Volkswagen Picks Canada For New Battery Factory

Things happen fast in the world of electric vehicles, and the pace of change is accelerating again as a result of the Inflation Reduction Act of 2022, which offers significant tax advantages to companies that build electric vehicles and the components needed to make them operational in the US or in countries that the US smiles upon as favored trading partners. That last bit needs a little explanation. Originally those benefits did not apply to European countries but did include Canada and Mexico, based on the provisions of the USMCA, the successor to NAFTA. Now Volkswagen is poised to claim some of those incentives for itself by building a battery factory in Canada.

The IRA did not specify precisely which countries could qualify for those benefits so the executive branch has been quietly adding countries to the list, arguing that since Congress didn’t specify who was included and who was excluded, it can make that determination.

Just this week, President Biden met with Ursula von der Leyen, president of the EU commission. Afterward, presto, change-o, alakazam, cars manufactured in Europe became eligible for IRA EV tax incentives and cars made in the US became eligible for EV incentives in the EU. Don’t be too surprised if similar legerdemain soon occurs to include cars manufactured in South Korea.

Prior to that meeting between Biden and von der Leyen, companies were rushing to invest in new battery factories in the US in order to qualify for those federal tax incentives. Tesla has indicated it will move some battery manufacturing from Germany to Texas. CATL has been struggling to find a way to get in on the fun. It has struck a novel deal with Ford to use its battery technology to make batteries in a building owned and operated by Ford. Senator Rubio is crying foul and has filed a bill in the Senate to block the Ford/CATL deal. Isn’t politics fun?

Senator Joe Manchin is hopping mad that his focus on Made In America is being diluted, but even he is reluctant to throw in with the lunatics now controlling the Republican Party, so he can fume all he wants — the deal is done and there is no going back now.

Volkswagen Picks Canada

Volkswagen has its eyes on the United States as a place where it can sell its electric cars successfully (but not the ID.3, because its market research says Americans have no use for a 5 passenger hatchback). It is expanding its EV production line in Chattanooga, Tennessee, and announced just last week it will build a new factory to manufacture electric vehicles under the Scout brand. But it currently has no battery factory of its own in North America.

In a press release on March 13, the company said Volkswagen Group and its battery company PowerCo have selected St. Thomas in Ontario, Canada, as the site of its first overseas gigafactory for cell manufacturing. The new factory will produce sustainable unified cells, with the start of production planned for 2027. Oliver Blume, CEO Volkswagen Group, said, “Our North American strategy is a key priority in our 10 point plan that we laid out last year. With the decisions for cell production in Canada and a Scout site in South Carolina, we are fast-forwarding the execution of our North American strategy.”

Thomas Schmall, board member for technology at Volkswagen and board chairman of PowerCo, said, “Our gigafactory in Canada sends a strong message: PowerCo is on track to become a global battery player. With the expansion to North America, we will enter a key market for e-mobility and battery cell production, driving forward our global battery strategy at full speed. Canada and Ontario are perfect partners for scaling up our battery business and green economy jobs, as we share the same values of sustainability, responsibility and cooperation. We are committed to be a reliable partner and good neighbor for the people in St. Thomas and Ontario.”

After Salzgitter and Valencia, this will be the third Volkswagen Group owned battery factory worldwide and PowerCo’s first cell factory in North America. It will provide batteries for EVs in the region with cutting edge battery cells and is part of a larger plan that Volkswagen and PowerCo agreed upon with the Canadian government last August. Canada offers ideal conditions, including the local supply of raw materials and wide access to clean electricity. More details on the new factory will be revealed in due course

With the Scout brand, the group will enter the highly attractive (and hopefully profitable truck and rugged SUVs segments. Scout vehicles are being designed and developed from the ground up on a new all-electric platform that emphasizes off-road capability. Scout Motors is backed by Volkswagen Group and operates as an independent unit within the group. More than 200,000 Scout vehicles are expected to roll off the production line in South Carolina beginning at the end of 2026.

Have Things Changed In The Past Few Days?

The question now becomes whether Volkswagen, Tesla, and others will rethink their plans to build new battery factories in North America after Biden and von der Leyen changed the ground rules for who qualifies for tax incentives under the Inflation Reduction Act. There just is no way to answer that question yet. Hopefully we will gain some clarity on that soon.

Economics being what they are, corporations will always seek the lowest cost route. While those incentives are crucial, they also mean companies may have to pay higher wages and taxes in the US, blunting the advantages conferred by those incentives. CATL has built a supply chain in China that is so much cheaper than what it costs to manufacture batteries in the US that it could still undercut its competitors even after those incentives are applied.

So why is CATL pursuing the American market? The answer is “market share.” There is no possible way cars that use batteries from CATL built in China will ever qualify for IRA incentives. CATL can’t afford to let LGES, SK On, Samsung SDI, and Panasonic carve up the American market for themselves. It needs to act. Even with anti-China xenophobia sweeping across America, one way or another, Chinese made cars are coming to America. The only question is when.


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