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 plans to cut 1,600 jobs at its base in Sweden, or about a fifth of its global workforce, as Europe's biggest hope in the electric vehicle battery market struggles with production problems, sluggish demand and competition from China.

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,