VW's battery plant deal changes Canada's auto sector. Whether it's worth $13B in subsidies is debatable
CBC
German automaker Volkswagen was in the city of St. Thomas, Ont., this week, announcing details of their plan to build their first electric battery plant in North America, in a move that backers say will super charge Southern Ontario into becoming a key cog in electric vehicle supply chains.
VW's plan is undeniably huge news in St. Thomas, but whether or not you think it's enough to transform the place they call the Railway City into something more synonymous with electric cars depends on your perspective.
The sheer scale of the plan is jaw dropping. The auto maker is pledging to spend $7 billion to build a massive, sprawling complex the size of 350 football fields, "or 210 soccer fields," as Volkswagen executive Frank Blome joked. Once it's completed by 2027, the factory will have the capacity to crank out 1 million batteries per year.
It will instantly become the largest manufacturing facility in Canada, employing 3,000 people directly, and ten times that indirectly across the region, officials trumpeted at the launch event, where it was pitched as a clear win for Canada over other jurisdictions.
"Everyone wanted this," Prime Minister Justin Trudeau said. "It will be worth over $200 billion for the Canadian economy over the coming decades ... We're bringing back a strong, thriving economy for this community and we're delivering a national anchor for Canada's electric vehicle supply chain."
All that anchor-building doesn't come cheap, however, as the biggest number of all may prove to be the government's contribution to the plan: just over $13 billion, which is the value of tax subsidies that Ottawa will kick in if certain production targets are met.
The exact price tag for the federal government depends on how things go, but that $13 billion figure doesn't include another $500 million from the province.
It's an eye-popping number, but not one penny of cash from government coffers will flow until the assembly line starts moving, Industry Minister François-Philippe Champagne said.
WATCH | Minister says investment is not a blank cheque:
"First Volkswagen needs to build the $7 billion plant," Champagne said. "Then after, when the plant is built, we are going to provide production support if and when they have produced and sold a battery."
While the scale of the government investment is raising eyebrows for its size, it's the cost of doing business in the industry right now, said Sam Fiorani, vice-president of global vehicle forecasting with Auto Forecast Solutions, a U.S.-based consultancy.
"Canada has been losing out deals to states in the United States ... because they simply haven't been luring those those facilities with that kind of money."
U.S. President Joe Biden's Inflation Reduction Act was a game-changer for many industries. And the world's largest economy's pledge to dole out unprecedented tax breaks for green investments had officials in Canada and Mexico fearing the U.S. would gobble up all foreign investment in the car industry.
The seriousness of that threat can be seen in how the government structured the deal with Volkswagen: The billions of dollars in subsidies and production expense grants are only valid for as long as Biden's IRA is also in effect.
