Ottawa betting big with $13B subsidy to secure Volkswagen deal. Here’s why

Securing VW's first plant outside of Europe at the St. Thomas, Ont. site also leaves room for more potential investment from the automaker, one expert says.

There’s nothing small about the $13 billion in subsidies that Canada has promised Volkswagen to secure the automaker’s first battery plant outside of Europe, but it remains to be seen whether the deal is enough to kick start the manufacturing sector’s future.

The rising sticker shock of establishing a manufacturing base for electric vehicles is, depending on who you ask, either a worthy investment to secure the next generation of auto assembly or a sign that Canada should consider giving up the subsidy race and not worry so much about the sector in general.

Securing Volkswagen is a “massive win,” said Flavio Volpe at the Automotive Parts Manufacturing Association, adding that people should focus more on the $200 billion in output the company will have to meet to secure the full payout.

Because the deal is based on output rather than just an upfront cash payment from government, it looks much bigger than past deals with automakers but is fundamentally different, he said.

“You either have to restate what the other deals cost before, or admit that we’re doing an apples to oranges comparison.”

The subsidy closely mirrors what’s offered in the U.S. Inflation Reduction Act that contains some $370 billion in funding to create a cleaner economy, and is designed to spur the volume of production needed to meet targets. It comes as governments worldwide are looking to secure the future of auto sectors as the industry undergoes the tectonic shift to a fully electric future.

Auto assembly plants have long been pointed to as anchors for regional economies as they create numerous spinoff jobs for each worker in the plant, whether from parts suppliers or the restaurant down the street. Battery plants won’t create as many because there are fewer parts involved, but still offer a conservative two-to-one ratio, said Volpe.

Securing VW’s first plant outside of Europe at the St. Thomas, Ont. site also leaves room for more potential investment from the automaker, as Volpe notes that the land base the company has secured is five times bigger than the footprint in Windsor, Ont., where Stellantis and LG are building their battery plant.