Batteries, Budgets, and a Boon for the Canadian Auto Sector

3 minute read

Last Monday, Volkswagen (VW) announced that its subsidiary PowerCo would establish an electric vehicle (EV) battery manufacturing facility in St. Thomas, Ontario, garnering much fanfare among the government and the automotive sector. 

Automakers are once again turning to North America to establish production facilities to reduce the costs of manufacturing and transporting their electric vehicles, while simultaneously reducing the risks associated with disrupted supply chains. The facility is the automaker’s first battery cell production plant outside Europe. Geographically, St. Thomas boasts easy access to the U.S. via the nearby Ambassador Bridge in Windsor, Ontario, making it a strategically expedient trade route for American retailers. 

Federal Innovation Minister François-Philippe Champagne and Ontario Economic Development Minister Vic Fedeli led the intense, year-long bidding process, which included rallying against fierce competition from U.S. automakers after Biden introduced the Inflation Reduction Act (IRA) last fall. By providing over $350 billion in financial incentives to consumers, manufacturers, and retailers, the IRA has made competing for investment across various sectors complicated.

Shortly after its implementation, many economists expressed concern about the IRA’s impact on Canadian investment. The Canadian Chamber of Commerce noted that although the IRA’s tax credits for electric vehicles with 100 percent North American-made batteries encouraged investments in localized supply chains, Canada would still struggle to scale its current infrastructure and meet the demand. 

Fast forward six months and the government managed to overcome the challenge and secured the largest single investment in Canada’s automotive sector – but at an undisclosed cost. In a joint statement, Champagne and Fedeli applauded Ontario’s competitive business environment, skilled workforce, and ‘abundant’ critical mineral supply as part of the ideal ecosystem for electric vehicle supply chains. 

As the confetti settles, one question remains unanswered: how much did the government(s) offer in subsidies to close the deal? Despite promises of job creation and long-term economic growth, the exact amount of public funds poured into this project remains shrouded in secrecy.

When pressed for more information, Champagne and Fideli remained tight-lipped, stating the details were too “commercially sensitive” and releasing them could negatively impact ongoing negotiations and future investments in the sector. Until then, Canadians are left with analysts’ estimates which believe that the government’s financial contribution likely mirrors an amount provided to Stellantis.

Industry experts have said that Volkswagen’s shortlist was incredibly competitive and winning the bid goes far in boosting Canada’s reputation as a serious contender for global investment. Many believed that intensifying geopolitical relations and the lack of a public funding commitment would weaken consideration, but the Canadian government remained hopeful, and it either paid off or they paid VW enough to sweeten the deal. We don’t quite know what got Canada over the line.

Recent EV manufacturing commitments have involved companies already producing parts for gas-fuelled vehicles in Canada. However, securing a new commitment from one of the world’s largest automakers without any previous production facilities sends many positive signals about skill, readiness, and opportunity within Canada. VW can still take advantage of the IRA’s incentives without restricting themselves to U.S. locations, in large part because of Deputy Prime Minister and Finance Minister Chrystia Freeland’s unrelenting advocacy on behalf of the Canadian automotive industry. 

Canadian stakeholders and government officials hope the announcement bolsters an international reputation that will attract additional investment to help scale mining and manufacturing efforts across Ontario and the rest of the country. Only time, and financial disclosures, will tell us if the deal was truly worth it.  With the Ontario budget set to be tabled on March 23, the federal budget on March 28, and details on the deal coming shortly after that, Canadians might not have to wait that long after all.

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