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.

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.

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,