Volkswagen has chosen Canada to build its first battery plant outside Europe in a bid to fast-track an expansion in the key U.S. market.
The site, in St. Thomas, Ontario, is slated to start production in 2027, Europe's biggest carmaker said Monday. The decision to locate the facility in Canada, amid rich incentives offered in the U.S. as part of the Inflation Reduction Act, will help Volkswagen get access to key raw materials and clean energy, according to the company.
"We now have the unique opportunity to grow profitably in North America and play a key role in driving the transition to electric mobility," Volkswagen Chief Financial Officer Arno Antlitz said in a statement. "Volkswagen has the right strategy, products and scale to take a strong position in the North American market."
Volkswagen is seeking to turn the page from being an also-ran in the U.S. with an enlarged footprint and a slew of new models, and lessen its dependence on China, where it sells just under 40% of its vehicles. Earlier this month, Volkswagen-backed Scout Motors said it'll build a new $2 billion plant making Scout-branded SUVs in South Carolina.
Volkswagen is part of a wave of European companies looking to cash in on President Joe Biden's climate law, which stipulates that 50% of the battery components of an electric vehicle must be made in North America to qualify for electric vehicle tax credits of as much as $7,500. The carmaker in August signed an accord with Canada to cooperate on the supply chain for batteries with a focus on material such as lithium, nickel and cobalt.
Earlier this month, Antlitz said the U.S. policy, comprising some $369 billion in incentives, was a tailwind to the company's plans. The St. Thomas plant marks Volkswagen's third wholly owned battery plant, in addition to sites in Germany and Spain.
The move follows warnings that battery-cell plants would become unfeasible in Germany and Europe if the region didn't bring energy prices under control. Volkswagen also has a range of partners, including Sweden's Northvolt.
Prime Minister Justin Trudeau's government is under pressure to match the U.S. subsidies. Climate think tank Clean Prosperity recently estimated the U.S. production tax credits on a battery plant create a gap of $1.4 billion each year, compared to current Canadian grants. Trudeau's government has promised to level the playing field with the U.S., but a detailed plan is not expected until later this month when the federal budget is published.
Government officials wouldn't disclose how much money Canada is putting on the table for the Volkswagen plant. But Industry Minister Francois-Philippe Champagne called it "a home run" for the northern nation.
"It is the largest single investment in the history of the automotive industry in Canada," he said, adding there is "an understanding that Canada is the place to be for the critical minerals supply chain."
Volkswagen's multibillion battery factory is the latest project confirmation in the electric vehicle battery supply chain in Canada. Stellantis and LG Energy Solutions announced a joint venture in March 2022 to establish a $4 billion battery plant in Windsor, Ontario.
General Motors and Posco Chemical are setting up a cathode factory in Becancour, Quebec. Ford is also in talks with Korean firms to build a battery component plant in the region, Bloomberg has reported.
Information for this article was contributed by Mathieu Dion of Bloomberg News.