VW strikes a deal with Canada to build EV batteries in North America

Illustration by Alex Castro / The Verge

Volkswagen signed a Memorandum of Understanding with the Canadian government to explore opportunities to manufacture electric vehicle batteries in the country.

It is thought that the move is to make sure that plug-in vehicles qualify for the US's EV tax credits, which place stricter requirements on where battery and vehicle manufacturing can be done.

Today's agreement probably increases Canada's chances of being selected as the location of VW's "dedicated Gigafactory" in North America.

The battery supply management company, Power Co., is being asked to lead the site search and source key ingredients for EV batteries. The Power Co will play a key role in North America.

VW plans to build battery cell production plants in Europe, including one in Skel lefte, Sweden. The third plant will be located in Valencia, Spain, and the fourth will be located in Eastern Europe. The plants will eventually have a production capacity of over 200 gigawatt hours a year.

The EV tax credit was revised by the Inflation Reduction Act, which was signed into law by the president. To be eligible, an EV needs to be assembled in North America or by a US trading partner and include battery components that are mostly from North America.

The ID.4 is VW's flagship EV and is being produced at its plant in Tennessee. Due to the fact that the EV's batteries are not made in North America, the company can't guarantee that the vehicle will be eligible for the tax credit. In order to be eligible for the customer incentive, other manufacturers are shifting supply chains.

The ID.4 has been VW's most popular EV since it was released in 2021. The VW CEO said in May that the company had sold out on electric vehicles in Europe and the US for the year.