Germany’s government will support the financing of a VW and BMW-backed battery cell factory in Sweden by Northvolt with a $525m state guarantee.

The company currently is building its first gigafactory – Northvolt Ett – in Skellefteå in Sweden, which will have a potential annual output of 40GWh, and is scheduled for a start of production next year.

Northvolt is also in the permitting process for Northvolt Zwei, a joint venture with carmaker Volkswagen that is slated to come on line in 2024 in Salzgitter, Germany, with a potential output of more than 20GWh.

Northvolt last month had already raised $1.6bn for its battery manufacturing plans through a consortium of global financiers.

The Northvolt project is an important building block for a broad and stable supply chain for electro-mobility in Germany and Europe, the German economics and energy ministry said.

European car manufacturers are keen to secure a European supply of batteries to rid themselves of their dependency on Asian producers. BMW earlier this year had signed a long-term supply contract worth €2bn ($2.3bn) with Northvolt to supply it with battery cells from Sweden.

Next to Germany, France, Japan, Korea and the European Investment Bank are taking part in the overall financing of Northvolt’s battery plant in Sweden, which will be one of the largest in Europe, the ministry added.

Germany will grant the so-called UFK-guarantee as there is an extraordinary interest in the plant for the country’s automotive and electro-mobility sector. The guarantee covers political and economic risks with up to 80% in the case of a default.

CORRECTION: an earlier version of this article misstated the guarantee sum as $825m instead of the correct $525m