Battery cell maker Northvolt has filed for bankruptcy in Sweden, the company said on Wednesday, marking one of the country’s largest corporate failures and effectively ending Europe’s best hope of developing a rival to challenge China.

The Swedish company has received more than $10 billion in equity, debt and public financing since its 2016 inception, and its biggest owners include Volkswagen (ETR:VOWG_p) with a 21% stake, and Goldman Sachs, with 19%.

The EV battery maker sought U.S. Chapter 11 bankruptcy protection last November as its cash pile dwindled and it scrambled to secure funds to fix persistent problems in boosting output at its flagship plant in northern Sweden.

"This was a decision we did not take lightly," Northvolt Chairman Tom Johnstone told a press conference, saying every avenue had been pursued to avoid bankruptcy for the company, putting 5,000 jobs at risk.

"Nevertheless, despite these exhaustive efforts, this decision represents the only realistic path forward for Northvolt and for its stakeholders."

Its debt stood at more than $8 billion across the nine Northvolt entities in the Chapter 11 process at the end of January, documents showed.

The bankruptcy, which was officially declared by a Stockholm district court, is one of the biggest in Swedish corporate history and the most high-profile since carmaker Saab Automobile more than a decade ago.

Europe’s auto sector had hoped Northvolt would reduce Western carmakers’ reliance on Chinese rivals such as battery maker CATL and EV and battery maker BYD (SZ:002594).

"It’s obvious that a lot has gone wrong, and the price is now being paid by our members," Marie Nilsson, leader of the IF Metall union said in a statement.

US, GERMAN OPERATIONS
Northvolt’s operations in North America and Germany were not filing for bankruptcy in their jurisdictions, the company said.

German Economy Minister Robert Habeck said he remained hopeful Northvolt might still be rescued by an investor who could secure the future of its German plant. "The talks are ongoing," he said. "The possibility definitely exists."

The company’s Polish subsidiary was also not included in the bankruptcy filing, an internal document seen by Reuters showed.

Porsche, which had supply contracts with Northvolt, said it had begun searching for alternatives after it became clear the battery cell maker was headed for bankruptcy.

"I remain convinced that we need competent battery developers in Europe," Porsche and Volkswagen CEO Oliver Blume told a press conference.

Volkswagen said in a statement it remained in contact with Northvolt but declined to comment further on the bankruptcy.

Several owners have in recent months written down the value of their stakes to zero while long-time partner Scania said this week it had lined up a new supply of battery cells in addition to the truckmaker’s deal with Northvolt.

Northvolt early last year clinched a $5 billion green loan deal meant for a large plant expansion, but funding was later cancelled as its problems mounted.

German carmaker BMW (ETR:BMWG) cancelled a $2 billion order in June as the battery maker failed to deliver on a long-term supply contract for battery cells signed in 2020.

Co-founder and former Northvolt CEO Peter Carlsson, who stepped down shortly after the Chapter 11 filing in November, had said the company needed up to $1.2 billion to restore its business.

"What ultimately forced the board to take this decision last night was that it did not see a solution to the short term liquidity need," Carlsson told reporters on Wednesday. "It was really tough and really emotional to take."

Creditors include both private and public investors.

Jenny Askfelt Ruud, who chairs 4 to 1 Investments which has invested 5.8 billion Swedish crowns ($578 million) in Northvolt shares and convertibles, said the bankruptcy was regrettable.

"In the longer term, it’s a loss for Sweden’s industry and social economy, and above all for Skelleftea, Northvolt and its employees," she said.

A court-appointed trustee will now oversee the bankruptcy process, which will include the sale of its assets and settling its outstanding obligations as far as possible.

($1 = 10.0405 Swedish crowns)