This paper investigates the transformation challenges related to incumbent industries caused by technology development and industry convergence in the transition to a bioeconomy in the context of Swedish biorefinery development. It involves the emergence of new value chains and several incumbent industries such as the pulp and paper industry, the oil refinery sector, the chemical process industry, and the heat and power sector. In 2019, Sweden had Europe's largest share of biofuels in the transport sector, roughly 20% on an energy basis, and this share has increased by around 300% during the last decade. At the same time, domestic production has stalled, and even though Sweden has beneficial conditions for biofuel production, the share of biofuel that is imported or based on imported feedstock has recently ranged between 85% and 90%. We discuss three transformation challenges: (i) inertia and lack of absorptive capacity creating lock-in effects at the organizational level; (ii) weak and inefficient actor networks at the industry level; and (iii) contradictory policy instrument mixes and lack of coordination at the government level. The findings underscore the need for policy integration and alignment across various policy domains, and an increased focus on policy mixes that can stimulate the emergence of more disruptive innovations and value chains. There is also a need for industrial initiatives, such as improving absorptive capacity and strengthening actor networks, to help build the value chains needed to realize a sustainable bioeconomy.