Will Ottawa’s $13B Volkswagen deal be worth it? Trudeau, Ford defend plans

Click to play video: 'Ottawa invests $13 billion in subsidies to attract VW plant.'
Ottawa invests $13 billion in subsidies to attract VW plant.
WATCH: Ottawa invests $13 billion in subsidies to attract VW plant – Apr 21, 2023

Prime Minister Justin Trudeau and Ontario Premier Doug Ford touted the impact of cooperation on Friday as they announced further details for what will be the largest manufacturing plant in Canada.

However, critics have raised concerns about the cost of securing the deal and whether the region will have the skilled labour and housing to support the plant.

Canada has promised Volkswagen up to $13 billion in subsidies to secure the automaker’s first battery plant outside of Europe.

“It isn’t called a gigafactory for nothing,” Trudeau said at Friday’s announcement, held at the Elgin County Railway Museum in St. Thomas, Ont.

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“It will create thousands upon thousands of great jobs. It will be worth over $200 billion for the Canadian economy over the coming decades. It will provide millions upon millions of batteries to power Canada’s auto industry. The economic impact of this project will be equal to the level of government investment in less than five years.”

Click to play video: 'Volkswagen to build EV battery plant in Ontario'
Volkswagen to build EV battery plant in Ontario

More specifically, Trudeau said the project will create up to 3,000 direct jobs and up to 30,000 indirect jobs.

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Premier Doug Ford said the province is supporting the project with $500 million in “direct support.”

“We’re also investing hundreds of millions of dollars to build out local infrastructure like roads and highways and utility systems as well as expand police and fire,” he added.

“We’re revitalizing our auto sector and making Ontario an auto manufacturing powerhouse in North America and around the world.”

Ontario Premier Doug Ford speaking at the Elgin County Railway Museum on April 21, 2023. Amy Simon/Global News

Frank Blome, CEO of PowerCo SE, the battery division of Volkswagen Group, said the gigafactory will be the German company’s first in North America and has the potential to become its biggest worldwide.

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“Congratulations from our side for outperforming the competition,” he said to applause.

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The factory will have six production blocks with the potential of up to 90 gigawatt hours, Blume said, enough to power one million electric vehicles annually. He said Volkswagen is investing $7 billion to establish the facility. Physically, the cell factory alone will be the size of 210 soccer fields with the complete park as large as 850 soccer fields.

The Volkswagen group aims to introduce more than 25 new EV models by 2030, “and most of them will be equipped with battery cells made in St. Thomas,” Blume added.

Click to play video: 'Bigger, heavier, faster: Weight of electric vehicles drives up safety concerns'
Bigger, heavier, faster: Weight of electric vehicles drives up safety concerns

The auto industry, however, and the economy in general is already humming, and Canada has numerous wins on electric vehicles already that secure an electric vehicle manufacturing base.

The situation means it doesn’t seem to make much sense to spend so richly to establish the Volkswagen plant, said Rob Gillezeau at the University of Toronto’s Rotman School of Management.

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“We’re basically at full employment,” said Gillezeau, assistant professor of economic analysis and policy. “It’s basically going to take workers who already have jobs in one area, right, and reallocate them to working at the plant.”

In addition to acquiring labour, the community will also need to house an influx of workers.

Paul Jenkins, CEO of the St. Thomas and District Chamber of Commerce, acknowledged the challenges when the facility was first announced in March, but said they are challenges the community can face “optimistically and positively.”

Speaking to reporters following Friday’s announcement, Trudeau was asked what assurances Ottawa has given Volkswagen that the project will work amid a labour shortage in the trades and a housing crisis.

He did not provide specifics but said that Canada shows stronger population growth when compared to other G7 countries, due largely to immigration.

“Of course, we will continue to be there to invest in housing but one of the challenges we’re facing in building enough housing for Canadians is labour shortages in the construction industry. And that’s where careful, targeted use of immigration is actually a counter to this.”

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Trudeau was also mum about what the deal specifies in terms of the use of union-labour employees.

“We will always be there to support organized labour. But the most important thing is that Canadians across this country get good, well-paying jobs with which they can support their families and build the future.”

Gillezeau also raised doubts about the economic models justifying the plant and the supposed payback on the investment in a few years, and noted that Canada is already shifting more to a service economy so it doesn’t make sense to throw this much money at manufacturing jobs.

“I don’t think there’s an inherent advantage there. I think really, the only good rationale for government subsidization here would be if we think there’s some kind of national security risk.”

Conservative leader Pierre Poilievre tweeted in March, before the extent of the subsidies was announced, asking how much it would cost.

“This money belongs to Canadians. Not to a foreign corporation. Not to Justin Trudeau.”

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Trudeau said Friday that the investment is “part of a strategic vision and the decision we’ve taken to invest in the battery and auto making supply chain in Canada.”

He added that, “a few years ago, Canada was ranked number six in the world in battery manufacturing” but the country is currently second, even before the Volkswagen announcement.

Minister of Innovation, Science and Industry François-Philippe Champagne explained that the gulf in the range of subsidies promised – between $8 billion and $13 billion – is a result of Canada’s commitment to matching the United States Inflation Reduction Act’s (IRA) Advanced Manufacturing Production Credit.

First, Volkswagen needs to build the $7 billion plant. Then, after, when the plant is built, we are going to provide production support if and when they have produced and sold a battery. And this is subject to the conditions of the IRA and it’s over ten years.”

In other words, if the United States drops or lowers the credit under the IRA, Canada would alter its support to an equal amount.

Matching the support from the IRA was “a very strategic decision,” Trudeau said.

“The Canadian economy can’t go toe-to-toe with (the IRA) on a global overall scale, but we can be very —  and we have been very — strategic about where we want to step up and compete directly.”

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Friday’s news conference and the confirmation of the extent of government support comes over a month after the factory itself was first announced.

On March 13, Volkswagen confirmed the area would be selected for its first gigafactory for electric vehicle (EV) battery manufacturing facility in North America. PowerCo SE is expected to begin production in the to-be-built facility in 2027.

Clearing for the area, which is bounded by Highbury Avenue South, Yarmouth Centre Road and Ron McNeil Line, began the following day.

Construction equipment seen on the site of what will eventually house Volkswagen’s gigafactory in St. Thomas, Ont., as seen on April 21, 2023. Liz Russell/Global News

Ahead of the plant announcement, MPPs passed Bill 63, also known as the St. Thomas – Central Elgin Boundary Adjustment Act, 2023. The bill allowed St. Thomas to annex 600 hectares from the municipality of Central Elgin for what the province described at the time as an “investment-ready mega site.” Bill 63 received its first reading on Feb. 22 and received royal assent on March 2.

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St. Thomas Mayor Joe Preston previously told Global News that while he only learned of the confirmation from Volkswagen at the same time as everybody else, the city had been working for a little over a year to secure enough land for its industrial park to house a factory the size Volkswagen plans to build.

The city announced last June it had purchased over 350 hectares of land in the northeast end of St. Thomas. The intent at the time of purchase was rumoured to be related to the area landing an EV battery plant.

— with files from Global News’ Amy Simon and Marshall Healey and Andrew Graham and files from The Canadian Press.

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