Public could have paid up to $10B for VW battery plant in St. Thomas, Ont., former auto exec says

A former Canadian Toyota executive who now studies automotive manufacturing policy at McMaster University says Volkswagen likely received between $1 and $10 billion dollars in federal and provincial support in order to build its EV battery plant in St Thomas, Ont.

Greig Mordue is an associate professor of engineering, the chair of advanced manufacturing policy at McMaster University's school of engineering, and the former General Manager of Toyota's Canadian manufacturing operations in Woodstock and Cambridge, Ont.

"The price of entry is at least a billion dollars," he said, noting it was the sum offered by the Ontario and federal governments to Stellantis to build its $5 billion EV battery plant in Windsor, Ont., last year. 

Since then, he said, with the introduction of the Inflation Reduction Act (IRA) in the United States under the Biden administration, which makes billions in U.S. federal dollars available for domestic energy production and manufacturing, the cost of attracting international companies has become a lot more expensive. 

"Some locations in the US, the cost could be eight or $10 billion," he said. "So presumably it can be argued that Canada and Ontario have had to do something between one and eight or $10 billion. We don't know yet." 

Governments, VW won't disclose sum

Both federal and provincial governments have said they won't release the sum paid to Volkswagen in terms of public money to support the construction of the new St Thomas EV battery plant until a later, unspecified date.

The company recently told CBC News in an email it wasn't ready to disclose anything, in terms of how much public support it received, let alone the size or production volume of the factory. 

Mordue said much has been made about the factory in terms of its size, significance and the economic activity it would generate in terms of direct and spinoff jobs, but all of it is pure speculation. 

"That's fine, but the real important question is 'how much did we pay for this?' Frankly, all I can tell you is somewhere between one and 10 billion dollars." 

Part of the deal likely hinged on access to the critical minerals that companies such as Volkswagen requires to build EV batteries, many of which are contained in Ontario's Ring of Fire region, Mordue said.

The company and the federal government signed an agreement last August about those minerals, but at this point, Mordue said what that agreement entails, whether it's enforceable, or whether it even meets Canada's obligations under the World Trade Organization's rules has yet to be made public. 

Governments typically pay a fifth of cost

If history is any lesson, he said, the Ontario and federal governments usually split their support 50-50 for about 20 per cent of the total capital cost of a new factory, as they did with their $1 billion subsidy of the $5 billion Windsor Stellantis battery plant. 

Unlike Canada or the US, Mexico provides no financial incentives for automakers to set up shop other than cheap labour. Mordue said Mexican autoworkers are paid, on average, one-tenth the wage a Canadian autoworker would make for the same job. 

Before the passing of the IRA, state governments in the US would take a "one and done" approach, according to Mordue, giving automakers a subsidy to help with startup costs on the front end, after which the automaker was on their own. 

In Canada, by contrast, the federal and provincial government in Ontario have taken to handing out subsidies every time an automaker wants to retool a line for a new model.

"The manufacturers have learned they can go to the federal government and the province of Ontario and say 'well, we're getting ready to launch a new model or an updated version of the existing model and we have lots of options for this, we can do it, we'd like to do it here, but we're going to need some help.' It's expensive."

It's only become more expensive since the US passed the IRA. Here in Canada, the federal government has promised it would go toe-to-toe with the US when it comes to the billions of dollars worth of subsidies its prepared to hand out for EV battery manufacturing.

Mordue said VW likely picked St Thomas for all the reasons politicians have mentioned in the past — its proximity to the US border, an existing labour pool of skilled autoworkers, and a large plot of land that's readily available. 

However, Mordue said, what likely sealed the deal and beat out other locations was an offer the company couldn't refuse. 

"At the end of the day if somebody says 'here's a big cheque' — that changes everything," he said. "If someone's got one billion dollars and someone says here's eight billion dollars, that's pretty compelling."

"If it's eight billion dollars or 10 billion dollars and Mexico is zero, then the wage differential is eliminated and it's a lot easier to make vehicles in Canada in terms of the social, political aspects."