Industrial Strategy
For Sweden, the temporary pause at Novo Energy raises several important strategic questions:
1. Swedish Leadership in Sustainable Mobility
Sweden has long cultivated a reputation for innovation in automotive technology and sustainability. Volvo Cars has been among the most vocal proponents in Europe of transitioning major global car fleets to electric power. A fully functioning battery gigafactory in Gothenburg would have positioned Sweden as a critical node in the EV supply chain, potentially attracting related investments in battery recycling, materials sourcing, and industrial electrification.
2. Economic Impact
Stopping operations at Novo Energy — even temporarily — affects local economies. Gothenburg had hoped that battery production would bring not only high-skilled jobs but also thousands of indirect roles in logistics, engineering, and materials handling. Although the immediate workforce reduction involves only 75 positions, the suspension dampens momentum for broader industrial growth in the region.
3. Rethinking the Role of Government and EU Support
Petrofski’s comments signal that European financial incentives and policy support could be a decisive factor in whether battery start-ups like Novo Energy succeed. The European Commission has introduced incentives and investment packages intended to bolster local battery manufacturing, but project leaders argue that more robust guarantees and risk mitigation tools are needed to attract global technical partners willing to commit at scale.
Without such support, many analysts warn, European battery projects may struggle to compete with better-funded Asian rivals with deeper supply chains and more stable cost structures.
Industry Reaction and Wider European Context
The halt of Novo Energy underscores a tension within the European EV market. On the one hand, policymakers want to promote clean energy industries and reduce dependence on foreign battery imports. On the other hand, investors and technology companies continue to express caution due to global market conditions.
Industry insiders point to the scaling costs of cell production equipment, the need for secure access to raw materials such as lithium and nickel, and the prolonged negotiation cycles involved in advanced battery chemistries as persistent barriers to establishing competitive European battery hubs.
Moreover, slowing demand growth in certain EV segments has caused some manufacturers to reassess their capital expenditures. While electric models remain central to future vehicle portfolios, price pressures and global economic uncertainties have prompted automakers to delay some expansion plans. This caution has ripple effects on suppliers and start-ups like Novo Energy.
What’s Next for Volvo and Sweden?
Despite the pause, Volvo Cars has reaffirmed its long-term commitment to battery manufacturing in Sweden. Company leadership has made clear that the objective to build locally sourced batteries for Volvo vehicles remains a priority. However, the timeline for resuming operations at Novo Energy depends heavily on finding the right technology partner and achieving financial viability.
Potential future paths could include:
- Collaborations with international battery firms that bring advanced cell production capabilities.
- Strategic investment partnerships that combine Swedish industrial capacity with external capital and know-how.
- Expanded EU policy mechanisms designed to provide risk-sharing frameworks for large-scale manufacturing ventures.
Each of these scenarios involves significant negotiation and strategic planning, and none guarantees near-term production. That uncertainty places some pressure on Sweden’s broader ambition to be a leader in the Green Industrial Economy as global competition intensifies.
Conclusion: Swedish Industrial Crossroads
The pause at Novo Energy represents both a setback and a strategic inflection point. Sweden’s ability to remain at the forefront of industrial innovation — particularly in sustainable mobility and green manufacturing — now hinges on how effectively public policy, private investment, and technology partnerships can align. The swift execution of such collaboration could see Sweden emerge stronger and more resilient in the next wave of global industrial competition. A failure to adapt, however, could leave key opportunities slipping away.
In the rapidly evolving world of electric vehicles and renewable energy infrastructure, Sweden is still a major player — but the Novo Energy pause shows that even well-established industrial ambitions can face real economic and strategic headwinds in the real world.
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