The $14 billion deal that will see Volkswagen, the world’s largest automaker, set up a factory in Canada for the first time in history is the result of a year-long negotiation on both sides of the Atlantic.
It all started in early 2022, when the Minister of Industry, François-Philippe Champagne, decided to call the President and CEO of the North American division of the company, Scott Keogh.
“I introduced myself and said, ‘listen, I’m here, Minister Champagne from Canada. I would like to open a discussion,’” he said.
Volkswagen has sold cars in Canada for decades, but never built them there. As automakers begin to transition to electric vehicles, producing their batteries requires a strong supply chain, and Canada is looking to make its way into this new market.
When he called Mr. Keogh, Mr. Champagne was about to announce the creation of his very first mega-factory, in Ontario, piloted by the companies LG and Stellantis.
The federal government has also already concluded agreements with Ford, General Motors, Honda and Toyota.
In 2021, Volkswagen had announced its intention to build six electric battery factories before 2030. Minister Champagne’s timely call led to a meeting in Toronto in April 2022.
The entire North American Board of Directors of the company, Mr. Champagne and the Ontario Minister of Economic Development, Vic Fedeli, participated.
But according to Mr. Champagne, the first brick was laid a few hours before, when he went to welcome the head of Volkswagen’s purchasing department after seeing him on the street. “He was quite surprised,” the minister recalled, as he didn’t expect anyone to recognize him.
Two weeks later, Minister Champagne flew to Germany to meet the company’s leaders.
In August, he signed an agreement with the president and CEO of Volkswagen, Herbert Diess, to cooperate on the creation of electric batteries and their components.
But everything was not yet in the pocket. In December, when Champagne met with the company’s new CEO, Oliver Blume, Blume said Canada was one of a handful of places being considered.
According to Mr. Fedeli, while Volkswagen hinted that Canada had strong competition, the identity of these rivals was never revealed. The company representatives were “the friendliest people we have ever met”, but also “the toughest negotiators”.
But Canada had an ace up its sleeve: the small town of St. Thomas, Ontario. The city of 40,000 souls had already produced more than 8 million vehicles when a Ford plant was in operation there, until 2011. It has plenty of clean electricity and skilled workers in car manufacturing and in technology.
According to Mayor Joe Preston, St. Thomas had already embarked on an Ontario-backed industrial expansion strategy to attract manufacturing companies. This included buying land, creating a new industrial park, and bringing running water and electricity to the area.
Inspectors from a mystery company then visited the municipality. “For a very long time they wouldn’t even tell us it was Volkswagen,” said Mayor Preston. So between us and the provincial government, we were almost talking in code when we approached the project. »
As of early 2023, negotiations were now moving into specifics, but Volkswagen continued to say it was in similar talks with other jurisdictions.
On March 13, almost a year after Minister Champagne’s first telephone conversation, Minister Fedeli received a call from Volkswagen. The company was going to settle in St. Thomas.
The company plans to build a mega-factory that would create one million electric vehicles per year from 2027, for several decades.
The complex is expected to employ 3,000 workers, but factoring in the surge in demand for commodity companies, around 30,000 jobs are expected to emerge.
The agreement includes an investment of $700 million from the federal government and $500 million from Ontario, in addition to subsidies for the production cost of each battery, or from $8 billion to $13 billion over a decade .
These grants were negotiated to compete with the United States, which offers similar ones. If US subsidies decrease or disappear, Canadian subsidies to Volkswagen will do the same.
On Friday, LG and Stellantis openly criticized Ottawa, saying the government has failed to meet its commitments for their plant in Windsor, Ont. All levels of government were to be financially involved in the agreement being created, but the value of those investments has not been made public. The federal government says negotiations are still ongoing.
