Subaru is close to deciding where to build its electric vehicle plant in the United States, an initiative that’s a key element of its electrification strategy, the carmaker’s president has said.

While the current base of Indiana is a top candidate, the company is considering the location based on the procurement of onboard batteries and incentives from state governments, Atsushi Osaki said in a group interview. "The time is approaching for us to finally make a decision,” he said.

Subaru’s EV production is scheduled to begin as early as 2027 in the U.S., where sales of electrified vehicles are expanding, especially in California. In August, Subaru said battery EVs will account for 50% of global sales — or 600,000 units — by 2030.

Osaki said that while the spread of EVs in the U.S. varies from state to state, "there is no doubt that the trend is moving in the direction of EVs.”

However, it is difficult to predict whether EV sales in the U.S. will continue to grow steadily or reach a plateau, so the company intends to build a flexible production system, he added.

Procurement of batteries, is a key question. Toyota, which has a stake in Subaru, and Panasonic Holdings, which is in talks to supply batteries, are candidates for suppliers. The choice of the U.S. EV production site will be made "after we decide whether we will procure the batteries through Toyota or our own route,” Osaki said.

U.S. states are competing to attract EV and battery factories by offering tax credits, subsidies and other incentives because of the huge investment and job creation that will result. Osaki met with Gov. Eric Holcomb of Indiana, where Subaru’s plant is located, when he visited Japan earlier this month and "received various proposals,” including one for EV production.

Indiana, a state that has been Subaru’s partner for about 35 years, is "naturally a prime candidate” for an EV production base, he said, adding that he’s considering a wide range of production locations.

There are concerns that profit margins at carmakers will decline with the advent of EVs due to the high cost of batteries and other factors. Subaru is forecasting an operating profit margin of 7.1% for the current fiscal year through March, slightly below that of Toyota, the world’s largest automaker, but above that of Nissan and Honda.

In its medium-term management plan announced in May 2021, Subaru had said it was aiming for "an industry-leading operating margin” of 8%, but the policy announced in August did not specify a numerical target.

Tatsuo Yoshida, a Bloomberg Intelligence analyst, said that "as output recovers, rising unit sales, stabilizing cost of materials and a cheap yen could enable Subaru to maintain near-term margins in the high single digits.” Still, "medium-term profit may come under pressure” given that Subaru plans to invest about ¥1.5 trillion ($10.2 billion) by 2030 for electrification, Yoshida said.