Northvolt AB was supposed to power Europe’s response to the likes of Tesla Inc. and China’s fast-growing electric vehicle makers. Instead, the Swedish battery company is fighting to stay afloat.

Europe’s attempt at building a battery manufacturing powerhouse announced that it had halted work on a factory expansion and laid off about 20% of its employees.

The stakes are high, and not just for Northvolt. The European Commission made the battery sector one of its industrial priorities, crucial to supporting the all-important automotive industry as it faces up to a transition to electric vehicles that China is so far winning.

Northvolt's shock decision this week to shrink its operations and cut jobs has sparked fears that Europe's best shot at a home-grown electric vehicle battery champion may stall, sector experts and people familiar with the situation told Reuters.

Northvolt is the bloc's premier battery manufacturer to supply European automakers, going up against Chinese giants CATL and BYD, along with longtime manufacturers Panasonic and Samsung. But car brands are contending with slower EV sales, reducing Northvolt orders.

Swedish electric vehicle battery manufacturer Northvolt says construction of a $7-billion plant on Montreal's South Shore will proceed as planned, despite announcing on Monday its intention to lay off 1,