Canada inks MOUs with German automakers to help meet clean transport demand

Canada’s federal government has signed new agreements with German automakers Volkswagen and Mercedes-Benz, setting the stage for exploring deeper cooperation across all stages of the automotive value chain.

Canadian Prime Minister Justin Trudeau and German Chancellor Olaf Scholz observed a signing ceremony in Toronto at an event hosted by the Canadian-German Chamber of Industry and Commerce on Tuesday.

The agreements cover all supply chain elements, from technical development and the extraction of raw materials to production, service life and recycling. Ottawa said in a news release these agreements would “help secure Canada’s position as a leading centre of excellence for the manufacturing of electric vehicles and batteries.”

The Volkswagen agreement focuses on deepening cooperation on sustainable battery manufacturing, cathode active material production and critical mineral supply. It also allows Volkswagen to set up a Canadian subsidiary for its newly formed battery company.

The Mercedes-Benz agreement focuses on enhancing collaboration with Canadian companies along the electric vehicle and battery supply chains, supporting the development of a sustainable critical mineral supply chain.

In a separate news release, Mercedes-Benz said the agreement was necessary to secure sustainable raw materials sources.

The automaker is preparing to go all-electric by the end of the decade, “wherever market conditions allow.” Because of the sharply rising electrification of the automotive sector, Mercedes has flagged demand will increase exponentially for specific and responsibly sourced raw materials, particularly cobalt, lithium, nickel, graphite, manganese and copper.

Canada is regarded as a top destination for European investors, with recent investments in the battery supply chain by companies like Germany’s BASF and Belgium’s Umicore, demonstrating strong and growing potential for collaboration in the clean technology and automotive space.

Securing metal supplies

Global battery and minerals supply chains need to expand ten-fold to meet projected critical minerals needs by 2030, an early August report published by the International Energy Agency (IEA) has found. The report concludes the industry needs to build 50 more lithium mines, 60 more nickel mines and 17 more cobalt mines by 2030 to meet global net carbon emissions goals.

Mercedes-Benz is exploring a strategic partnership with Rock Tech Lithium (TSXV: RCK) whose equity was up 14.5% on Tuesday to $4.02. The deal could allow the three-pointed star brand to supply its vendors with lithium hydroxide to meet global demand for battery electric vehicles. From 2026 onwards, as part of this foreseen partnership, Rock Tech intends to supply Mercedes-Benz and its battery partners with up to 10,000 tonnes of lithium hydroxide annually, starting with a qualification period.

“To scale up mass production of electric vehicles, we need access to raw materials. With the intended Rock Tech partnership, we are diversifying the sourcing of our raw materials as part of a direct sourcing approach to secure the lithium supply for Mercedes-Benz battery production in Europe,” said Gunnar Guethenke, Mercedes-Benz’s VP for Procurement and Supplier Quality.

“As sustainability is a central pillar of our Mercedes-Benz purchasing strategy, we appreciate that Rock Tech plans to supply Mercedes-Benz with lithium from mining sites audited to the standard of IRMA and processed with renewable energy sources.”

This intended agreement marks a decisive step for the supply of high-quality lithium to be processed in Germany. With the envisaged strategic partnership with Rock Tech, Mercedes-Benz is expected to advance the localization of European production of state-of-the-art battery cells.

Canaccord Genuity Capital Markets analyst Katie Lachapelle views the agreement as a positive, representing the first non-MOU offtake agreement for Rock Tech’s planned lithium hydroxide converter in Guben, Germany. She also believes it provides some credibility to Rock Tech’s plans and should help support project financing efforts, the analyst wrote in a note to clients.

Stuttgart-based Mercedes-Benz believes this initial supply agreement and additional future supply partnerships will be critical to help achieve its ambitious electrification goals. Mercedes-Benz is one of the world’s largest automakers, producing roughly two million units per year, and wants to go fully electric by 2030, with all new models electric from 2025 onwards. The company has committed about €40 billion in investment toward this effort.

The agreements come one week after U.S. President Joe Biden signed a plan to provide tax credits for electric vehicles produced in North America, not just those built in the United States.

They also follow a string of promised investments by other EV manufacturers into the Canadian automotive industry.

Lachapelle noted a number of OEM announcements in recent weeks, with the intent of securing lithium offtake. In her view, these announcements signal recognition by industry participants of the potential for long-term supply shortfalls in the lithium market and reflects growing competition for the security of supply. While the announcement did not come with any financial commitment, it highlights the trend that Western auto OEMs are now willing to commit more than just offtake.

More than $13 billion was promised in just eight weeks this past spring to build the needed battery supply chains and shift production from combustion-engine to plug-in vehicles. That was on top of another $3.5 billion pledged in the last four years, including for investments to make electric school and transit buses, produce and process critical minerals needed to make batteries, and to build research and development facilities.