Volkswagen AG, Europe’s largest car maker, said Friday that it would invest more than $5 billion in its planned battery-cell factory in Canada, making it the company’s largest in the world and creating thousands of jobs. The move is part of a strategic pivot to capture a bigger share of U.S. electric-vehicle markets, driven by attractive subsidies, Europe’s ponderous bureaucracy and uncertain economic prospects, and the need to diversify away from China.
Volkswagen AG, Europe’s largest car maker, said Friday that it would invest more than $5 billion in its planned battery-cell factory in Canada, making it the company’s largest in the world and creating thousands of jobs. The move is part of a strategic pivot to capture a bigger share of U.S. electric-vehicle markets, driven by attractive subsidies, Europe’s ponderous bureaucracy and uncertain economic prospects, and the need to diversify away from China.
The plant will be built and operated by VW’s battery unit, PowerCo, and will supply VW’s U.S. factories with battery cells. Construction of the factory is slated to begin next year and production of battery cells projected to start in 2027. When operating at full capacity, the Canadian facility is expected to churn out battery cells with an annual capacity of 90 gigawatt-hours, twice the size of its European plants under construction in Germany and Spain, and create 3,000 jobs directly at the plant.
The plant will be built and operated by VW’s battery unit, PowerCo, and will supply VW’s U.S. factories with battery cells. Construction of the factory is slated to begin next year and production of battery cells projected to start in 2027. When operating at full capacity, the Canadian facility is expected to churn out battery cells with an annual capacity of 90 gigawatt-hours, twice the size of its European plants under construction in Germany and Spain, and create 3,000 jobs directly at the plant.
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Canadian Prime Minister Justin Trudeau said that once built the VW battery factory would be the largest manufacturing plant in the country, calling it a “win for workers, for the community, and for the economy.”
VW’s U.S. pivot, initiated a couple of years ago, has accelerated considerably since President Biden signed the Inflation Reduction Act into law last August. It has seen VW slow-walk or put on ice various expansion plans in Europe, including a giant battery plant in the Czech Republic.
The shift illustrates the growing competition for investment in factories and jobs between the U.S. and Europe, which has struggled to respond to the IRA and whose recovery is being threatened by Russia’s war in Ukraine, high labor costs and expensive energy.
In the months after the adoption of the IRA, VW moved its European battery buildup into the slow lane, and fast-tracked its strategy to boost American production of electric vehicles—part of an older plan to boost its share of the world’s most profitable auto market.
In March, VW announced in rapid succession that it would build its first North American battery-cell manufacturing plant in St. Thomas, Ontario, as well as a $2 billion plant in South Carolina to manufacture Scout Motors all-electric off-road vehicles.
VW sold 15,700 fully electric cars in the U.S. in the first three months of the year, about 11% of its worldwide EV sales, the company said.
As VW executives forged ahead with talks with Canadian and regional U.S. politicians to garner support and line up incentives for their expansion plans, they had all but stopped parallel discussions in Europe, dismayed by the EU’s lackluster response to U.S. investment aid.
Other companies at the forefront of Europe’s electric-vehicle transition have also been losing patience with the EU. For years, Europe has been ahead of the U.S. in capital investment in battery-cell manufacturing plants. But that shifted as soon as Mr. Biden signed the IRA into law last summer. Data collected by the European Battery Alliance, an industry group, show that new battery plant announcements in the U.S. jumped after the bill became law and dropped sharply in Europe.
“The U.S. will overtake Europe in the short term, but we still think Europe can regain its lead,” said Ilka von Dalwigk, a senior technology and policy expert with EIT InnoEnergy and the EBA.
Norway’s Freyr Battery abandoned plans for European expansion and invested in the U.S. instead, while others, such as Sweden’s Northvolt AB, stepped up pressure on European governments to match U.S. subsidies or risk an industry exodus.
After the IRA was announced last year, Taavi Madiberk, chief executive of Skeleton Technologies GmbH, a maker of high-powered battery cells based near Leipzig, Germany, said U.S. customers told him they would be tapping the IRA funds to finance expansion and asking whether Skeleton could increase production to supply them.
“We have a five-year investment plan. And until the IRA, the U.S. wasn’t on our five-year horizon. Now it is,” he said. “This is a discussion that every board of every company in Europe is having.”
Scott Keogh, CEO of Scout Motors, a new wholly owned VW subsidiary that will be using the battery cells built at VW’s Canadian plant, has described the atmosphere in the U.S. since the IRA’s adoption as that of a “gold rush” that is forcing VW and other European manufacturers to shift priorities.
During a visit to Canada by German Chancellor Olaf Scholz, a week after the IRA became law in August, VW and the Canadian government announced a preliminary deal to develop battery technology.
Canada had lobbied hard for the plant. Francois-Philippe Champagne, Canada’s minister of innovation, science and industry, told The Wall Street Journal that he cold-called Thomas Schmall, VW’s board member in charge of technology, in April last year to pitch Canada as a perfect site for future manufacturing plants.
Talks continued throughout the year, including sending a Canadian delegation to Germany and the World Economic Forum in Davos, Switzerland, for meetings with VW executives. Mr. Champagne said he addressed VW’s annual global meeting of top executives in December.
By January, VW’s team had taken up a floor in a government office in downtown Toronto and over two weeks systematically interviewed people from various government departments to ask them about electricity, land, water, finance and legal requirements in the province, Canadian officials said.
Then, in March, VW said it would build the battery plant in St. Thomas, Ontario. To win the Germans’ favor, Ottawa agreed to provide up to 13 billion Canadian dollars, equivalent to about $9.65 billion, in subsidies over the next decade, matching what VW might have received under the IRA by building the plant in the U.S., according to the Canadian government.
Doing the Scout factory deal with South Carolina took around two months from start to finish, Mr. Keogh and South Carolina Gov. Henry McMaster told the Journal. The state agreed to provide around $1.3 billion in subsidies to build local infrastructure, such as roads and railway connections, and is working closely with the company to build links to local schools and universities.
In contrast to the swift negotiations and closure of VW’s U.S. and Canadian deals, VW’s talks over building a battery plant in Eastern Europe have dragged on for at least two years. They have been made difficult by Europe’s eroding competitiveness in the wake of soaring energy prices, complicated emissions regulations and the uncertainty after Russia’s invasion of Ukraine.
During a meeting in Prague in October 2021, VW’s then-CEO Herbert Diess told the departing Czech industry minister, Karel Havlicek, that VW wouldn’t be able to decide by the end of the year as originally planned.
“He talked about the high energy costs in Europe,” Mr. Havlicek told the Journal. “He said it would have to wait until 2022.”
Then, in February 2022, Russia invaded Ukraine and talks between VW and the new Czech government stalled.
Mr. Diess was replaced in September by Oliver Blume, the CEO of VW’s sports-car maker Porsche, who would now also run the entire company. Mr. Blume shifted VW’s focus away from Europe to home in on the company’s two geographic trouble spots—the U.S. and China.
In February, VW put the Czech talks on hold to wait for Europe’s response to the IRA.
“VW needs to wait and see what the new Green Deal will bring and evaluate it also in terms of subsidies and investment incentives,” said Klaus Zellmer, the CEO of VW’s Czech subsidiary Skoda, who was leading VW’s negotiations over the planned Czech battery plant.
In early March, VW’s supervisory board gave the green light for the Canadian battery plant.
“With the decisions for cell production in Canada and a Scout site in South Carolina we’re fast-forwarding execution of our North American strategy,” Mr. Blume, VW’s CEO, said at the time.
