Volkswagen (VW) is set to build its first battery cell plant outside Europe, giving its cars access to Canadian and U.S. subsidies, as it localises EV production chain in the region, Reuters reported on Tuesday.
The German motor vehicle manufacturer will built the plant in St. Thomas City, northeast of Detroit, after signing a MoU with the Canadian government to secure access to essential materials for car batteries.
VW is one of the vehicle manufacturers in a joint venture in building an EV battery supply chain in Canada, which includes Stellantis NV and LG Energy Solutions.
European motor companies want to benefit from the US climate law, Inflation Reduction Act (IRA), which requires 50 percent of EV battery components to be made in North America, in order for their vehicles to qualify for tax credits of $7500.
Cars with batteries from the Volkswagen site will be able to qualify for IRA subsidies.
“The VW battery plant is a home run for Canada and the largest single investment in the auto sector in Canada’s history, and I think all big manufacturers understand that if you need to green the supply chain, Canada is the best option,” said Canadian Federal Innovation Minister, Francois-Philippe Champagne.
VW did not specify the size of the investment or the capacity of the new plant, but the company has mentioned before that it was targeting 20 gigawatt hours of capacity at its North American site, according to Reuters.
The IRA gave the German manufacturer an incentive to prioritize the North American investments, while plans for battery plants in Europe were still in place, but would have to wait for better incentives, said the company.
VW has been working to set up regional supply chains in Europe, North America and China for EV production, as the transport and logistics costs increased, supply chain risks and geopolitical tensions continuously rising.
Big chemical producer, BASF, was able to get land in Canada for a planned materials facility, to serve EV markets in the U.S. and Mexico.
Having one of the biggest mining sectors for minerals like lithium, nickel and cobalt, Canada has been working on attracting EV production companies with a green technology fund, as the world tries to cut carbon emissions.