Volkswagen is being pulled in two directions across North America. In the United States, billions of euros in tariff costs have made local production more attractive, reviving the long-running question of whether Audi should finally get its own U.S. factory. Reuters reported on September 25 that the issue remained unresolved as Volkswagen’s supervisory board prepared to review the group’s American strategy. In Canada, meanwhile, Volkswagen battery subsidiary PowerCo has pushed the planned start of production at its St. Thomas, Ontario, gigafactory to 2029 from the original 2027 target.
The two projects are not direct substitutes—one concerns vehicle assembly and the other battery cells—but they reveal the same pressure. Trade barriers, shifting EV demand, expensive technology transitions and tighter capital discipline are forcing Volkswagen to reconsider where it builds, what it builds and how quickly it commits billions of dollars.
Audi’s U.S. Factory Question Is Back at Center Stage
Audi’s U.S. production question has moved from a long-term possibility to a strategic decision. Reuters reported on September 25 that Volkswagen’s supervisory board needed to settle whether its premium brand should receive a U.S. production site. Any such project would require board approval, meaning the factory is not yet a committed investment. The renewed attention comes after more than a year of discussion about reducing Audi’s exposure to vehicles imported into the United States.
Earlier reporting showed how substantial the choice could be. In June 2025, Reuters cited Spiegel in reporting that Audi was examining a plant in the southern United States, with one scenario estimated at as much as €4 billion. Audi said at the time it was evaluating options without announcing a decision. That caution matters. A factory headline may sound definitive, but Volkswagen is weighing a capital-intensive response to tariffs rather than unveiling a shovel-ready Audi plant.
Tariffs Have Become a Multi-Billion-Euro Operating Problem
The financial case for localization starts with a number Volkswagen has already disclosed. In its 2025 annual report, the group said higher U.S. import tariffs created €2.9 billion in expenses in the year. Those charges reflected duties on vehicles and parts plus related inventory and warranty effects. The burden was large enough for Volkswagen to identify tariffs as one of the main reasons its operating result weakened in 2025.
By May 2026, chief executive Oliver Blume was describing the pressure in larger terms. Reuters reported that he estimated tariffs were reducing Volkswagen’s annual operating profit by roughly €5 billion, although he did not specify whether that estimate assumed only existing duties or also a threatened increase. For the group, the direction is clear: importing large volumes into the United States has become materially more expensive. A U.S. Audi plant would be an attempt to change that cost structure over time.
Audi’s Production Map Leaves It Especially Exposed
Audi is unusually exposed because it does not have a dedicated U.S. assembly plant. Its most important North American production base is San José Chiapa, Mexico, where the Q5 is built. Audi says the factory produced 146,784 vehicles in 2025. The Q5 is especially significant because Audi’s 2025 report identified it as the brand’s best-selling model worldwide, with more than 276,000 deliveries despite model changes and tariff pressure in the United States.
The sales data show how painful the environment became. Audi delivered 202,143 vehicles in North America excluding Mexico in 2025, down 12.2 percent. In the first quarter of 2026, deliveries in that region fell 27 percent to 35,464, with Audi attributing the decline primarily to U.S. tariffs and the end of electric-car subsidies. By the first half, North American deliveries stood at 82,187, down from 98,712 a year earlier. That leaves Audi dependent on cross-border supply for customers.
Volkswagen Is Rebuilding North America Around Local Production
An Audi factory would sit inside a much broader Volkswagen reset in North America. The group’s Future Plan 2030 says Volkswagen will strengthen its focus on the U.S. market, position Audi around premium SUVs and concentrate American portfolios on higher-volume, higher-margin segments such as midsize and larger SUVs and pickups. The plan also explicitly calls for greater emphasis on local production, making the Audi debate part of a group-wide industrial strategy rather than an isolated brand decision.
Volkswagen is already changing its footprint. The company ended U.S. production of the electric ID.4 in Chattanooga in 2026 and is refocusing that Tennessee plant on combustion-engine models including the Atlas. At the same time, Volkswagen-backed Scout Motors is building a $2-billion factory in Blythewood, South Carolina. Scout says the plant is designed for up to 200,000 vehicles annually and at least 4,000 permanent jobs, with initial production targeted for 2027 at present.
A New Audi Plant Would Be Expensive—and Slow
Building a factory could reduce some tariff exposure, but it would create a different set of costs. The 2025 Reuters report on Audi’s options put the most expensive new-site scenario at up to €4 billion. Handelsblatt later reported that Audi had also examined a “twin” facility near Volkswagen’s Chattanooga operation, where shared logistics and planning could reduce cost and construction time. Even that concept was described as a multi-year project rather than a quick tariff fix.
