Volkswagen opens battery plant in Canada, Europe can wait

Using IRA: Volkswagen selects Canada for its first battery plant outside Europe, Europe can wait

German automaker Volkswagen has chosen Canada as the location for its first battery plant outside of Europe. This move comes as part of the company’s broader efforts to localize its electric vehicle (EV) production chain in North America. The plant will enable Volkswagen to access Canadian and US subsidies and secure critical raw materials for batteries, as the world shifts towards cleaner energy and carbon neutrality.

The Canadian government has been keen to attract companies across all levels of the EV supply chain with its multi-billion-dollar green technology fund.

The VW battery plant represents the largest single investment in the Canadian auto sector’s history. The Canadian federal innovation minister, Francois-Philippe Champagne, called the decision a “home run” for Canada, adding that the country is the right place to green the supply chain.

Canada is home to a large mining sector for minerals, including lithium, nickel, and cobalt. The location of the VW battery plant will be St. Thomas, which is located across the Detroit River from Windsor, Ontario, and about 195 kilometers (120 miles) northeast of Detroit, Michigan.

Expanding EV battery supply chain in Canada

Volkswagen’s decision follows Stellantis NV and LG Energy Solutions’ joint venture in building an EV battery supply chain in Canada.

European automakers are seeking to benefit from a US climate law that requires 50% of EV battery components to be made in North America for vehicles to qualify for tax credits of up to $7,500.

Vehicles with batteries built with a minimum percentage of essential minerals harvested or processed in the US or a country with a US free-trade agreement, or recycled in North America, are eligible for US Inflation Reduction Act (IRA) subsidies. Cars with batteries from the planned VW site will also be eligible for these subsidies.

The magnitude of the investment or the capacity of the new plant was not specified in VW’s statement, but board member Thomas Schmall stated in August 2021 that the business aimed to have 20-gigawatt hours of capacity at its initial North American location.

Volkswagen has long been working towards setting up regional supply chains in Europe, North America, and China for EV production in light of high transport and logistic costs, supply chain risks, and geopolitical tensions.

There’s no rush to choose a new battery plant location in Europe

Volkswagen’s three confirmed facilities in Europe—the Salzgitter facility in Germany, the Northvolt factory in Sweden, and a future Valencia plant—can provide all of the company’s battery requirements through the year 2028.

Board member Thomas Schmall stated that the automaker might produce 240-gigawatt hours of battery cells in Europe with fewer than the initially anticipated six factories.

Volkswagen won’t have to begin building a new facility in Europe until 2025. If a similar tailwind to that of the IRA arose in Europe, the choice of the next place may be made sooner.

Standardizing battery structure

Volkswagen is standardizing the layout of its facilities and batteries, although different models would have varying battery chemistry.

Iron phosphate is one of the components in the batteries for entry-level models, while medium-level models’ batteries will have a high manganese percentage and top models’ batteries would have a higher silicon content.

Schmall stated that while Asian companies control 95% of the battery business, VW hopes to become a large but not the only player in the field with its PowerCo battery unit.