European Tech Dream Stumbles: What Went Wrong with Northvolt and Lilium, Their Public Funding, and the Broader Context

The European Union’s ambition to lead in green tech and innovation has hit a wall with the troubles facing two of its most prominent startups: Northvolt, the battery manufacturing giant, and Lilium, the electric vertical take-off and landing (eVTOL) pioneer. Both companies have been hailed as symbols of Europe's technological progress, receiving substantial public funding and private investments. Yet, they are now grappling with financial crises that expose the fragile foundation of Europe’s tech ambitions.

What Went Wrong at Northvolt?

Northvolt, once poised to challenge China's dominance in battery production, has stumbled under the weight of its own aspirations. Despite raising over $15 billion from investors including Volkswagen and JPMorgan, the company is struggling to deliver commercially viable results.

Commercial Failures:

1. Unrealistic Scaling Goals: 

  Northvolt aimed to rapidly scale up production at its flagship gigafactory in Skellefteå, Sweden. However, the company underestimated the complexities of ramping up manufacturing at scale, leading to production delays and quality issues. 

2. Missed Market Expectations:

  Automotive giants like BMW and Volvo expected high-quality, cost-competitive batteries. Northvolt’s inability to deliver on time forced customers to cancel contracts, such as BMW’s $2 billion order, which significantly impacted the company’s financial stability.a

3. Cost Challenges: 

  Competing with cheaper Asian manufacturers, particularly those in China, proved a daunting challenge. Northvolt's batteries were more expensive to produce due to high labor costs, energy costs in Europe, and inefficiencies in scaling production.

4. Lack of Diversified Revenue Streams:

  Unlike competitors that serve multiple sectors, Northvolt remained overly reliant on the automotive industry, making it vulnerable to fluctuations in demand or customer pullouts.

What Went Wrong at Lilium?

Lilium’s ambitious vision of eVTOL air taxis captivated investors and governments alike, but its commercial strategy fell short in several critical areas. The company’s failure to secure funding and its decision to file for insolvency have highlighted deeper issues in its business model.

Commercial Failures:

1. Unrealistic Product Timelines:

  Lilium promised to bring its eVTOL aircraft to market quickly, but the complexities of certification and technological hurdles slowed progress. This delay eroded investor confidence and put the company at odds with its funding needs.

2. High Development Costs:

The development of eVTOL aircraft is extraordinarily capital-intensive, requiring billions of euros in funding. Despite raising a total of approximately $375 million from eight funding rounds, including significant investments from Tencent, Atomico, and Earlybird, Lilium faced mounting operational and development costs that far outpaced its available resources.

3. Limited Market Demand:

  The concept of urban air mobility remains speculative. Despite initial hype, practical challenges—such as infrastructure requirements, air traffic control integration, and regulatory hurdles—cast doubt on the market’s near-term viability. This uncertainty discouraged potential customers and investors.

4. Unproven Technology:

  Lilium’s reliance on a unique ducted fan design for its aircraft raised technical and efficiency questions. Many industry observers were skeptical about whether the technology could meet the range, speed, and payload requirements to make the business commercially viable.

Public Funding Received

Both companies were bolstered by substantial public funds intended to drive innovation and sustain Europe’s technological edge:

Northvolt:

 - $1 billion from the European Investment Bank.

 - €902 million approved by the European Commission for a German battery plant.

 - SEK 625 million (€55 million) in Swedish government grants.

 - Investments from Swedish pension funds, totaling SEK 5.8 billion (€513 million).

Lilium:

 - Initially approved for a €220 million funding commitment from the French government, contingent on production facilities in France.

 - The company’s German funding request for €100 million was ultimately denied.

Key Private Investors

Both startups attracted significant venture capital investments, often from funds backed by public money:

- Northvolt: Backed by Volkswagen, Goldman Sachs, and EIT InnoEnergy, the EU-backed energy innovation fund.

- Lilium: Received funding from Atomico, which itself benefits from support by the European Investment Fund (EIF).

The Broader European Context

The struggles of Northvolt and Lilium highlight systemic issues in Europe’s ability to support its tech sector:

1. Funding Gaps: Europe lags significantly behind the U.S. in venture capital funding. In 2023, European startups attracted $45 billion, compared to $120 billion in the U.S.

2. Policy Deficiencies: Unlike the U.S.’s Inflation Reduction Act, which provides robust incentives for clean energy, Europe’s support systems lack clarity and scale. Bureaucratic hurdles and slow approval processes hinder the ability to respond quickly to market needs.



The crises at Northvolt and Lilium underscore the need for Europe to rethink its tech funding strategies. While public money has flowed into promising ventures, it has not been matched by sustained private investment or a supportive ecosystem for growth. Both companies' failures point to larger structural issues, including the difficulty of scaling complex technologies, the high costs of operating in Europe, and limited market readiness for futuristic products.