Volkswagen to build battery factory in Canada

Volkswagen is building its first battery cell factory outside of Europe. The German company has found a location in Ontario, Canada, where production should start in 2027.

That VW is looking to manufacture cells in North America is no surprise. The carmaker’s battery subsidy PowerCo has been location scouting in Canada since late 2022. And the battery plant “is part of a larger plan” between the manufacturer and the Canadian government”, VW writes in its press release. In August, the two parties signed agreements to secure access to crucial battery raw materials such as lithium, nickel and cobalt.

It is VW’s third cell factory worldwide and will provide the carmaker’s production facilities in the region with battery cells. According to VW’s statement, the group is ramping up assembly of the ID.4 in Chattanooga, Tennessee, and “has plans to upgrade the plants in Puebla and Silao, Mexico, for the assembly of BEVs and potentially for BEV components such as electric motors in the second half of the decade.”

Moreover, the VW Group revealed its electrification strategy for the American market about one year ago, saying it will launch 25 new electric models in the US by 2030. The group aims to achieve an electric vehicle share of 55 per cent of its US vehicle sales. “In addition, the group plans to fully leverage the region’s power by creating more synergies and making even better use of the innovative strength, technical expertise, production capacities, supply chains and market knowledge of all brands in Canada, the United States, and Mexico,” the statement reads.

The battery cell factory announcement comes after VW made plans for an electric vehicle factory in South Carolina public, where it will build all-electric vehicles of its US brand Scout. Production there will kick off in late 2026, just before the battery cell factory opens. Volkswagen says that “more than 200,000 Scout vehicles are expected to roll off the Columbia, South Carolina production line each year.”

Could VW build another cell factory in the US?

US President Joe Biden and EU Commission President Ursula von der Leyen met last week to coordinate their EV incentive programmes. Under the US Inflation Reduction Act, the US has given carmakers huge subsidies for locally building new EV and battery plants. Moreover, customers will also receive a tax credit when buying electric cars manufactured in the US – measures that, according to some, were distorting competition.

The EU did announce its own subsidy programme last week. In cases where the risk of relocation is high, countries will in future be able to offset subsidies offered by a non-European government, for example, in an attempt to keep the company in the EU. If that is enough for VW remains to be seen.

The VW Group is looking to build another battery cell factory and has been eyeing Eastern Europe as a possible location. However, VW may switch strategies because the carmaker would receive subsidies of up to €10 billion when building the plant in the US.

Last week, VW representatives spoke with EU representatives, making it clear that it expects a similar deal when keeping its business close to home. “But for this, we need the right framework conditions. That is why we wait and see what the so-called EU Green Deal will bring,” the company told the Financial Times after the meeting and a senior executive at another European battery manufacturer, who also attended last week’s meeting, said that “it looks pretty bad. There was an absence of concrete measures.”


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