The governments of Canada and Ontario recently announced the finalization of an agreement with Stellantis-LG Energy Solutions (Stellantis-LG) for the construction of an electric vehicle (EV) battery plant in the province. This was the second phase of a larger negotiation – one that almost fell apart after Stellantis-LG threatened to pull its battery manufacturing presence in Ontario, alleging the two levels of government had reneged on their promises to match incentives offered by the U.S. government pursuant to the U.S. Inflation Reduction Act (IRA).
In saving the original deal and coming up with an enhanced one, Ontario advised it would increase its investment in the project by sharing the costs of future performance with the federal government. Canada and Ontario will jointly provide up to C$15B in performance incentives based on the future output of the Stellantis-LG plant.
Those incentives to Stellantis-LG are in addition to both governments' collective C$1B investment towards the project's anticipated capital costs. Of that $1B, Ontario contributed a maximum of C$513M, with Canada and Stellantis-LG contributing C$529M and C$3.6B, respectively. By way of comparison, Ontario will pay for one-third of the maximum C$13B in performance incentives offered to Volkswagen for its new battery plant. In the Volkswagen deal, the two governments agreed to collectively provide a US$35 per kWh subsidy, which will be phased out by 25 percentage points annually, beginning in 2030.
In announcing the Stellantis-LG agreement, the federal and Ontario governments stated that both sets of performance incentives are directly tied to those under the US IRA such that if the IRA incentives are cancelled or reduced, so too would those offered to Stellantis-LG. As such, the Stellantis-LG incentive package is clearly designed to compete directly with ongoing efforts of the U.S. government to attract battery makers to its jurisdiction.
Commentators expect that the Government of Canada will look to the Canadian provinces to follow Ontario's example and make similar commitments for future projects. The Federal Finance Minister Chrystia Freeland stated that, with most of the jobs and benefits from these projects going to one province, Ontario's increased financial commitment is "a matter of national fairness." Other government MPs have called for interprovincial "partnership" in attracting future investments. While the federal Minister of Innovation, Science and Industry, François-Philippe Champagne, has said that Canada is currently in discussions with other companies about future EV battery projects, he hinted that there will be a finite number of such large-scale partnerships in future.
The debate around corporate subsidies will continue, with some claiming that they create generational opportunities that would not otherwise have existed and others who argue that government has no business supporting multinationals – either market conditions will draw private capital or they won't.
With the funding model in the Stellantis-LG deal, Ontario has demonstrated it is willing to make large investments to ensure that future EV battery manufacturing projects are located in the province. By partnering with Canada to ensure automotive batteries are made in Ontario, it has also taken a significant step toward ensuring that Canada is able to convert its wealth of natural resources into finished products. This complements additional provincial investments announced in its 2023 budget of $3 M in 2023-24 and 2024-25, respectively, towards Ontario's Critical Minerals Strategy.
Members of our Automotive group are pleased to consult on all aspects of federal and provincial financial contributions and the emerging national imperative to secure Canada's vehicle manufacturing supply chain.
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