Northvolt’s story seemed like a fairy tale. Peter Carlsson, an ambitious and entrepreneurial former Tesla executive, founded the Swedish battery maker in 2016 to secure European strategic autonomy in a critical industry at the center of the green transition.

The company seemed to do everything right: It entered the market just as electric vehicles (EVs) were regularly hitting the roads; it struck critical partnerships with regional automakers such as Volkswagen and BMW; and it attracted generational talents, including Paolo Cerruti, who were determined to prove that Europe could use innovative science and engineering to solve climate change.

It was an attractive tale—one so compelling that the company raised more than $15 billion from investors and governments.

Like many classic fairy tales, though, the ending was tragic. A big, bad wolf in the form of China huffed and puffed and blew the battery market’s walls down, whittling away Northvolt’s local market advantages. The company’s engineers struggled to deliver a quality product at scale, forcing partners such as BMW to search for alternatives. A company that seemed fated for greatness became doomed: On Nov. 21, Northvolt announced that it would file for bankruptcy, becoming one of Europe’s greatest start-up failures of all time.

This rise and fall can teach us a moral lesson: Policy agility is key. In a ferociously competitive marketplace, Europe’s deliberative industrial policy model can no longer effectively mobilize its vast talent, wealth, and unified market. As the Northvolt story reveals, fixing this crisis requires reshaping institutions that are no longer prepared to secure victory into accelerated engines of energy creation.

The recent past has been a race to find energy sources, support economic growth, and produce weapons in order to project power. The war in Ukraine has been largely defined by Europe’s reliance on Russian oil, the United States’ energy independence and geopolitical agility as a result of its fracking boom, and Russia’s ability to continue its oil sales to alternative markets.

Furthermore, demand for energy sources is only growing as construction of new artificial intelligence data centers and further industrialization in the global south accelerate, while climate volatility requires resilient energy grids and redundant sources of power to cover the resulting volatility.

Batteries and EVs are just the latest skirmish in a long string of economic battles over energy. Previously, the battle was with China over solar technologies, which Beijing decisively won by the 2010s. Before that, it was automobile efficiency and the struggle against Japanese conglomerates such as Toyota in the 1980s. Nuclear energy—and nuclear weapons—defined the struggles of the Cold War. Germany’s desire for Russian oil fields and the U.S. energy squeeze on the Japanese empire helped drive World War II.

Having lost the combustion engine race with engines that consistently lacked the reliability of their international competitors, China is increasingly dominant in the EV and battery markets. Its consumers registered nearly 60 percent of all electric vehicles worldwide in 2023 and manufactured nearly 80 percent of the world’s batteries, according to the International Energy Agency (IEA). Upstream, the country is also processing around 80 percent of the critical minerals that are required to make batteries.

Through a comprehensive system of industrial policies, researchers from the Center for Strategic and International Studies estimate that China has subsidized the entire value chain of its EV industry by nearly a quarter trillion dollars from 2009 to 2023.

Everyone agrees that the energy system and the automobile market is changing and needs to change, yet somehow the West just can’t get its brain wrapped around making it happen. Remember the Chevy Volt? Just ask Jim Farley, the CEO of Ford, about his recent trip to Shanghai, from which he reportedly brought back Xiaomi cars to Detroit for “test-driving”—industry speak for reengineering, the process of learning and copying another firm’s product.

Western firms are falling behind, and that will have ripple effects far beyond cars. The global automotive industry represents nearly 4 percent of the entire world’s GDP and is the third-largest emitter of greenhouse gases. Within that industry, EVs are growing at an astounding pace in what is an otherwise mature sector, with the IEA reporting 35 percent year-on-year growth in 2022 and fully electric battery cars accounting for 70 percent of these sales.

EV production is also notorious for simplicity: Some estimates put EVs as having 90 percent fewer moving parts than a traditional combustion engine. Fewer parts mean fewer jobs, and different engine structures require different skills.

In the United States alone, up to 9.7 million jobs depend on auto manufacturing, nearly all focused on internal combustion. The changing market dynamics were brought to sharp focus by the 2023 United Auto Worker strikes, which were prompted by the union’s concerns about the EV transition. The result was wage increases and commitments from automakers to convert existing plants to EV production rather than building new facilities with potentially fewer workers and lower wages (or, put another way, higher efficiency).

Meanwhile, Tesla’s almost entirely nonunionized workforce marches onward, along with the rapidly growing number of Chinese EV makers, including investments in Mexico that U.S. President-elect Donald Trump now seeks to cut off.

Tensions are different but equally complex in the European Union. Automakers face pressure from strict EU emissions regulations that push for rapid EV adoption while simultaneously dealing with concerns about Chinese EV competitors undermining their supply chains. Hungary already received more than $8 billion in investment from China’s largest battery manufacturer in 2023, and Germany’s governing coalition collapsed in early November mostly due to continued stagnation in the country’s manufacturing engine.

