Summary:
The federal government has agreed to provide subsidies potentially exceeding $13 billion over a decade to secure Volkswagen AG’s first electric vehicle battery gigafactory outside Europe, announced earlier this week, according to Bloomberg.
The funding, negotiated by Industry Minister François-Philippe Champagne, includes annual production subsidies and a capital cost grant, which matches what the German automaker could have received through the Inflation Reduction Act in the US.
The Volkswagen plant, built by its subsidiary PowerCo, was announced last month but details of the deal were revealed on Friday. The plant will have the ability to build enough battery cells for 1 million electric vehicles annually. The only other two PowerCo battery plants are in Germany and Spain.
This agreement exemplifies the efforts made by the US’s trading partners to match financial incentives introduced in President Joe Biden’s climate legislation last year. The factory, set to become Canada’s largest manufacturing site, is part of Volkswagen’s PowerCo unit.
Champagne emphasized that the financial aid is essential to maintain Canada’s position in the North American auto sector and its reputation for advanced manufacturing and clean technology.
“This is about us seizing generational opportunities,” Champagne said to Bloomberg in an interview. “This is about raising our level of ambition.”
The proposed factory, costing about $7 billion, will span an area equivalent to 350 football fields and create thousands of jobs in St. Thomas, Ontario. Champagne argued that the economic value of attracting one of the world’s largest automakers far outweighs the cost of the subsidies.
Canada’s production subsidies will remain in place as long as the Inflation Reduction Act is in force, with reductions corresponding to any US incentive reductions.
Furthermore, Canada is offering around $700 million in capital expense grants to Volkswagen through its Strategic Innovation Fund, with additional funding potentially coming from Ontario’s provincial government. That marks at least $13.7 billion granted to Volkswagen, money that could have gone to the federal government’s coffers.
🇨🇦 just attracted the largest auto investment in history!
With @VWGroup’s largest🔋plant ever, we’re:
👷♀️creating up to 30,000 well-paying jobs
🔋 building the most sustainable batteries in the world
🌱 making 🇨🇦 the green supplier of choice for generations to come ⬇️ https://t.co/sNv4Rc5gvJ
— François-Philippe Champagne (FPC) 🇨🇦 (@FP_Champagne) April 22, 2023
The Volkswagen deal raises questions about the level of financial aid available to other automakers and battery manufacturers. Last year, LG and Stellantis announced a $4 billion joint venture in Windsor, Ontario. Champagne acknowledged that the size of the subsidies means Canada must be selective, and the country can only realistically support a few battery plants.
“Taxpayers don’t have $13 billion to give to a multinational corporation,” said Franco Terrazzano, from the Canadian Taxpayers Federation to The Star, labelling the subsidies as “corporate welfare.”
“That money could be used to build more than a dozen new hospitals or lower taxes for Canadians that are struggling,” added Terrazzano.
The province of Ontario would contribute $500 million to Volkswagen, plus “hundreds of millions” to beef up local infrastructure including roads, and police and fire services near the plant.
Conservative leader Pierre Poilievre blasted the deal, sending off a letter to Yves Giroux, parliamentary budget officer, asking the fiscal watchdog to investigate the Volkswagen-Canada agreement.
“How much taxpayer financial support is being provided by the Government of Canada for each job that is expected to be created, both directly and indirectly?” wrote Poilievre.
“We believe it would be beneficial to calculate the expected impact on jobs in other sectors due to the fiscal measures needed to provide the necessary funds to subsidize these jobs,” said the Conservative leader.
Despite potential backlash, Prime Minister Justin Trudeau stands by the decision, with Champagne stating that Canadians will understand the necessity of the funding. The economic impact of the plant within its first five years is expected to equal the entirety of government funding, generating over $200 billion in value for Canada over 30 years.
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And who pays for all of that at the end of the day?
Oh wait….us, the consumer.
Cue another tax in 3, 2….
Not at the end of the day. Right on day one and for decades to come. The Trudeau groupies will love this. More debt for future generations. ~30 years, in the best case for generated tax revenue to offset this splurge, assuming automation doesn’t replace the workers (which of course it will).
This will be great for the “the economy will balance itself” crowd. Same people that will look at a pic of Trudeau in black face and still call him anti-racist. Not the brightest bunch.
Nobody talks about the toxicity of lithium battery production ( we only care about CO2 emissions, can’t expand beyond the doctrine) or the horrific lithium mining process with irreversible impact on the environment.
Nobody talks about the EV dream being pushed as a myth despite the lack of infrastructure and exorbitant vehicle prices (also subsidized by taxpayer Joe).
Nobody tells you what stops a proven lying company to lie again and close the factory (paid for) once they have to reduce the profits and pay taxes like everyone else.
The same people that wanted to burn Galen at the stake (despite paying taxes on money NOT from taxpayer’s pocket) are ok with this deal.
Hypocrisy much?
That 13 billion is 13 billion in tax subsidies.
If they didn’t built the factory, there would simply be $0 in or out.
A subsidy means they pay less tax than usual (which is a challenging precedent but common for a country like Canada for obvious reasons).
Read about it a bit and then decide based on the facts if something like this is a good thing or not instead of whatever this comment is.
I personally would prefer a tax system where any company is on a level playing field and enticed to come in and build locally rather than sweetheart deals here and there… but regardless, a factory with subsidies is much better (and provides more tax revenue) than a hole in the ground (that isn’t a mine)
I’m somewhat okay with your post but your, “(that isn’t a mine)” comment seems a little shortsighted. How is one to produce these batteries without the mined materials?
What damage does these materials have on the environment today and what is their net effect on the environment today?
We talk about the future benefit but lack the information of what the current cost to the environment is during this transition period. Why is that? Time we ask for real answers…
While the environmental impact of lithium mining cannot and should not be dismissed, I am yet to see the factual comparison with well documented damage from the 160+ years of oil extraction. Then add to it the effects of burning all that oil.
One cannot be concerned with harm from lithium mining and not to be concerned with harm from oil industry, which is as of now orders of magnitude larger. Also, lithium won’t have such longevity as oil had. It is quite likely that the battery technology will evolve and make the lithium based solutions obsolete.
The fact that lithium is not great for environment should not be the argument against the electrification as a way of weaning off from the oil. Lithium based batteries are not the only way towards the electrification; it’s just the first step of many.
And they’ll charge us more for Transport and preparation because it’s made here.