What’s going on with subsidized EV battery factories in Ontario?
With the recent announcement that Stellantis and LG Energy Solution are moving ahead with construction of their electric vehicle (EV) battery plant in Windsor, Ontario following a financing agreement with Ottawa and the Ontario government, plans are now underway for two large EV batteries factories to be built in the province, both of which have received significant government funding.
The federal government first announced in March that PowerCo, a subsidiary of Volkswagen, would build the European auto giant’s first overseas battery cell plant in St. Thomas, Ont., after receiving a number of grants from Ottawa.
The federal government said it was heavily competing with other countries, including the United States, to entice Volkswagen to select Canada for the new plant.
Industry Minister François-Philippe Champagne later confirmed that Ottawa has pledged up to $13.2 billion in grants and a $700 million grant to incentivize Volkswagen to choose Canada as the site for the plant.
Prime Minister Justin Trudeau said Canada had to offer the car giant a significant amount of subsidies because other countries were willing to offer “an awful lot of money” for the battery plant.
Mr. Trudeau and Mr. Champagne defended the high expenditure by pointing to the factory’s estimated output.
The EV battery factory is estimated to produce batteries for up to 1 million electric vehicles per year once built by 2027. Ottawa also estimates it will create 3,000 direct jobs and 30,000 indirect jobs.
Stellantis
In addition to 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 deal came months after the two companies halted construction of the plant as they sought more government subsidies to compete with what was being offered in the US because of the country’s new Inflation Reduction Act.
The new agreement between the two companies and Ottawa and the Ontario government essentially matches what they would have received in terms of government funding if they had built the plant in the US, according to Ontario’s Minister of Economic Development Vic Fedeli.
“We heard that Stellantis expects if they were in the United States they would receive $15 billion in tax breaks over time, so that would be expected in Canada,” Fedeli previously said.
The time frame for releasing all those government grants is about 10 years, he said. The federal government pays two-thirds of the cost, with the Ontario government paying the rest.
Mr Champagne and Deputy Prime Minister Chrystia Freeland said the new plant “will create thousands of jobs – both in the automotive sector and related industries across Canada – and further solidify Canada’s position as a leader in the global electric vehicle supply chain . ”
The plant was originally slated to cost $5 billion when announced in spring 2022, with the Ontario and federal governments each contributing $500 million toward the cost of construction.
However, Stellantis and LG Energy wanted a deal similar to Volkswagen’s in March, forcing the federal and Ontario governments to renegotiate.
Reasons for grants
The decision to heavily subsidize both the Volkswagen and Stellantis plants comes as the federal government wants to accelerate a number of critical mining projects to tap natural resources such as lithium, copper and nickel.
In addition, all three of these minerals must be available in abundance if Ottawa is to meet its target of net zero greenhouse gas emissions by 2050, as they are necessary materials for the production of EV batteries, solar panels, wind turbines and other low-carbon technologies. .
Secretary of Natural Resources Jonathan Wilkinson released Ottawa’s new strategy for the extraction and processing of such critical minerals in December 2022. The strategy is designed to streamline mining project approval processes, as it can take up to 25 years for a mining project to become operational.
Mr. Wilkinson said at the time of the publication of the new strategy that a number of Western countries, including Canada, want to open up new avenues for obtaining critical minerals in order to become less dependent on a “small number of non-democratic jurisdictions”. for them.
Shortly before Mr. Wilkinson unveiled the new strategy, Mr. Champagne three Chinese companies to divest their shares of Canadian lithium companies as a measure to secure Canada’s critical mineral 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 mineral supply chain, federal conservatives have criticized the Liberal government’s decisions to grant Volkswagen and Stellantis large subsidies for its battery factories.
After the Volkswagen deal, Conservative party leader Pierre Poilièvre said the money the federal government invested “belongs to Canadians, not a foreign company”.
“How much of the Canadians’ money is he giving to this foreign company? How many jobs? How much does it cost per job?” Poilièvre said in April.
While the government estimated that the Volkswagen plant would cost taxpayers about $13 billion, parliamentary budget officer Yves Giroux said in a report a few months later that it will cost more than $16 billion due to $2.8 billion in tax adjustments that he said that Ottawa had not taken it into account.
Giroux also said Canada will enjoy only “marginal” economic benefits from the new Volkswagen plant when it is completed in several years.
“We estimate that the factory will increase Canadian real GDP by 0.01 percent by 2027 from the baseline projection and add approximately 1,400 jobs by the same time,” Giroux wrote in a June 14 press release.
Tara MacIsaac, Rahul Vaidyanath and The Canadian Press contributed to this report.
