Mercedes-Benz and Volkswagen sign EV battery supply deal with Canada

Mercedes-Benz Group and Volkswagen Group signed deals with the Canadian government Aug. 23 to secure access to Canada’s large stores of key battery materials such as lithium, cobalt, nickel and graphite, as the German companies compete for scarce supplies of raw materials with other automakers shifting to electric vehicles.

Markus Schaefer, chief technology officer at Mercedes-Benz, and Volkswagen CEO Herbert Diess, who will leave his post Sept. 1, each signed a memorandum of understanding with François-Philippe Champagne, federal Minister of innovation, science and industry, in Toronto Tuesday morning.

The signing of the pair of battery value chain collaboration agreements followed comments from Canadian Prime Minister Justin Trudeau and German Chancellor Olaf Scholz about the need for greater Canadian-German collaboration as global unrest roils traditional supply chains.

“What we are experiencing right now is a perfect storm — a multitude of overlapping and mutually reinforcing global crises,” Scholz said at the event hosted by the Canadian-German Chamber of Industry and Commerce. He pointed specifically to Russia’s invasion of Ukraine and its ripple effects on the energy and resource sectors.

Scholz, who is midway through a three-day visit to Canada accompanied by numerous German business leaders, said Canada has “almost boundless potential to become a superpower” in sustainable resource production. Germany is intent to become one of Canada’s closest partners, he added, and the new deals with Mercedes-Benz and Volkswagen show the “opportunities are there.”

The memoranda of understanding between Canada and the pair of automakers lack firm commitments from either set of parties, focusing instead on further “exploring” the opportunities in Canada’s raw materials and processing sectors.

Nevertheless, Champagne said the agreements “cement” the interest of the German automakers in Canada, boost the battery ecosystem in Canada and set the country up for investments.

“What you saw today is a completely new chapter even for the automotive industry in Canada because now we have the German automakers,” Champagne said. “We were not even on their radar screen, now we’re centre in their radar, and I think that’s going to lead to us partnering with them in a strategic way.”

Schaefer said the collaboration with Canada is a “great fit” as the company rapidly ramps up battery production and sees its requirements for critical minerals balloon.

Mercedes-Benz is also on the cusp of firming up an agreement with a Canadian mining firm that will build off the deal with Ottawa, Schaefer added. The automaker disclosed it is currently finalizing an agreement with Vancouver-based lithium miner Rock Tech Lithium, which is developing a mine in Ontario. The deal will see Rock Tech supply Mercedes-Benz’s European operations with up to 10,000 tonnes of lithium hydroxide annually starting in 2026.

Schaefer also left the door open for Canadian investments in battery material processing.

“We’d like to refine here as well. The question is, what can you do in a limited amount of time? The capital even needed for exploration and all the other activities needed are huge … so I think we have to divide a little bit the work that has been done.

“Once [refining] is possible and doable, then we will enter into it.”

Volkswagen, likewise, said the MoU with the Canadian government will help advance its battery supply chain in North America and beyond.

The deal is designed to forge closer ties between the Canadian mining sector and PowerCo, the VW entity taking the lead on the automaker’s battery supply chain business.

Diess said working hand in hand with government is an “absolute prerequisite” as Volkswagen rolls out electric models and works toward its climate goals.   

“The supply of battery raw materials and the production of precursor and cathode materials with a low carbon footprint will allow for a fast and sustainable ramp-up of battery capacity — a key lever for our growth strategy in North America,” he said in a release.

To this end, PowerCo will be setting up an office in Canada to “speed up” the cell production and critical mineral supply chain business, according to Thomas Schmall, VW’s technology chief.

The MoU with Ottawa does not come with investment dollars attached, but Schmall said VW has three milestones for its North American battery business planned this year that could lead to investment in Canada. It is currently scouting locations for a North American battery cell plant, pursuing a partner for the supply of cathode active material and working on “concrete details” for material streams from mining projects.

The recent passing of the Inflation Reduction Act in the United States may also supercharge Volkswagen’s plans for Canada.

The legislation requires automakers to use battery raw materials from countries with which the United States has a free-trade agreement in order for their vehicles to fully qualify for the US$7,500 federal consumer incentive.

Volkswagen’s battery strategy, as well as its talks with the Canadian government were well developed before the act cleared U.S. Congress, said incoming CEO of Volkswagen Group of America Pablo Di Si. But the incentive should boost localization, he added.

“In light of the recent Inflation Reduction Act, this will only strengthen our strategy to localize more, to be closer to the supply chain, and also to create jobs in the region. I see this as just the beginning of our successful journey with the government of Canada.”