Goldman Sachs Group Inc. is preparing to absorb a substantial financial hit as Swedish battery manufacturer Northvolt AB files for Chapter 11 bankruptcy protection in the United States. The Financial Times reported that funds managed by Goldman Sachs, which were among the largest shareholders in Northvolt, will write down their $896 million investment to zero by the end of the year. This development underscores the challenges facing the European electric vehicle (EV) battery sector, which had pinned hopes on Northvolt to reduce reliance on Asian battery producers.

Northvolt, once hailed as Europe's leading hope in the EV battery market, has been struggling with production issues and financial instability. The company, which had secured significant investments from major players like Volkswagen AG and Goldman Sachs, announced its bankruptcy filing as it grapples with a dire liquidity situation. Despite securing $100 million in new financing to support its operations during the bankruptcy process, Northvolt's future remains uncertain.

The bankruptcy filing is a blow to Europe's ambitions to establish a robust homegrown battery industry. Northvolt had been a key player in this vision, with plans to build Europe's largest lithium-ion battery plant. However, production setbacks, the loss of a major customer, and insufficient funding have forced the company to seek bankruptcy protection.

Goldman Sachs, in a statement, expressed disappointment over the outcome but emphasized that the investment was part of a diversified portfolio with risk mitigation strategies. Meanwhile, Northvolt's restructuring efforts are expected to continue, with operations proceeding as usual during the bankruptcy process. The company aims to complete its restructuring by the first quarter of 2025.

Volkswagen, Northvolt's largest shareholder, has acknowledged the bankruptcy filing and is maintaining close contact with the Swedish firm. The situation highlights the intense competition in the global battery market, particularly from Chinese manufacturers who dominate the industry.

As Northvolt navigates its financial challenges, the European battery sector faces increased pressure to find alternative solutions to meet the growing demand for EV batteries. The outcome of Northvolt's restructuring will be closely watched by industry stakeholders and investors alike.