Volkswagen chose Canada as its battery factory after being lured by US green incentives

Volkswagen is building its first North American battery factory in Canada as US President Joe Biden’s multibillion-dollar green stimulus package accelerates plans to spread electric vehicles across the continent.

PowerCo’s battery arm will build its first plant outside Europe in St Thomas, Ontario, as the group’s “growth strategy” in the region is “rapidly advanced”, the German carmaker said on Monday.

VW has told EU officials it is suspending a planned battery plant in eastern Europe as it waits for the EU to respond to Washington’s $369 billion aid package in the Inflation Reduction Act.

The company estimated it could receive up to 10 billion euros in U.S. incentives, according to those at the meeting, but did not say how its decision to base in Canada would affect that amount.

But a Canadian factory is likely to get preferential treatment under U.S. rules because “made in North America” credits cover the country and Mexico for electric vehicles.

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During a visit to the carmaker’s factory in Salzgitter, Germany, Thomas Schmall, head of VW’s parts division, said that “the IRA is a big tailwind for us as it lowers the cost of cells and allows electric cars to ramp up faster. in the USA”.

Batteries made in the Canadian factory will power VW’s $2 billion electric vehicle plant in South Carolina, which it announced two weeks ago.

The company did not disclose the cost of building the plant, but said it was just one of 200 metrics — such as access to labor and raw materials — that were considered when deciding where to locate the factory.

Two years ago, VW announced that it would spend up to 30 billion euros with its partners on its battery production plans, which are focused on Europe and North America.

The Canadian plant will be VW’s third battery plant after the two in Salzgitter and Valencia, Spain.

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“Our North American strategy is a key priority in the 10-point plan we developed last year,” VW CEO Oliver Blume said, referring to the plan he announced when he took over at Europe’s biggest carmaker.

VW has gone further than most rival automakers to resource the batteries by choosing to manufacture the cells themselves rather than simply assemble them.

Schmall said VW’s decision to prioritize new plants in North America “doesn’t mean we’re eliminating capacity or investment in Europe.”

The company remains committed to having 240 gigawatt-hours of battery manufacturing capacity in Europe by 2030, but may build fewer plants in the region than it announced two years ago.

VW “debated” its plans in Europe. “Electricity prices are worth discussing,” Schmall added.