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Mercedes-Benz and Volkswagen are looking to Canada for supplies of battery raw materials, which should help the automakers meet new eligibility requirements for the United States EV tax credit.

The recently passed Inflation Reduction Act (IRA) lays out stipulations on critical minerals, battery sourcing, domestic-content thresholds, and vehicle assembly that ratchet up starting in 2024. That means EVs will need a greater amount of American-made content—for most provisions, from U.S., Canada, and Mexico—to qualify for the $7,500 EV tax credit.

VW is due to start delivering U.S.-built ID.4 EVs soon, while Mercedes plans to build its EQE SUV and EQS SUV in Alabama starting later this year. But this week the two automakers also announced deals that should move more of the battery supply chain to North America, potentially satisfying IRA stipulations.

2023 Mercedes-Benz EQS SUV2023 Mercedes-Benz EQS SUV

VW on Tuesday signed a memorandum of understanding (MoU) with the Canadian government to “investigate opportunities for Canada to contribute to Volkswagen’s global and regional battery supply chains,” the automaker said in a press release, adding that its PowerCo battery division will establish a dedicated liaison office in Canada.

“A key focus of cooperation is the supply of critical raw materials such as lithium, nickel and cobalt,” the release said.

Mercedes announced its own MoU with the Canadian government the same day as VW, focusing on mining and refinement of raw materials as well as cell manufacturing, the automaker said in a press release.

Volkswagen ID.4 built at ChattanoogaVolkswagen ID.4 built at Chattanooga

“The purpose of the MoU is to promote cooperation and to explore ways to advance opportunities across Canada’s electric vehicle supply chain, including, but not limited to securing sustainable sources of raw materials,” the release said.

Mercedes said it was also poised to sign an agreement with Canadian-German firm Rock Tech Lithium for an annual supply of up to 10,000 metric tons (11,023 U.S. tons) of lithium hydroxide for batteries beginning in 2026.

These announcements come just under a month after General Motors announced a major battery-material supply agreement, which the automaker said will provide it with enough raw materials for 1 million EVs annually by 2025. Ford said last month that it would significantly boost EV production to meet demand, relying partly on localized production of lithium iron phosphate (LFP) battery cells for specific markets.

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