Ontario covering one-third of incentives for both Stellantis and Volkswagen plants

The Ontario government has agreed to federal demands to put more provincial money on the table to save the Stellantis-LG electric vehicle battery plant in Windsor and help subsidize the Volkswagen battery plant in St. Thomas, Ont.

The new auto pact between the Canadian and Ontario governments will see the province cover one-third of the production incentives for both plants, rewriting the terms of the Volkswagen deal, which was initially announced in April.

The deal between the two governments, announced Thursday, is a product of months of negotiations between the two levels of government and the companies involved.

“Ontario has stepped up on both Stellantis and VW and is paying a full third for each of those two projects,” Deputy Prime Minister Chrystia Freeland told a news conference in Vancouver on Thursday. “This is a great day for Canada.”

Stellantis and LG announced Wednesday that they had reached a deal with Canada and Ontario for their $5-billion plant.

The two governments say the agreement will see the companies receive performance incentives of up to $15 billion over about 10 years. Volkswagen could receive up to $13 billion in incentives under its deal.

A federal government source said Ottawa signalled to the Ontario government as early as last fall that there was an expectation the province would have to pay more to land the battery plants.

The source said that expectation was reiterated in a letter sent to the provincial government in January as all parties moved to finalize the Volkswagen deal. The source said Ottawa didn’t want to be seen paying 100 per cent of the costs in a deal that primarily benefited one province.

Multiple federal sources said this was the expectation even after the Volkswagen deal was announced with no defined provincial contribution to the production subsidies that helped close the deal to build the gigafactory in St. Thomas, Ont.

“When it comes to Volkswagen, what we said to Ontario is … listen, this is a generational opportunity” Industry Minister François-Philippe Champagne told CBC’s Power & Politics on Thursday. “This is probably the biggest transformation we’ve seen in the industrial landscape in modern times, and therefore we need to be in this together.”

Stellantis and LG stopped construction on the facility in May as they pressed the federal government to match what the United States would offer under its new Inflation Reduction Act.

When that happened, the federal government saw it as an opportunity to secure a greater provincial investment in the Volkswagen plant, the source said.

Champagne would focus on dealing with the companies, the source said, while Freeland would focus on Ontario Premier Doug Ford.

Deal sealed in early morning phone call

A second federal source with knowledge of the negotiations described the increased financial commitment from Ontario in both the Stellantis and Volkswagen projects as a “line in the sand” for Freeland.

Freeland stressed this in her many calls with Ford. The source said Freeland argued that it only made fiscal sense for the federal government if Ontario paid a greater share.

And because the jobs and benefits from both projects mostly go to Ontario, Freeland said, an increased investment by the provincial government was “a matter of national fairness.”

Freeland and Ford have a good relationship and — as the Toronto Star has reported — their personal rapport was critical to breaking the federal-provincial logjam on these deals.

The source said the breakthrough with Ontario came during a phone call between Freeland and Ford in the early-morning hours of May 31.

Later that day, the Star broke the news of a tentative deal to save the Stellantis plant.

On Thursday, Freeland personally thanked Ford for his contribution to the project.

“He and I exchanged happy text messages this morning. We had some middle-of-the-night phone conversations to get there,” she said. “He understood that to make these projects happen, it was going to be necessary for Ontario to do its part too.”

Vic Fedeli, Ontario’s minister of economic development, job creation and trade, told CBC News Wednesday the deal helps Ontario remain competitive on the global stage.

“Quite frankly, what we ended up with is a brand new agreement between the province and the feds to secure these jobs,” Fedeli said.

“That’s a good deal for the workers. It’s a good deal for the industry. It protects thousands of jobs, especially in Windsor,” he added, noting the deal is conditional on the continuation of the U.S. Inflation Reduction Act.

The province also made a $500-million capital commitment to the Stellantis plant.

‘One or two’ more large projects to come

Champagne said the government is looking to attract “one or two more” similar projects.

“There will probably be one or two more, but that’s going to be it, because that’s what Canada can afford,” he said. “We’re talking to everyone … We’re going to be very selective.

“We cannot afford to do what the United States did, but we want to keep our fair share of the auto sector in North America.”