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Canada’s EV battery contract with Volkswagen could be worth more than $13 billion

German automaker set to build a plant in St. Thomas, Ont.

German auto giant Volkswagen has secured an exclusive contract with Canada that could be worth more than $13 billion over the next 10 years to build an electric-vehicle battery plant in southwestern Ontario.

Volkswagen announced last month it had chosen the city of St. Thomas, Ont., to build its first overseas gigafactory. The plant, which will be operated by Volkswagen’s battery company PowerCo, marks the first manufacturing presence in Canada for the world’s largest automaker.

PowerCo chairman Thomas Schmall told reporters a month ago that it looked at 200 different parameters in making its site selection, including the proximity to raw materials for the batteries, location relative to its U.S. vehicle manufacturing sites, and the availability of clean electricity.

It was also known that Canada and Ontario had both put money on the table to lure Volkswagen but until now neither have disclosed exactly how much. A big announcement is planned for St. Thomas Friday, where further information including the expected number of jobs, will be shared.

Industry Minister François-Philippe Champagne provided some of the details ahead of that in an interview with Bloomberg News and The Canadian Press has verified the information.

The contract will include an upfront capital investment of $700 million and up to $13 billion in production subsidies for every battery they make and sell.

Those subsidies will not be in the form of tax credits but are designed to match what Volkswagen could have received had it chosen a site in the United States to build its new plant.

The U.S. Inflation Reduction Act, which passed last year, set a new high bar for government investments in cleantech companies, including electric-vehicle makers and the battery supply chain needed to power them.

A federal source with knowledge of the deal told The Canadian Press the contract with Volkswagen will pay the subsidies based on a formula that matches the IRA, and that the subsidies will only remain in place as long as the IRA is in effect.

If at any point the U.S. subsidies on offer decline or are eliminated, Canada’s contract with Volkswagen will be amended to reflect that.

The PowerCo plant will cost $7 billion to construct. It is the third gigafactory the company is building, following the first in Salzgitter, Germany and a second in Valencia, Spain.

PowerCo was just announced last year as a Volkswagen offshoot to make a unified type of battery that can be used in electric vehicles across Volkswagen’s brands.

It is expected that the batteries made in St. Thomas will be shipped to Volkswagen’s plant in Chattanooga, Tenn., which began making Volkswagen’s ID.4 crossover electric SUV last year.

Some of them may eventually also go to a new plant being built in Colombia, S.C., where Volkswagen’s subsidiary Scout Motors plans to start making electric trucks and SUVs in 2026.

—Mia Rabson, The Canadian Press

READ MORE: Honda, LG Energy plan to build $4.4 billion U.S. EV battery factory