Why Volkswagen sees Canada as a ‘logical option’ for a ‘gigafactory’

The race to build a domestic electric-vehicle supply chain has revved up with Volkswagen Group’s decision to single out Canada as a prospective site for its first North American battery plant.

“Canada is one logical option for the construction of a gigafactory in the region of North America,” VW CEO Oliver Blume said in a statement Dec. 1. “The country offers high sustainability standards and ideal economic conditions, and the government of Canada has already proven to be a strong and reliable partner.”

The announcement came as an addendum to a memorandum of understanding (MOU) that VW and Canada signed in August. In it, the two parties agreed to cooperate on building a “sustainable” supply chain for battery-electric vehicles. It followed meetings in Wolfsburg, Germany, between Volkswagen executives and federal Industry Minister François-Philippe Champagne, who was on a weeklong European tour promoting Canada’s auto industry.

The site search in Canada is being conducted by VW’s battery unit, PowerCo SE, which has been tasked with establishing the automaker’s global EV supply chain.

While the agreement included no investment commitments, VW did not publicly mention other countries for the prospective investment, and industry proponents insist it is serious about establishing a Canadian manufacturing footprint.

“This really sounds like it is beyond the general interest/due-diligence stage,” said Brendan Sweeney managing director of the Trillium Network for Advanced Manufacturing, which promotes Ontario’s manufacturing sector. “There are no guarantees, of course, but lots of room for optimism.”

LOOKS GOOD FOR CANADA

That sentiment was echoed by Champagne during a media conference call on Dec. 5.

“Germans being Germans, I don’t think they would invite the minister of industry of Canada, with 400 of their top managers, and say, ‘Let’s get moving, we need scale, we need speed and let’s get going,’ if they weren’t serious about the project.

“Obviously, you have to get to the final round, [but] ... I’ve never seen a CEO of a company that size say that [Canada is the logical choice] in public. ... It looks very good for Canada,” Champagne said.

VW seeks “environmentally sustainable battery production,” Thomas Schmall, chairman of PowerCo’s supervisory board, said in a release. The company will consider not only “site characteristics and infrastructure but also, and especially, the availability of adequate quantities of energy from renewable sources and competitive financial conditions,” Schmall said.

At the Los Angeles Auto Show in November, Pablo Di Si, CEO of Volkswagen Group of America, highlighted the federal government’s green industrial policies.

“What I heard from the Canadians, I liked it, because they were environmentally responsible,” said Di Si, who attended the August MOU signing ceremony. “They said: ‘Listen, extracting the minerals is the easy part. We need to put a green seal that everybody can audit. Everybody can see that it’s environmentally friendly.’”

LOGICAL LOCATIONS

Ontario and Quebec have mostly clean hydro-electric power generation with significant capacity. If Canada wins the plant, it will likely be somewhere between London, Ont., and the western Greater Toronto Area, said Sweeney.

“We know of two large parcels of land available for industrial development — one in St. Thomas and one in Hamilton,” he said. “This part of the province also has the transportation infrastructure and work force necessary for such a large investment. It is also close enough to the VW plant in Tennessee.”

Last year, the automaker’s Chattanooga facility built 112,123 of the 544,031 vehicles the automaker produced in North America, according to the Automotive News Research & Data Center. The plant assembles the Altas and Atlas Cross Sport large crossovers and the ID.4 EV compact crossover.

In a Dec. 13 tweet, Ontario Industry Minister Vic Fedeli said he and Premier Doug Ford had their third meeting since April with Volkswagen and PowerCo executives. They discussed “how Ontario is lowering the cost of doing business by $7 billion annually,” Fedeli said.

Quebec, which enjoyed a flurry of EV supply-chain investments in 2022, also offers “a competitive proposition,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association.

If VW chooses to process critical battery minerals in Canada, “it’s probably better to do that in Quebec given the cost and source of electrical power,” he said.

Volpe expects VW to announce a decision on the winning site during the first half of 2023.

Sweeney said the plant would likely be about half the size of the $5-billion battery-cell plant slated for Windsor, Ont. That joint venture between Stellantis and LG Energy Solution is expected to employ at least 2,500 people and have the capacity to supply 450,000 100 kilowatt-hour packs per year.

“Based on VW’s U.S. production, we would expect this to be smaller than the LG-Stellantis plant in Windsor... although it would still be a significant investment,” Sweeney said. It would generate “at least 1,000 jobs, probably more, and many of these jobs would be in engineering/technical fields.”

JOB POSTINGS IN PLACE

Meanwhile, Volkswagen has begun recruiting employees who will staff PowerCo’s Canadian office, said company spokesman Thomas Tetzlaff. Job postings include a manager of raw-material purchasing, tasked with negotiating supply contracts with mining companies in Canada.

VW’s announcement of a site search in North America also included a commitment to extend its partnership with the Belgium-based battery-materials supplier Umicore NV. In September, the two companies formed a joint venture in Europe to produce cathode active material (CAM), a key ingredient in battery cells. They plan to jointly invest three million euros to produce CAM for 2.2 million VW vehicles in Europe annually by 2030.

The collaboration is poised to cross the Atlantic as VW pursues cell production in North America. On Dec. 1, the companies signed an initial, nonbinding deal to work toward a firm supply agreement for CAM for up to 550,000 North American vehicles annually by 2030.

In July, Umicore announced plans to build a $1.5-billion integrated manufacturing plant for cathode and precursor battery materials near Kingston, Ont.