VW battery plant

According to a government source, Canada has agreed to offer up to C$13 billion ($9.7 billion) in subsidies and a C$700 million grant to entice Volkswagen AG to locate its North American battery production in the nation.

According to the source, the entire Canadian investment—which might possibly include money from the Ontario government—will be roughly equivalent to what Volkswagen would have received from the United States under the Inflation Reduction Act (IRA).

The source stated that the subsidies will be paid out over a ten-year period, but the automaker chose not to respond. The source told Reuters that the plant’s construction will cost roughly C$7 billion, corroborating a previous story by Bloomberg News.

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The agreement demonstrates how the United States’ green package, which provides $369 billion in subsidies for electric automobiles and other green technologies, is pressuring foreign governments to increase financial incentives to entice investment.

According to Handelsblatt, which cited a business source with knowledge of the situation, the brand-new Volkswagen battery plant in Canada is expected to have a maximal capacity of 90-gigawatt hours, which will be sufficient to produce batteries for more than a million vehicles yearly.

Volkswagen opted not to respond to the Handeslblatt story. More information on the project is anticipated to be released on Friday during a meeting between the leadership of its battery unit PowerCo and Canadian Prime Minister Justin Trudeau in Ontario, where the plant would be located.

The contract is drafted in such a way that Canada’s production subsidies are only guaranteed for the duration of the Inflation Reduction Act. Canada’s incentives for clean production will decrease proportionately if those in the US are cut.

Additionally, under its Strategic Innovation Fund, Canada is providing Volkswagen with capital expense grants totaling nearly C$700 million. Despite its name, the Inflation Reduction Act actually implements substantial incentives for low-carbon companies, primarily via production tax credits.

According to a board member for technology at Europe’s largest automaker who spoke to Reuters in March, PowerCo aspires to become a global battery provider and meet half of its own requirements with plants mostly in Europe and North America.

By 2030, PowerCo, which was founded last year, wants to have annual sales of over $21.94 billion. In Ontario, production is anticipated to begin in 2027.

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Chrystia Freeland, Canada’s finance minister, cautioned that democracies need to prevent a “race to the bottom” in corporate subsidies that might erode their tax bases and social protection systems in an address in Washington last week.

The Volkswagen contract in Canada also makes one wonder how much financial assistance other automakers and battery manufacturers may be eligible for. A $4 billion joint venture between LG and Stellantis was announced last year in Windsor, Ontario, a city close to Detroit.