European car manufacturer Volkswagen (VW) has signed a memorandum of understanding with the Canadian government to explore opportunities to build out a North American (NA) gigafactory for electric vehicle (EV) battery manufacturing.

VW has announced plans to build a dedicated gigafactory for battery manufacturing in North America, alongside its previously announced plans to develop six battery cell production plants in Europe by 2030. VW’s battery supply management company, Power Co, is tasked with identifying a NA gigafactory site along with the sourcing of nickel, cobalt and lithium.

The Inflation Reduction Act, and its revamped EV tax credits, require EVs sold in the US to be assembled locally with key battery components sourced in NA or through approved trading partners, including Canada. VW’s flagship EV, the ID.4 SUV, will be manufactured in Tennessee, but may be ineligible for the US$7,500 tax credit given that its batteries are assembled outside NA.