German auto makers Volkswagen AG and Mercedes-Benz Group AG have lined-up agreements with the Canadian Government to secure access to critical materials for electric vehicle (EV) battery production.
The companies have announced separate memorandums of understanding signed this week between the Canadian Government and German chancellor Olaf Scholz, which allows them to access critical minerals (including lithium, nickel, cobalt and graphite) primarily found in parts of northern Ontario and northern Quebec.
The Canadian Government said the Volkswagen agreement focuses on “deepening co-operation” on sustainable battery manufacturing, cathode active material production and critical mineral supply, and on setting up a Canadian office for Volkswagen’s newly-formed battery company PowerCo.
It is designed to shorten supply chains for Volkswagen’s facilities in the US and avoid difficulties linked to tariffs and tax regulations.
The Mercedes deal focuses on “enhancing collaboration” with Canadian companies along the EV and battery supply chains and supporting the development of a sustainable critical mineral supply chain in Canada.
Volkswagen board member Thomas Schmall said Canada had virtually all the raw materials required to produce batteries.
“We are not opening any mines of our own, but we want to acquire stakes in Canadian mines and mine operators,” he added.
‘Fourth-dimensional chess move’
The president of Canada’s Automotive Parts Manufacturers Association Flavio Volpe called the agreements “a fourth-dimensional chess move” by the Canadian Government, adding that it was “the most significant thing that has happened so far” for the nation’s mining sector.
“This is absolutely unprecedented,” Mr Volpe said.
“These agreements send a signal to other car manufacturers that northern Ontario and northern Quebec are the places to access critical minerals if they want to qualify for new EV tax credits in the US.”
The credits form part of the Biden administration’s wider almost US$740 billion Inflation Reduction Act, which revamps the nation’s previous incentives scheme and places new tougher requirements on where battery and EV manufacturing can be done.
The Act offers consumers up to $11,000 for their new EV purchases and $5,700 for used cars.
To qualify for the credits, the cars must be made in North America with most of the critical minerals needed for battery production sourced or processed in countries, which have a free-trade agreement with the US.
A large percentage of battery components also need to be manufactured or assembled in North America.
Volkswagen says its plan to build a “dedicated gigafactory” in North America increases Canada’s chances of being selected as the location.
EV expansion strategies
The Canadian agreements come at a time when automakers are rolling out EV expansion strategies globally in a bid to challenge sector leader Tesla.
These strategies depend on sufficient supplies of vital battery materials.
Companies including Volkswagen, Mercedes and Stellantis NV (formed in 2021 by the merger of Italian-American marque Fiat Chrysler Automobiles and the French PSA Group) have embarked on ambitious plans to make batteries.
Volkswagen is planning six facilities in Europe, while Mercedes has joined Stellantis in a $10 billion battery venture and is pursuing a total of eight facilities globally.
Lithium hydroxide partnership
Mercedes today confirmed it intends to sign a five-year partnership agreement with Canada’s Rock Tech Lithium to secure 10,000 tonnes per year of battery-grade lithium hydroxide from its spodumene mine in Ontario.
The new deal is believed to be critical to Mercedes’ plans to only launch EVs after 2025.
In December, Rock Tech announced it had financing in place to build a lithium hydroxide refinery in Germany, where most of its market activity is located.