Biden’s IRA plan pushes battery-maker Northvolt to plan new factory in Canada

The U.S. Inflation Reduction Act has driven Swedish battery maker Northvolt to announce for a factory in Canada earlier than originally expected, in a concrete example of how Biden’s policy is influencing business decisions.

“It definitely played a role to accelerate our decision to expand into North America,” Paolo Cerutti, co-founder of Northvolt told CNBC.

“We always thought that we would want to do it at some point and at the beginning of last year, we really decided that this, this needed to happen faster.”

Northvolt announced Thursday it will establish a fully integrated lithium-ion battery gigafactory in the Canadian province of Quebec — its first factory outside Europe. The facility will host 60 GWh of annual cell manufacturing capacity with first operations due to start in 2026.

The $300 billion U.S. Inflation Reduction Act, often referred to as IRA, is a landmark climate and tax deal that includes green subsidies for businesses. For example, electric cars that contain at least 50% of their components made in North America (and so, Canada) qualify for tax credits, making them more attractive to consumers. Canada has also offered the Swedish battery maker its own support in the form of loans.

“Canada understood very well, that if they wanted to keep a place in this race — and batteries will play an instrumental cornerstone role in this energy transition economy — … they needed to match or to set into place a mechanism that [is] close or similar to the Inflation Reduction Act,” Cerutti, a former Tesla employee, told CNBC Wednesday.

“So I would say it has been a catalyst rather than the reason per se.”

The project is expected to cost $5 billion, with Northvolt investing $3.2 billion and the local and federal governments each contributing $1 billion.

Earlier this year, German automaker Volkswagen also announced it would open its first battery cell plant outside Europe in Canada. In choosing to do so, Volkswagen cars will also qualify for Canadian and U.S. subsidies.

Northvolt, earlier this year, was evaluating where to prioritize expansion; the choice was between North America and Germany.

Now, Europe’s biggest battery maker is forging ahead with both. German authorities also pledged state support to Northvolt back in May leading it to push ahead with plans for another factory in the north of the country. This is expected to be up and running by 2026.

When asked if the U.S. Inflation Reduction Act, announced in August 2022, played a role in pushing German authorities to do more to support Northvolt, Cerutti said: “I don’t know, honestly, how much the IRA has played into this.”

“As I mentioned earlier on, there is a growing awareness that the energy transition and the shift to a decarbonized society needs to happen much faster than what organically companies can afford in this type of investment,” he said. “It is incredibly capital intensive and technologically complex to build battery factories and governments states are stepping in more and more to actually make sure that this happens.”