Volkswagen has chosen Canada as the location for its first battery cell plant outside of Europe, aiming to capitalize on both Canadian and U.S. subsidies while localizing its electric vehicle (EV) production chain in North America.
The decision follows a memorandum of understanding signed with Canada six months ago to secure access to essential raw materials for battery production.
Canada, rich in critical minerals like lithium, nickel, and cobalt, is leveraging a multi-billion-dollar green technology fund to attract companies across all levels of the EV supply chain, aligning with global efforts to reduce carbon emissions.
Volkswagen joins a growing list of companies, including a joint venture by Stellantis NV and LG Energy Solutions, building an EV battery supply chain in Canada to meet U.S. climate law requirements.
Under the U.S. Inflation Reduction Act (IRA), 50% of EV battery components must be produced in North America for vehicles to qualify for tax credits of up to $7,500.
Canada’s federal innovation minister, Francois-Philippe Champagne, hailed the VW plant as a “home run for Canada” and described it as the largest single investment in the country’s auto sector, although he did not provide specific details.
The new plant will be based in St. Thomas, Ontario, approximately 195 km northeast of Detroit, providing strategic proximity to major automotive markets across the Detroit River.
“I think all the big manufacturers understand that if you need to green the supply chain, Canada is the place to do that,” Champagne stated, emphasizing the nation’s appeal in sustainable production.
BASF, a chemicals giant, also secured land in Canada last year for a planned battery materials facility aimed at serving the growing electric vehicle markets in the U.S. and Mexico.
The move highlights the efforts of European firms to expand their footprint in North America, driven by the lucrative incentives under the IRA launched by President Joe Biden in 2022.
Cars produced with batteries from Volkswagen’s planned Canadian site will qualify for IRA subsidies, which are allocated to vehicles with batteries containing a minimum proportion of critical minerals extracted, processed, or recycled in the U.S. or a country with a U.S. free trade agreement.
Although the size of Volkswagen’s investment and the plant’s capacity were not disclosed, the company’s board member, Thomas Schmall, mentioned a target of 20 gigawatt hours of capacity for its first North American facility.
Volkswagen’s strategy focuses on developing regional supply chains in Europe, North America, and China to mitigate high transport and logistics costs, supply chain risks, and geopolitical tensions.
The incentives provided by the IRA have accelerated Volkswagen’s decision to invest in North America, though the company remains committed to its plans for battery plants in Europe, pending potential new incentives.
