Federal government giving Volkswagen up to $13B in subsidies to secure St. Thomas EV battery plant

The federal government has agreed to give Volkswagen up to $13 billion in subsidies over the next decade as part of a deal to ensurethe automaker builds its electric-vehicle battery plant in southern Ontario.

The contract followspromises byOttawa to remain competitive with the U.S. and convince electric vehicle battery producersto set up their plants in Canada. But the price tag is raisingeyebrows.

"This is game-changer for our nation," saidInnovation Minister Franois-PhilippeChampagne while fielding questions from reporters Thursday.

The federal government will provide annual production subsidies to the German automaker and kick in funds for themassive factory in St. Thomas, which is estimated tobe the size of 391football fields, making it the largest factory in Canada.

Bloomberg News first reported the subsidy amount.Sources with knowledge of the dealhave confirmed the details of the contract withCBC News.

According to details of the deal, federal production support for the plant is expected to range from $8 billion to $13 billion over 10 years.

Ottawais also offering about $700 million in capital expense grants to Volkswagen through its Strategic Innovation Fund.

Champagne said those subsidies will come into effectafter the company builds the$7 billion plant and begins production.

Sources say that, according to the terms of the contract between Ottawa and Volkswagen,Canada's production subsidies will stay in place only as long as the U.S. Inflation Reduction Act remains in force. That U.S. law offers billions of dollars in clean energy and net-zero subsidies south of the border.

If the U.S. reduces its incentives, Canada's subsidies will also go down.

The government has been open about its desire to be a player in electric vehicles, widelyseen as the future of the auto industry.

Champagne defended the cost, arguing the job creation and supply chain spinoffs from bringing one of the world's largest automakers to Canada will be worth more than the cost of the subsidies to the government.

"When you see a transformation in history like that, you have to seize the moment. You lose that, what's going to happen to the auto sector?What's the cost of inaction?" he said.

WATCH | Up to $13B for an EV battery plant and that's just from the feds

Up to $13B for an EV battery plant and that's just from the feds

1 year ago

Duration 4:07

Flavio Volpe, president of the Automotive Parts Manufacturers' Association, talks about what a massive financial infusion into a planned EV battery plant in Ontario might mean for the province's auto industry.

Speaking to reporters Thursday, Champagneargued Canadawill see theeconomic impact of the plant in its first five years.

"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," he said.

Volkswagen announced last month that it had chosen St. Thomas, Ont., about two hours northwest of Detroit, as the site for its first North American "gigafactory."

At the time, it was not known how muchthe federal and provincial governments had put on the table to secure the plant.

The Ontario government is also expected to subsidize the projectbut those details are not yet public.

The Official Opposition is expected to attack the Liberals over the deal.

When news of the factory was announced last month, Conservative LeaderPierre Poilievretweeted "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?"

Automotive Parts Manufacturers' Association presidentFlavio Volpe said he knows not everyone will be comfortable with the pricetag.

"We think it's incredibly worth it, but it is a very material number," he said.

"These are good jobs that pay for mortgages and feed kids and build communities.They're not, you know, short-term jobs that people slip in and out of.You can build a career on them."

More details of the deal are expected to be made public Friday.

The plant will be run by a Volkswagen subsidy calledPowerCo.