Supply Chain Matters updates readers on a prior blog indicating the Volkswagen AG will invest in a large scale battery production facility to be located in in Canada.

 

Background

In a published Supply Chain Matters posting in March, we informed our readers that global automotive manufacturer Volkswagen announced that it was investing in a battery production site in Canada to support North America electric vehicle assembly needs.

This facility, which will represent VW’s first battery production facility outside of Europe, is to be located in the city of St. Thomas, Ontario, upwards of a two hour drive from Detroit. Plans reportedly call for the facility to be operational by 2027.

Factors that reportedly influenced this automaker were the U.S. Inflation Reduction Act, which fosters consumer incentives to purchase EV vehicles if 50 percent of major battery components are produced in North America. A further consideration was proximity to key raw materials including minerals, lithium, nickel and cobalt which Canada’s mining sectors can provide.

Added Information

Last week, Bloomberg published a report (Paid subscription or metered view) indicating that the government of Canada agreed to subsidies of upwards of C$13 billion over a ten year period in order to land this investment.

These incentives reportedly involve annual subsidies and grants to offset the facility’s cost. “effectively matching what the German automaker could have received via the Inflation Reduction Act if it had located the plant in the US, according to government officials.”

Canada’s industry minister is noted in this report as indicating that the production facility will cost upwards of C$7 billion to construct, and likely to be the largest manufacturing site in the country with a footprint equal to 350 football fields.

The report further indicates: “The Volkswagen deal in Canada also raises the question of how much financial help other automakers and battery producers might be able to get.

The Canadian government is reportedly in separate talks on financial subsidies associated with a plant investment by LG Energy Solutions and Stellantis NV on a planned production in the Ontario region as well.

Separate and Related Development

Last week the U.S. Treasury Department released added information and clarity as to which electric powered automobiles would be eligible for a full $7500 tax credit under the U.S. Inflation Reduction Act.

The latest changes clarify criteria for battery component production sources that qualify for the full subsidy. Further, there reportedly is a listed price cap placed on a certain price of an EV vehicle, along with total household income thresholds, that would be eligible for tax credit.

Reportedly, only 16 existing EV models are now eligible for a full or partial $3500 credit. According to reporting by The Wall Street Journal, for buyers to claim the full $7,500 credit, a select set of battery components must be produced in North America with a percentage of critical minerals sourced in the U.S. or from certain friendly nations. The partial $3,500 credit is reportedly available for meeting one of the two battery sourcing credits.

As of now, only 16 EV models are eligible for full or partial credit, down from the prior 25 models. Reportedly, not a single foreign branded EV is currently eligible for such incentives including existing EV models from VW, Mercedes, Hyundai, Porsche and others.

Hence is the importance of where battery production is sourced and where raw materials originate. certainly, added federal and local tax and spending offsets certainly adds to the equation for strategic sourcing.

 

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