The European automaker Volkswagen announced that its battery company PowerCo will establish its first overseas "gigafactory” for battery cell making in St. Thomas in southwestern Ontario.

Actual production is scheduled for 2027. Buildling the plant in Canada will grant Volkswagen access to both Canadian and US subsidies.

Volkswagen has however not given many details about its plans in Europe amid ongoing concerns about Washington's green subsidies.

North America remains a strategic area for Volkswagen with CEO Oliver Blume stressing that "our North American strategy is a key priority.”

Why Canada?

Canada has a robust mining sector for minerals such as lithium, nickel and cobalt which are essential in the production of dry battery cells. A 1,500 acre "mega site” in southwestern Ontario has been set aside, with the province of Ontario adjusting municipal boundaries to fit the site in one municipality.

With a multi-billion green technology fund to secure the future of its manufacturing center in Ontario, Canada is trying to win companies involved in the electric vehicle supply chain.

Battery cars from the upcoming Volkswagen site will qualify for the Inflation Reduction Act (IRA) subsidies. The IRA was introduced by US president Joe Biden to encourage the transition to the green economy, riling European leaders as a competitive challenge to the continent's green industries.

The subsidies are allocated to vehicles with a battery made with minimum proportion of critical minerals extracted or processed in the US or a country with a US free trade agreement, or recycled in North America.

Volkswagen signed an agreement last year with the Canadian government to work together to identify suitable sites for such a facility in Canada.

The company has also committed to find ways for Canada to contribute to its battery supply chains, including raw materials and assembly.

With the Canadian government working to attract investors in the sector, the country has seen at least 10 major electric vehicle-related commitments totaling tom ore than Canadian $16 billion (US$12 billion).

Volkswagen is seeking to reduce dependency from Asia with its own battery plants.

The company seeks to rival US company Tesla for dominance in the electric car market. It plans to introduce 25 new electric models in the United States by 2030.