That timing matters because factories cannot neutralize duties overnight. Site selection, permitting, supplier localization, construction, tooling and model launches all take years, while tariffs affect vehicles already crossing the border. Volkswagen therefore has to compare the recurring cost of importing Audis with the upfront cost and long payback period of local assembly. The calculation also depends on demand: a plant only works economically if enough high-margin vehicles can keep its lines busy for years.
Germany’s Cost-Cutting Drive Complicates the U.S. Bet
The difficulty is that Volkswagen is considering new U.S. investment while cutting deeply elsewhere. Its Future Plan 2030 calls for roughly 50,000 job reductions across roughly 170 companies, with around half in Germany. The plan targets a 50 percent reduction in the model portfolio by 2035 and sets a €135-billion five-year envelope for capital spending and research and development from 2027 through 2031. Every large factory proposal now competes inside a more disciplined investment framework.
Financial pressure has intensified it. In September, Volkswagen cut its 2026 operating-margin forecast to no more than 1 percent after flagging €10 billion in one-offs tied mainly to Porsche, restructuring and deteriorating conditions in China. U.S. tariffs are not the only problem, but they add another drain on earnings. For management, approving an Audi plant means arguing that spending billions in America can improve returns while the group is simultaneously shrinking capacity and headcount elsewhere.
St. Thomas Is Moving Forward, but on a 2029 Clock
While Audi’s U.S. question remains unsettled, the timetable in St. Thomas has become clearer—and later. On September 24, PowerCo Canada said its planned battery-cell gigafactory is now expected to begin operations in 2029, two years after the 2027 target announced when the project was unveiled. The company said the additional time would accommodate next-generation battery technology and preserve flexibility to scale production as market conditions evolve.
The project itself is still moving forward. PowerCo named Mississauga-based EllisDon as general contractor and said construction would proceed into core infrastructure and structural work. Volkswagen originally described St. Thomas as an investment of up to C$7 billion, with potential final capacity of as much as 90 gigawatt-hours a year—enough cells for about one million EVs—and up to 3,000 direct jobs. The latest delay changes the timing, but PowerCo continues to call St. Thomas a cornerstone of its North American strategy for the group.
Public Support Makes the Canadian Timeline More Sensitive
The St. Thomas delay carries extra weight because Canadian governments attached major public support to the project. Ottawa committed up to C$700 million through the Strategic Innovation Fund for capital expenditures, while Ontario announced C$500 million in direct incentives. Canada and Ontario later said Volkswagen could receive up to C$13 billion in performance incentives tied to battery production, with the two governments sharing that support under their auto pact.
Those production incentives were designed to mirror the U.S. Inflation Reduction Act’s battery-cell credit and were never structured as an unconditional lump-sum payment. Government documents said support would depend on batteries being produced and sold, with the incentive phasing down beginning in 2030. That structure makes the new 2029 start date especially relevant: the timing and pace of actual output will help determine the eventual public cost. The governments have not publicly detailed how the revised schedule changes the confidential agreements.
The EV Market Is Growing, but Not in a Straight Line
The delay does not mean Canadian EV demand has disappeared. Statistics Canada reported 58,811 new zero-emission vehicle registrations in the second quarter of 2026, up 26.7 percent from a year earlier. ZEVs represented 10.7 percent of all new registrations, while battery-electric registrations rose 37.4 percent year over year. July sales data showed the same 10.7 percent ZEV share, with unit sales up 36 percent from July 2025.
The United States presents a different picture. Cox Automotive estimated that new EV sales represented 5.7 percent of U.S. new-vehicle sales in August 2026 and were down 46.9 percent from the unusually strong year-earlier period, when buyers had rushed to capture an expiring federal tax credit. These mixed signals help explain why battery makers are emphasizing flexibility. PowerCo has explicitly linked St. Thomas’s later start to evolving demand and technology, rather than declaring its North American battery strategy abandoned outright at this stage.
What Happens Next Will Be Measured in Concrete Commitments
The next signals will be concrete commitments rather than strategic language. For Audi, that means board approval, a site, an investment budget, assigned models, capacity and a production date. Until those pieces appear, the U.S. factory remains unapproved. Volkswagen’s plan nevertheless points toward more local production and a U.S. mix weighted toward premium SUVs, larger SUVs and pickups, so the direction is easier to see than the industrial footprint.
For Canada, the question is different because St. Thomas is under construction. Attention now shifts to whether PowerCo holds the 2029 start, its initial capacity and how employment and production scale. The latest announcement confirmed EllisDon and continued construction but did not restate the original 90-GWh final capacity or 3,000-job target as 2029 launch commitments. That leaves North America with two Volkswagen decisions moving on different clocks: one factory still being weighed, and one battery project being paced more slowly.
