Canada outbids U.S with billions in subsidies for Volkswagen EV battery plant

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By Robin MacLennan

Ontario Construction Report staff writer

Volkswagen’s first North American battery plant for electric vehicles will be built in St. Thomas, and Prime Minister Justin Trudeau and Premier Doug Ford admitted in April that Canada was in “a bidding war” with the United States for the project.

“We put up a lot of money,” Trudeau said at a news conference in St. Thomas, where six assembly lines covering 370 acres will be built. “Everyone wanted this.”

Volkswagen announced last month that it would put its first battery plant outside Europe in Canada, investing $7 billion.

On Friday, Trudeau and Ford the company will receive a combined $1 billion to construct the factory, which will cost $7 billion overall.

Also, an agreement will provide $8 billion to 10 billion in subsidies over the next decade, matching available benefits that Volkswagen would have received under the Inflation Reduction Act in the United States.

While it was impossible for Canada to broadly match U.S. industrial subsidies, Trudeau said the deal “came out of a policy decision by Canada to strategically challenge its neighbor.”

“Congratulations from our side for outperforming the competition and bringing this gigafactory to St. Thomas,” said Frank Blome, the chief executive of PowerCo, Volkswagen’s battery subsidiary. “That wasn’t easy.”

The plant will be the second major battery operation in Ontario. Stellantis and South Korean company LG Energy Solution are building a factory in Windsor, where Stellantis also has a large assembly plant that Chrysler built. That factory, which will employ 2,500 people and start production next year, also received substantial government subsidies toward its cost of 5 billion Canadian dollars.

Once complete in 2027, the Volkswagen plant will produce batteries for up to one million electric vehicles per year, bolstering Canada’s domestic battery manufacturing capacity to meet the demand for electric vehicles now and into the future. The plant, which will generate about $200 billion in value, will be the largest manufacturing plant in Canada. Construction is expected to begin next year.

Ontario will invest in other important infrastructure projects across the region, including improvements to roads, highways, utility services, and police and fire services.

To support Volkswagen’s investment, the Government of Ontario is providing $500 million in direct incentives to the company and investing hundreds of millions of dollars more to strengthen and grow St. Thomas and the surrounding communities. This includes infrastructure improvements to roads, railways, water, electricity, and police and fire safety.

“North America plays a key role in our global battery strategy. The region will become PowerCo’s second pillar beside Europe, with battery cells made in North America for North America. Gigafactory St. Thomas opens the door to a key market for e-mobility and battery cell production. We aim to make PowerCo a global player in the battery business and to pave the way for clean, sustainable mobility. Gigafactory St. Thomas is an important milestone in our roadmap,” said Thomas Schmall, Volkswagen Group board member for technology.

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