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It wassupposedBMWVWTSMCTSMCCATLev-LGYour browser does not support the element. to be a battery pioneer, a symbol of European competitiveness and an example of industrial policy done right. Yet on November 21st Northvolt, Europe’s best-funded startup, . A day later its boss and founder, Peter Carlsson, announced his resignation. What went wrong? certainly didn’t fail for lack of investment. The firm raised $15bn in total, including nearly $5bn in grants and loans from the governments of Canada, the European Union, Germany, Poland and Sweden. Wall Street titans such as Goldman Sachs and BlackRock backed it. Big carmakers such as , Scania and Volkswagen ordered more than $50bn-worth of its products. was its largest investor. But it struggled to get anywhere. Owing to incompetence and bad luck, its main battery factory in a remote part of Sweden operated at a small fraction of its capacity, incurring huge losses. Its managers were so eager to expand that they neglected the basics. Now Northvolt may be broken up for parts and pounced on by rivals, including Chinese ones. Its failure holds lessons. First, investors should not take it for granted that when governments back an industrial champion, they will keep throwing money at it for ever. The banks that lent to Northvolt, the pension funds that bought its shares and the carmakers that lodged big orders for its batteries all did so on the assumption that it was as safe as a well-insulated wire. Even after its troubles became obvious, JPMorgan Chase and 24 other lenders announced a $5bn loan earlier this year, the biggest green loan ever in Europe. Their faith in government may have cost them a fortune.Second, when politicians try to back national champions in areas where technology is rapidly evolving, they are likely to waste several electric lorryloads of taxpayers’ money. That is especially true if the champion in question is far behind the market leaders. Governments often base their industrial policies on the “infant-industry” argument, which says that domestic firms in new industries need protection until they are viable. The trouble is, if they are too far behind, they may never catch up with their foreign rivals—and support may simply allow them to grow flabby.Northvolt spent lavishly on lab-level breakthroughs and next-generation technologies, but never worked out how to commercialise them and never came close to matching the world’s best battery-makers. Its failure echoes Intel, an American chipmaker that is due to receive $7.9bn of public funding, but still may not catch up with Nvidia and , the industry leaders. It posted $17bn of losses in the third quarter.There is a better way to nurture high-tech industries, which need not cost taxpayers anything. That is to smooth the way for foreign direct investment, a proven means to spread know-how from one country into another. America and the rest of the West have fallen behind China and other Asian countries in some crucial areas, including large-scale chipmaking and clean technologies such as solar power and electric vehicles. The way to catch up is to let leading firms in those areas open factories in the West. , a Taiwanese company, is building what will probably be America’s most advanced chip factory in Arizona, even as Intel struggles. , a Chinese firm and the world’s largest battery-maker, is investing in Germany and Hungary; Energy Solution, a South Korean firm, is now the biggest maker of lithium-ion batteries in Europe. Asia learned from the West by welcoming its best companies. Now the West needs to learn from Asia.
