Volkswagen and Mercedes look to Canada to build supply chain for electric vehicles

August 23, 2022

Automakers around the world have been racing to secure critical minerals that will be used for the batteries in electric vehicles (EV). Volkswagen AG and Mercedes-Benz Group AG have made a significant move in the race by sealing agreements with Canada to secure access to raw materials such as nickel, cobalt and lithium for battery production, according to people familiar with developments.

Bloomberg News reported that memorandums of understanding were expected to be signed on Aug. 23 in Toronto, with German Chancellor Olaf Scholz and Canadian Prime Minister Justin Trudeau in attendance said the people, who asked not to be identified discussing confidential information.

The moves come following the Inflation Reduction Act (IRA) being signed into law by President Biden. The IRA extends an existing tax credit for EV on the condition that minerals must be extracted from or processed in countries the U.S. has a free trade agreement with, and a large percentage of battery components need to be manufactured or assembled in North America.

VW is looking to shorten supply chains for its facilities in the U.S. and avoid difficulties linked to tariffs and tax regulations.

A spokesperson for VW said the carmaker and its dedicated unit for its battery business, called PowerCo, are working on ramping up their battery activities, “especially reliable and sustainable supply chains.”

“This holds true for the very promising North American market as well,” the spokesperson told Bloomberg.

Automakers including VW, Mercedes and Stellantis NV have embarked on ambitious plans to make batteries. VW is planning six facilities in Europe alone, while Mercedes has joined Stellantis in a 7 billion-euro ($7 billion) battery venture and is pursuing a total of eight facilities globally.
VW is also considering setting up an in-house battery cell manufacturing operation in North America, Johan De Nysschen, chief operating officer of Volkswagen of America, said in June.

The goal would be to ease a coming battery shortage by supplementing suppliers with its own production, De Nysschen said in an interview at the company’s new battery testing lab in Chattanooga, TN. The board was still weighing the idea, and no final decision had been made, he added.

Scholz will hold several meetings with Trudeau as the Group of Seven and NATO partners move to deepen cooperation in areas including energy and security.

The German leader, who is also accompanied by Economy Minister Robert Habeck, wants to enlist Canada to help Europe’s biggest economy reduce its reliance on Russia for energy and raw materials.

Canada “has similar rich natural resources as Russia — with the difference that it is a reliable democracy,” Scholz told reporters during the flight over.

“This opens up new fields of cooperation,” he added. “We want to cooperate closely, especially when it comes to building a hydrogen economy.”



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