VW chooses Canada as site of its first battery cell factory outside Europe

Volkswagen decided to locate its first battery cell factory outside of Europe in Canada, giving its vehicles access to both Canadian and American subsidies as it tries to localize the supply chain for electric vehicles in the area.

Six months after signing a memorandum of understanding with Canada to gain access to essential raw materials for batteries, Volkswagen AG revealed in December that it was searching for locations for a facility there.

As the globe works to reduce carbon emissions, Canada, which has a sizable mining industry for minerals like lithium, nickel, and cobalt, is attempting to court businesses involved at all points in the supply chain for electric vehicles.

As European automakers attempt to take advantage of a US climate law that mandates 50% of EV battery components be made in North America for vehicles to qualify for tax credits of up to $7,500, VW joins a Stellantis NV and LG Energy Solutions joint venture in building an EV battery supply chain in Canada.

Francois-Philippe Champagne, the federal innovation minister for Canada, referred to the VW battery facility as a “home run for Canada” and stated that it was “the largest single investment in the auto sector in Canada’s history” without providing any information.

The facility will be located in St. Thomas, which is a city across the Detroit River from Windsor, Ontario and is about 195 kilometres (120 miles) northeast of Detroit. The Ambassador Bridge connects the two cities.

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“I think all the big manufacturers know that Canada is the place to accomplish that if you need to green the supply chain,” said Champagne.

To better serve the US and Mexican markets for electric vehicles, chemical giant BASF last year also acquired acreage in Canada.

It also highlights the efforts made by European businesses to increase their presence in the US in an effort to benefit from the IRA, which was generously introduced by President Joe Biden last year.

IRA subsidies are given to vehicles with batteries made with a minimum percentage of critical minerals extracted or processed in the United States or a country with a US free-trade agreement, or recycled in North America. These subsidies will be available to cars with batteries from the planned Volkswagen site as well.

Although board member Thomas Schmall stated in August that the business was aiming for 20-gigawatt hours of capacity at its first North American site, VW’s announcement did not include any information regarding the magnitude of the investment or the new plant’s capacity.

Given the high costs of transportation and logistics, supply chain concerns, and geopolitical unrest, VW has long stated that it is working to establish regional supply chains for EV production in Europe, North America, and China.

VW claimed last week that the IRA provided an incentive for prioritizing decisions regarding investments in North America and that while plans for battery plants in Europe were still in place, the company would wait to see whether there would be better incentives.