A $13.2 Billion Subsidy Is Pledged By Canada for VW's Battery Plant

There has been an announcement by the Prime Minister of Canada Justin Trudeau on Friday that Volkswagen will make the decision to build its first overseas battery plant in St. Thomas, Ontario, with up to 13.2 billion Canadian dollars in subsidies over a period of ten years.

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While international trade partners have worked to maintain subsidies under the ambitious Inflation Reduction Act (IRA) amid fears that the act will create inflation, Washington has reacted with production support that matches incentives provided by President Biden's administration.

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The act that funnels some $370 billion into subsidies for the United States' energy transition has already led to concerns among European leaders that more European companies could move to the US due to its benefits.

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It is with great pride that I am pleased to tell you that the launch of this historic project represents more than just bringing back manufacturing. It signals the start of a strong, thriving economy in this community, and it signals the arrival of a national anchor for Canada's electric vehicle supply chain," said Trudeau at a news conference on Friday.

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A generational investment, he said, was put into the new plant, which will generate value of about Can$200 billion over the next few years and be a major boost to the local economy.

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It is expected that the investment of Ottawa will be fully repaid to Ottawa within five years, according to François-Philippe Champagne, the minister of Industrie.

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A report from Volkswagen's office indicates that the company is investing a total of Can$7 billion in building the plant in St. Thomas, which will be the largest electric vehicle-related investment ever in Canadian history, according to a statement issued by Trudeau's office. The facility will cover 370 acres of land, or about the size of 200 soccer fields.

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There are plans for the construction of the nation's largest manufacturing facility next year, while the production of batteries for up to one million electric vehicles with be ramped up by 2027 when production will begin for what is expected to be the biggest facility in the country.

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According to a statement released by the project, there will be approximately 3,000 direct jobs created by the plant along with approximately 30,000 indirect jobs.

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In addition to this, VW is establishing a number of battery plants across Europe, the first of which is scheduled to open this year in Sweden, followed by the second in 2025 in Salzgitter, Germany, where the second plant will be built.

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The Volkswagen Group has been working hard on reducing its reliance on Asia in its supply chain by setting up its own battery plants.

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Additionally, it is facing a tough battle to make sure the electric vehicle market remains dominant for years to come against US rival Tesla.

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A total of more than 25 different electric vehicles are planned to be introduced in the United States under the different brands owned by Volkswagen by the end of the decade.

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As of 2030, the Canadian government will begin phasing out the funding that it has provided to the battery industry, helping up to Can$8 billion, and up to Can$13.2 billion -- depending on the level of battery production -- after which the funding will be totally eliminated as of 2032.

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There has also been an agreement between the Ontario province and the plant for the amount of C$500 million.

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The government of Canada has been making some serious moves to attract automakers to the country by showcasing a variety of tax incentives, the abundance of critical minerals, and the clean energy sector.

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A few days ago, during an interview about the Inflation Reduction Act, Justin Trudeau told reporters that he thought the Canadian economy could not compete on a global scale with the Inflation Reduction Act.

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"Although we can step up and compete directly in some industries, and make sure that we get through the door, we can contribute to the economy in a positive way, and we have been very strategic about it," said he.

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In light of the unrest that has taken place abroad, like that sparked by Russia's invasion of Ukraine, he believes that people need to be reminded that we need to be manufacturing things here at home as well as fostering reliability in our supply chains.

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In addition to Volkswagen, Stellantis (formerly Fiat Chrysler and the French PSA Group) has also partnered with LG Energy Solution on a new battery plant in Canada, while Michelin has announced plans to expand its factory here in Flanders, Canada.

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Also, General Motors is in the process of signing an agreement to supply Canadian nickel to electric vehicles through a long-term supply agreement with Brazilian mining giant Vale.

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As well as that, Ford announced earlier this month that the company will retool its assembly plant in Oakville, Ontario to manufacture electric cars and batteries for the North American market for Can$1.8 billion.