Volkswagen strikes a deal with Canada to build electric vehicle batteries

Volkswagen and the Canadian government signed a memorandum of understanding to "examine opportunities" for moving some of the production of its electric vehicle batteries there.

The action is said to be an effort to ensure that the automaker's plug-in vehicles are eligible for the US's updated EV tax credits, which have stricter requirements regarding the locations that batteries and vehicles can be manufactured in.

With today's agreement, there is a greater likelihood that Canada will be chosen as the site for the "dedicated Gigafactory" that Volkswagen claims it plans to construct somewhere in North America.

The automaker has given its battery supply management firm, Power Co, the job of leading the site search and locating essential components for EV batteries, such as lithium, nickel, and cobalt. Power Co will also play a key role in cathode production in North America, VW says.

Last year, VW unveiled plans to build six battery cell production plants in Europe by 2030, including the facility in Salzgitter, Germany, and one in Skellefteå, Sweden. A third plant will be established in Valencia, Spain, and the fourth factory will be based in Eastern Europe. The plants will eventually have a production capacity of 240 gigawatt-hours a year.

The Inflation Reduction Act, which was signed into law earlier this month by President Joe Biden, revamps the EV tax credit by adding tough new requirements about parts and supply chains. To qualify, EVs must be assembled in North America or by a US trading partner and must include battery components that are mostly sourced in North America.

VW recently began production of its flagship EV, the ID.4 crossover SUV, at its plant in Chattanooga, Tennessee. Even so, the automaker emailed customers recently to say it “cannot guarantee” that the EV will be eligible for the tax credit due to the fact that its batteries are not made in North America. Other automakers are similarly scrambling to shift supply chains to ensure they are eligible for the $7,500 customer incentive.

The ID.4 is VW’s most popular EV, having delivered 190,000 vehicles to customers globally since its release in 2021. VW CEO Herbert Diess, who is stepping down in September, said in May 2022 that the company was “basically sold out on electric vehicles in Europe and in the United States” for the year.