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.

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

Northvolt has been seen as a cornerstone of European attempts to catch up with China and the United States in the production of battery cells, a crucial component of