Northvolt's financial collapse deals a blow to Europe's plan to set up its own battery industry to power electric cars, stirring a debate about whether it needs to do more to attract investment as startups struggle to catch up with Chinese rivals.

The CEO of Northvolt, Peter Carlsson, today resigned amongst ongoing fallout from the Swedish EV battery maker’s U.S. Chapter 11 bankruptcy filing.

Swedish electric vehicle (EV) battery developer and manufacturer Northvolt has collapsed into administration, with at least $1bn of investment needed for a rescue deal.

Northvolt transformed in a matter of months from Europe's best shot at a homegrown electric-vehicle battery champion to a struggling company.

Northvolt, the Swedish maker of battery cells for electric vehicles, said on Thursday it has filed for Chapter 11 bankruptcy protection in the U.S., dealing a blow to Europe's hopes that its most developed battery player would reduce Western car makers' reliance on Chinese rivals.

Northvolt, a Swedish-based lithium-ion battery manufacturer backed by Volkswagen Group and others, has filed for bankruptcy protection in the United States. The company was hailed as one of Europe's biggest hopes against China's EV battery supremacy.

This move is part of a strategic effort to restructure debt, scale operations and secure a sustainable foundation for continued operations.

The US bank is the second-largest shareholder in Swedish battery maker Northvolt which has filed for Chapter 11 bankruptcy.

Northvolt has struggled to boost production at its Swedish battery factory and recently announced 1,600 layoffs amid weak consumer demand for EVs.