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Volkswagen picks Canada for battery plant after being lured by US green incentives

Volkswagen will build its first North American battery plant in Canada, as US president Joe Biden’s multibillion-dollar package of green incentives speeds up its plans for the rollout of electric vehicles on the continent.

The German carmaker on Monday said its battery arm PowerCo would build its first plant outside Europe in St Thomas, Ontario, as the group’s “growth strategy” in the region was being “fast-forwarded”.

VW had told EU officials that it was putting on hold a planned battery plant in eastern Europe while it waited for the bloc to respond to Washington’s $369bn package of subsidies in the Inflation Reduction Act.

The company had estimated it could receive up to €10bn in US incentives, according to people at the meeting, but would not say how its decision for a Canadian base would affect the figure.

A Canadian plant is, however, likely to have beneficial treatment under the US rules as the “made in North America” credits cover the country and Mexico for electric vehicles.

Thomas Schmall, head of VW’s components unit, said during a visit to the carmaker’s factory in Salzgitter, Germany that the “IRA is a big tailwind for us, as it decreases the cost of cells and makes possible a faster ramp-up of EV cars in the US”.

Batteries produced at the Canadian factory will supply VW’s $2bn electric vehicle plant in South Carolina, which it announced two weeks ago.

The company would not disclose the cost of building the plant, but said this was only one out of 200 metrics — such as access to labour and raw materials — reviewed when deciding on the location of the factory.

VW announced two years ago that it would, together with partners, spend up to €30bn on its battery production plans, which are focused on Europe and North America.

The Canadian factory will be the third battery plant owned by VW following two under construction in Salzgitter and Valencia in Spain.

“Our North America strategy is a key priority in our 10-point-plan that we’ve laid out last year,” said VW chief executive Oliver Blume, referring to the plan he announced when taking over as the head of Europe’s largest carmaker.

VW has gone further than most rival carmakers to secure resources for batteries by deciding to manufacture cells itself, rather than just assemble batteries.

Schmall said VW’s decision to prioritise new plants in North America “does not mean that we will cancel capacity or investment in Europe”.

The company was still committed to having 240 gigawatt hours of battery production capacity in Europe by 2030, but might build fewer plants in the region than the six announced two years ago.

VW was “discussing” its plans in Europe. “Electricity prices is something to discuss,” Schmall added.

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