By Stine Jacobsen

COPENHAGEN (Reuters) -Northvolt's CEO and co-founder Peter Carlsson stepped down on Friday, a day after Europe's biggest hope for an electric vehicle battery champion filed for U.S. Chapter 11 bankruptcy protection.

The Swedish maker of battery cells went in a matter of months this year from being Europe's best shot in a vital industry for the energy transition to racing to stay afloat, hobbled by production problems and dwindling funds.

Its collapse deals a big blow to Europe's hopes of reducing its auto industry's reliance on Chinese battery suppliers such as CATL and BYD.

The company, whose motto is "make oil history", has received more than $10 billion in equity, debt and public financing since its 2016 startup, and counts Volkswagen and Goldman Sachs, each with about one fifth of the shares, as its top owners.

It now needs to raise between $1 billion and $1.2 billion to restore its business, the outgoing CEO told reporters.

"Personally this is an emotional day," Carlsson said. The former Tesla executive said Northvolt had been "like a baby" to him.

The company opted for a court-led restructuring after talks with investors and creditors including Volkswagen and Goldman broke down, and as its funds were running out.

The Chapter 11 filing allows a period during which the company can reorganise and ramp up operations while honouring customer and supplier commitments, and ultimately position itself for the long term, Carlsson said.

The company had only $30 million of cash at the time of the filing, enough to sustain it for one week, while its debts stood at $5.8 billion, including $313 million owed to the European Investment Bank (EIB) and a $154 million loan from shareholders.

It was far too early to say what the outcome of the Chapter 11 process will be, EIB Vice President Tomas Ostros said.

"For us ... it remains the case that Europe has a strategic interest in a European battery industry for electric cars and we will follow developments very closely," he added.

The lithium-ion battery maker also secured $100 million in new financing for the bankruptcy process from other shareholder and top customer Scania to allow it to continue operating, and said it would seek more cash.

Northvolt, which employs around 6,600 staff across seven countries, said in its Chapter 11 filing that it expects to complete the restructuring by the first quarter of 2025.

Company sources, who declined to be named because they are not authorised to speak to media, said Northvolt's problems in ramping up output stemmed from faults with machines, inexperienced staff and unrealistic ambitions.