Sources say Volkswagen’s new Ontario plant will dwarf previous automaker investments

OTTAWA - Prime Minister Justin Trudeau and Premier Doug Ford hit the road Friday to finally unveil plans for the new multi-billion dollar Volkswagen electric vehicle gigafactory" in St. Thomas.

Ottawa and Queen's Park hope the German auto giant's massive new manufacturing complex will be the lynchpin of a new green" supply chain in Canada.

Volkswagen announced last month it chose southwestern Ontario over U.S states like Oklahoma that were vying for the global automakers' first battery plant outside Europe.

The gigafactory" will sprawl over hundreds of acres near London, Ont., and produce hundreds of thousands of electric car batteries a year to generate gigawatts" of battery power for the burgeoning EV market in North America.

Sources close to the negotiations between Ottawa, Queen's Park and the German auto giant say the Volkswagen deal will be larger than the Stellantis expansions in Brampton and Windsor that Trudeau and Ford announced together last year.

But they are equally tightlipped about details of just how much - in tax credits, capital expenditure support or other incentive measures - each level of government had to put on the table to lure Volkswagen here.

Thirteen months ago - in what was then called the biggest single auto investment in Canada history - Stellantis, parent company of Jeep, Chrysler and Fiat, pledged a $5-billion EV battery complex for Windsor, which will employ 2,500 workers when it opens in 2025. Last May, in Brampton, the international automaker said another $1 billion would go to revamping the Chrysler plant there to make next generation hybrid and electric vehicles.

But sources say the Volkswagen deal, expected to include perhaps $2 billion in federal and provincial subsidies for capital expenditures and more in tax credit supports, will dwarf those announcements.

Volkswagen will release (its) investment, how many employees (it) expects to hire and there will be more information about what (it is) going to make at the new facility," said a source, speaking confidentially in order to discuss internal deliberations.

This will mean thousands of jobs. Each of these plants requires supporting plants so other companies will be supplying Volkwagen as well," said a source, referring to the massive manufacturing eco-system that a gigafactory requires.

These are all other companies - and each of those plants will be in the billion-dollar range," the source said.

Flavio Volpe, head of the Canadian Automotive Parts Manufacturers' Association, is not privy to the deal's details. But he expects a mix of elements to make up the government package for what he guessed could be initially a $6 billion plant. But Volpe noted Volkswagen's subsidiary PowerCo SE has acquired 1,500 acres of land, about five times the size of the Windsor Stellantis plant, signalling that the company intends to scale up down the road.

Volpe said the potential economic return on any government investment in a plant of this size is huge, even before expansion, with up to 2,500 factory floor jobs, plus another 5,000 in spinoff jobs in the plant's supply chain, and hundreds of millions in future corporate and personal income tax revenues for government coffers. It's more than a market return" on investment, he said.

A senior source said government support for projects usually comes as help for capital expenditures, but in the face of the Biden Administration's Inflation Reduction Act - a $369-billion package of incentives to anchor green investment in that country - Canada must compete against what the U.S. is offering, which is billions of dollars to offset operating expenditures over time through production tax credits. The value of those credits to any company depends on future production levels.

Canada's strategy, however, has been to offer companies tax credits on the initial investments at the front end, which can also serve to incentivize future expansion of operations. In its budget, the federal Liberal government said it expects to spend about $80 billion over 11 years on a massive package of green" investment tax credits.

RBC assistant chief economist Cynthia Leach wrote this week that Ottawa has calculated that upfront payment in capital intensive sectors is seen as providing significant value, and the best way for federal dollars to influence clean technology improvement."

In an interview she said it is also important for governments to provide more transparency around this, given that industrial policies are making a big comeback in Canada and globally; we need to understand what value we're getting for it."

The federal budget document did not specifically identify the cost of the VW deal, she said, but it's clear that the federal government, in its effort to draw investment and tackle climate change, is making a bet on the supply side, saying we need the supply side to line up to facilitate and enable decarbonisation."

And I think within that context, you need to be strategic about supporting technologies where they are represent important (emission) abatement pathways for the Canadian and global economy. So it's not just what the U.S. is doing with IRA that I think does require us to rethink what we're doing and be more strategic, but it's also the demands of climate and the need to find a way to accelerate investments."

The federal Conservatives, who oppose any price on carbon and traditionally oppose government subsidies to big corporations on the grounds that the government should not be picking winners and losers," have not publicly supported the Volkswagen deal.

After Volkswagen announced its choice of St. Thomas on Mar. 13 Conservative leader Pierre Poilievre tweeted outrage at Industry Minister Francois-Philippe Champagne's suggestion federal supports will pay off in good Canadian jobs and economic growth.

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? How many jobs? How much is the cost per job?" Poilievre demanded.

Tonda MacCharles is Ottawa Bureau Chief and a senior reporter covering federal politics. Follow her on Twitter: @tondamacc

Robert Benzie is the Star's Queen's Park bureau chief and a reporter covering Ontario politics. Follow him on Twitter: @robertbenzie