VW’s $20-billion Ontario battery factory launched with big talk, goals, subsidies
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Apr 22, 2023
Emma Jarratt

At Friday’s announcement in St. Thomas, the automaker, Prime Minister Trudeau, Ontario Premier Ford and local leaders detailed joint investment plans and anticipated returns for a plant that will occupy a sprawling 370-acre site and make one million batteries

Volkswagen and the Canadian government have put a price tag on the automaker’s 90 GWh battery cell factory in St. Thomas, Ont.: $20 billion dollars. Photo: Volkswagen

At Friday’s announcement in St. Thomas, the automaker, Prime Minister Trudeau, Ontario Premier Ford and local leaders detailed plans and returns for a plant that will occupy a sprawling 370-acre site and make one million batteries

Volkswagen and the Canadian government have put a price tag on the automaker’s 90 GWh battery cell factory in St. Thomas, Ont.: $20 billion.

The announcement came at a St. Thomas press conference with top VW executives and the highest-ranking officials of the federal and Ontario governments. The factory was first announced in March, but with no financial disclosure.

The project will be the largest battery manufacturing plant in the country upon completion and the single largest investment in Canadian automotive history. The venture may create up to 3,000 direct jobs and 30,000 indirect jobs. It could cost taxpayers up to $13.2 billion in subsidies over 10 years.

Winning the plant, say government officials, is the result of stakeholder collaboration to out-muscle hundreds of other jurisdictions in North America.

“We knew the U.S. was our competition. It was a 1-2-3 punch,” says Vic Fedeli, Minister of Economic Development, Job Creation and Trade of Ontario, in an interview with Electric Autonomy.

“Our job, as a province, is really to compete province to state. We needed to put together a provincial package that included all of the discussions with Volkswagen about our ecosystem. We knew the federal government would have to deal with any money coming out of the U.S. federal government. And, from our perspective, the municipalities also came to the table in assisting in any way to combat what any U.S. municipality would have.”

Volkswagen’s factory is being built under PowerCo SE, the German automaker’s battery company. It runs a liaison office in Toronto.

Volkswagen says that, at full scale, the factory will have six production lines and produce an estimated one million batteries per year.

Terms of the deal

In January, Electric Autonomy exclusively reported that VW was assessing Ontario as the only potential Canadian location for its first North American battery factory.

It turns out the company will come into Ontario with its largest factory outside of Germany.

Volkswagen is putting $7 billion into building the battery plant. It will first go into production in 2027 and continue to scale through 2030 until it reaches a 90 GWh output.

The parcel of land for the factory is 370 acres that is part of a larger, new 1,500-acre industrial park. The VW battery factory will run on 100 per cent clean energy.

“North America plays a key role in our global battery strategy. The region will become PowerCo SE’s second pillar beside Europe, with battery cells made in North America for North America,” said Thomas Schmall, Volkswagen Group’s board member for technology, in a press release.

“Gigafactory St. Thomas opens the door to a key market for e-mobility and battery cell production.”

The $13.2 billion in government subsidies represent a joint effort between the Ontario and federal governments.

Ontario is putting in $500 million direct investment into Volkswagen. It is also investing “hundreds of millions of dollars” into St. Thomas regional infrastructure. The federal government will provide Volkswagen from $8-$13.2-billion in investments, subsidies and tax credits, on a per battery basis. As well, Ottawa is offering Volkswagen $700 million in capital expense grants via the Strategic Innovation Fund.

The money will be doled out to Volkswagen over a period of time. “Canada’s support will only be for what is produced and sold,” reads the provincial press release.

“Projections show that the full economic impact of the project will be equal to the value of government investment in less than five years.”

Too sweet a pot?

The staggering investment by Canadian governments into luring a VW battery factory to the country is drawing criticism from some Canadians.

Conservative Leader Pierre Poilievre, for example, tweeted last month, “This money belongs to Canadians. Not to a foreign corporation. Not to Justin Trudeau. How much of Canadians’ money is he giving to this foreign corporation?”

But both Ontario and the federal government are defending the investment as sound, with a promised winning return for Canadians.

Fedeli cites considerable corporate taxes collected from Volkswagen each year along with the evident benefits of employment opportunities. Innovation, Science and Economic Development Minister François-Philippe Champagne stated in the St. Thomas press conference: “Talk to any banker. He would say if you get your money in five years for a plant that’s going to be there for 100 years, that’s a pretty good deal for Canadians.”

For Flavio Volpe, Automotive Parts Manufacturers’ Association president, the juice is more than worth the squeeze.

“[The government] landed the world’s first or second biggest automaker. Their most advanced product that goes into their most expensive cars will be made here. It’s a massive win,” says Volpe.

“I love what this investment brings in for supplier opportunities and the amount of jobs it brings in. All of that makes Canada more attractive for the three or four other potential battery plants still in play. I expect us to be competitive in one or two of them.”

More room to grow

Volpe’s prediction of future investment boons for the Canadian auto sector hinges, he believes, on people-power.

“Capacity here will be dictated by companies being confident that they can assemble a workforce to build their batteries. That’s our chief constraint” he says.

“If I’m the next battery investor, I see all of these benefits. All these things are going to be built up and I can take advantage. But I know it’s going to be a little harder for me to find personnel.”

Talent, says Fedeli, is actually the X-factor that clinched the deal for Volkswagen to come to Ontario. And in press remarks Volkswagen officials commented on the, “great working conditions for our employees in the St. Thomas area.”

But Volpe says to meet the demand and keep Canada’s EV supply chain growing the industry needs work hard to reach a more diverse workforce.

“I think as a society, we have to decide that everybody should participate in these investments. And leaders like me and my peers have to do a lot better work to pull in the other half of the room,” says Volpe.

Wider implications

Volkswagen’s first indication of interest in Canada was rooted, deeply, in mining.

In August 2022, Volkswagen signed a memorandum of understanding with the Canadian government to get preferential access to Canadian battery minerals.

Since then, the automaker and government have been quiet about how exactly access to Canada’s critical minerals will play out. But with the confirmation of a bricks and mortar VW battery factory and a timeline assigned to production, it could spell more action upstream.

“I think this is spectacular news for Northern Ontario,” says Fedeli. “The mining companies we’ve talked to are thrilled that VW is here now. They’ve got a client within our own province that they can ship to. This is certainly a great incentive to help move these mines along.”

Fedeli says Volkswagen “may be interested” in taking a direct role in mining in Canada. PowerCo, for its part, advertises its goal to become vertically integrated “from raw materials and the cell through to recycling.”

However the first step for Volkswagen is likely to line up parts suppliers ahead of raw mineral access. Fedeli confirms he is leading a delegation to Germany in May to plan a supplier event to support the VW battery factory.

Suppliers for Volkswagen, says Fedeli, include companies that make anode separators, copper foil, aluminum foil and lithium hydroxide along with hundreds of other parts. Given that a large “megasite” industrial park will surround Volkswagen’s factory, it’s likely that many potential suppliers will be jockeying to set up their facilities next door to the auto giant.

“We hope to capture as much of that as made-in-Ontario now as possible,” says Fedeli. “It’s the next logical step. They’ll have a billion-dollar plus investment, each and every one of those. So, we’re turning the focus on those big companies now.”

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