EXPLAINER: What’s Going on With Subsidized EV Battery Plants in Ontario?

Prime Minister Justin Trudeau tours the Stellantis Windsor (Chrysler) Assembly plant in Windsor, Ont., Jan. 17, 2023. The Canadian Press/Nicole Osborne

With the recent announcement that Stellantis and LG Energy Solution will be moving forward in building their electric vehicle (EV) battery plant in Windsor, Ont., following a financing deal with Ottawa and the Ontario government, there are now plans for two large EV battery plants to be built in the province, both of which have received significant government funding.

The federal government first announced in March that PowerCo, which is a subsidiary company of Volkswagen, would be building the European auto giant’s first overseas battery cell plant in St. Thomas, Ont., after receiving a number of subsidies from Ottawa.

The federal government said it heavily competed with other countries, one of which was the United States, to entice Volkswagen to select Canada for the new plant.

Industry Minister François-Philippe Champagne later confirmed that Ottawa has committed up to $13.2 billion in subsidies and a $700 million grant to incentivize Volkswagen to choose Canada for the plant’s location.

Prime Minister Justin Trudeau said Canada had to offer the auto giant a significant sum in subsidies because other countries were willing to offer “an awful lot of money” for the battery plant.

Mr. Trudeau and Mr. Champagne defended the heavy spending by pointing toward the factory’s estimated output.

The EV battery plant is estimated to produce batteries for up to 1 million electric vehicles per year once it has been built by 2027. Ottawa is also estimating that it will create 3,000 direct jobs and 30,000 indirect jobs.

Stellantis

Besides the planned Volkswagen plant, the federal government also announced in early July that it had finally reached a “binding” financing agreement with Stellantis and LG Energy Solution for another EV battery plant in southern Ontario.

The agreement came several months after the two companies had halted construction on the plant as they sought more government subsidies to compete with what was being offered in the U.S. because of the country’s new Inflation Reduction Act.

The new deal struck between the two companies and Ottawa and the Ontario government essentially matches what they would’ve received in terms of government funding should they have built the plant in the U.S., according to Ontario Economic Development Minister Vic Fedeli.

“We’ve heard that Stellantis expects, if they were in the United States, over the course of time, they would receive $15 billion in tax breaks, so that would be expected in Canada,” Fedeli previously said.

The time frame for all those government subsidies to be released is about 10 years, he said. The federal government will field two-thirds of the cost, while the Ontario government will pick up the rest.

Mr. Champagne and Deputy Prime Minister Chrystia Freeland have said the new plant will create “thousands of jobs—both in the auto sector and in related industries across Canada—and will further solidify Canada’s place as a leader in the global electric vehicle supply chain.”

The plant was originally budgeted to cost $5 billion when announced in the spring of 2022, and the Ontario and federal governments were each going to contribute $500 million each towards construction costs.

However, Stellantis and LG Energy wanted a deal similar to the one Volkswagen secured in March, which forced the federal and Ontario governments to re-negotiate.

Reasons for Subsidies

The decision to heavily subsidize both the Volkswagen and Stellantis plants comes as the federal government looks to speed up a number of critical-mineral mining projects to tap into natural resources like lithium, copper, and nickel.

Furthermore, all three of these minerals must be abundant if Ottawa is going to meet its target of net-zero greenhouse gas emissions by 2050, as they are necessary materials for manufacturing EV batteries, solar panels, wind turbines, and other low-carbon technologies.

Natural Resources Minister Jonathan Wilkinson released Ottawa’s new strategy for mining and processing critical minerals like these in December 2022. The strategy aims to streamline the approval processes for mining projects, as it can take up to 25 years for a mining project to become operational.

Mr. Wilkinson said at the time of the new strategy’s release that a number of western countries, including Canada, are looking to open up new avenues for obtaining critical minerals so as to become less dependent on a “small number of non-democratic jurisdictions” for them.

Shortly before Mr. Wilkinson unveiled the new strategy, Mr. Champagne ordered three Chinese companies to divest themselves of their shares in Canadian lithium companies as a measure to safeguard Canada’s critical minerals supply chain.

“We will act decisively when investments threaten our national security and our critical mineral supply chains, both at home and abroad,” Mr. Champagne said at the time.

Criticism

However, despite opposition support for Ottawa taking steps to protect the country’s critical minerals supply chain, the federal Conservatives have criticized the Liberal government’s decisions to offer large subsidies to Volkswagen and Stellantis for the battery plants.

Following the Volkswagen deal, Conservative Party Leader Pierre Poilievre said the money the federal government invested “belongs to Canadians, not to a foreign corporation.”

“How much of Canadians’ money is he giving to this foreign corporation? How many jobs? How much is the cost per job?” Poilievre said in April.

Although the government estimated the Volkswagen plant would cost taxpayers around $13 billion, Parliamentary Budget Officer Yves Giroux said in a report several months later that it will cost over $16 billion due to $2.8 billion in tax adjustments that he said Ottawa did not account for.

Giroux also said Canada will only enjoy “marginal” economic benefits from the new Volkswagen plant once it is completed in several years.

“We estimate the plant will increase real GDP in Canada by 0.01 percent above its baseline projection by 2027 and will add around 1,400 jobs by the same time,” Giroux wrote in a news release on June 14.

Tara MacIsaac, Rahul Vaidyanath, and The Canadian Press contributed to this report.