China’s role in the EV industry is not a black swan; it’s a big, lumbering, so-called gray rhino that has been slowly and steadily marching toward the West’s camp for some time. Gray rhinos are highly visible risks that are predictable well in advance, but never seem to attract attention and solutions because they are not that interesting. They are known knowns, and that means that nobody gets excited about them.

The Chinese government was incredibly transparent about its intentions. More than 10 years ago, China hands such as the U.S.-China Business Council were ringing the alarm bells about China’s “strategic emerging industries,” with three of the seven listed industries in a 2013 report from the organization supporting EVs: “Energy efficient and environmental technologies,” “New Energy,” and “New-energy vehicles.”

Beijing literally announced it for everyone to see, attracted immense investment in these areas, and then facilitated and coerced technology transfers to progress their capabilities. Now Western automakers are seemingly surprised.

Instead of understanding how the winds were changing, policymakers and auto executives failed to see a future where technological and consumer trends from a foreign market could overtake U.S. and European momentum. Foreign investment flowed into these fields in China, technologies were co-developed, scientists were trained, and subsidies were leveraged for short-term gains.

How did governments and top executives miss this? The West still struggles with understanding China’s impact on industries worldwide and seeing how different sectors impact a strategic outcome. For this reason, I’ve been working with Lux Capital on a collection of resources that we’ve dubbed riskgaming, to force executives to make decisions in areas that break the traditional and often arbitrary boundaries that Western society has built, revealing the silos that executives operate in and how they lead them away from collaboration.

I designed a game, “Powering Up: China’s Global Quest for Electric Vehicle Dominance,” to give executives an intense, firsthand experience at dealing in a business environment that lacks the structures that Western executives are used to. Players experience how the system used by the Chinese Communist Party measures success of its members in government and guides players toward the outcomes that it often wants: win-win cooperation where the Chinese partner wins more.

The game focuses on letting players experience the critical role of China’s market in the global EV industry and learn how a company’s engagement in the Chinese market is central to improving its competitiveness in the EV category, as well as how the Chinese government’s support for the EV industry impacts global markets. All players make money and witness the critical role access to information plays in China’s political economy—yet, rarely do any players feel “good” about their outcomes.

Now that dozens of U.S. congressional staff, policy analysts, business leaders, and journalists have played the game, I’ve learned a few key lessons. First, generalists dramatically outperform specialists. Managing risk and opportunity across decisions that combine the Chinese political economy with global business is tough for those who lack wide experience.

Second, negotiation skills must be empathetic to others’ diverse interests. Some of the worst performers have been analytical players who assume that everyone will do what’s best for the industry or their home countries rather than what’s best for themselves as individuals.

Finally—and I’ve seen this in run-throughs I’ve conducted in Washington, London, and Tokyo during the past few weeks—many players wait too long to collect more information before committing to a decision. Time doesn’t stop—and far too many people have analysis paralysis.

As the United States, European Union, and others who embraced globalization and liberal democracy are now realizing, the highly structured world of international laws, “all else held equal” financial models, and separation of commerce and government were new ideas to appear on the timeline of world history. It looks increasingly like they were blips and anomalies in history, not the end of it.

Thanks to bankruptcy laws, Northvolt will likely find funding to continue production. But how will the United States, the EU, and other partners compete with Chinese EVs more broadly?

Breaking down the issue into timelines, assets, incentives, and trade-offs, the challenge seems to be the gap between political expectations and engineering realities. By simply using China’s history to anchor the time requirement for the West to gain a similar ecosystem to 10 years, that means consistent policy efforts through two-and-a-half U.S. presidential terms of supporting automobile industry reform, battery production development, and an expansion in both critical mineral production and processing.

Meanwhile, the Chinese EV industry will continue to build on its novel technologies and the immense supply chain that is already exceedingly greater than that of the West. With only one rare earth mineral processing facility in the United States, a vast amount of time, money, and social debate over environmental, health, and investment trade-offs in chemical processing is required to advance this industry.

Yet Western governments say that they don’t want to lose the ability to control their energy infrastructure, and companies don’t want to lose their ability to make money.

What if they already have?

With tariffs—the tool most often discussed today—the United States is raising the drawbridge while it’s behind. The likely result is a near-term automotive industry that mirrors China’s more than many would like to admit: Access to the U.S. market will require IP sharing, in-country investment, and other political kowtowing costs to enter.

The hope of this strategy, I can only assume, is to someday chip away at the Chinese advantage while the West grows a comparable industry. Like the tale of the Red Queen in the sequel to Alice’s Adventures in Wonderland, “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”

That’s a nonstarter. Instead, the West should be looking to leapfrog China into the next generation of energy technologies. Europe and the United States lost solar panels, and now they’ve mostly lost electric vehicles and its supply chains (Tesla notwithstanding).

So, what’s next? Will it be expanded nuclear fusion, hydrogen, alternative battery structures, geothermal, microwave energy transmission, or some other developing technology? Focusing on research and the rapid development of new firms will ensure that the next fairy tale will have a Hollywood ending—not a Grimm one.