Ottawa reaches deal with Stellantis after months of tense negotiations over EV battery plant

July 6, 2023

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OTTAWA—Automotive giant Stellantis has accepted an offer from the Canadian government to salvage an electric vehicle battery plant in Windsor after months of high-stakes talks drove Ottawa and the Ontario government to ante up to $16 billion in richer subsidies.

A formal announcement was made Wednesday by Stellantis and its Korea-based partner LG Energy Solution.

The companies said they signed a binding agreement “that secures the future of battery cell and module production in Windsor, Ontario, and honours the commitments that were made by the Canadian government to level the playing field with the U.S. Inflation Reduction Act (IRA).”

“The IRA fundamentally changed the landscape for battery production in North America, making it challenging to produce competitively priced, state-of-the-art batteries in Canada without an equivalent level of support from government,” said Mark Stewart, Stellantis’s chief operating officer for North America, in a written statement.

“We are pleased that the federal government with the support of the provincial government came back and met their commitment of levelling the playing field with the IRA. This collective effort enabled the deal to close and we are now resuming construction on the site in Windsor.”

“It’s a good day not only for our joint venture but also for Canada,” said Dong-Myung Kim, president and head of the Advanced Automotive Battery Division of LG Energy Solution. “We are happy to finally move forward with building the country’s first major battery plant and be a central part of the local battery ecosystem. We are grateful to the federal and provincial governments for working together, and to everyone who worked tirelessly to get this deal done.”

The company said that effective immediately, all construction at the battery plant in Windsor will resume, with production operations planned to launch in 2024.

The agreement was reached in a dispute that pitted the international automaker against Ottawa, and saw the federal and Ontario governments publicly lock horns over who should pay what share of any sweetened offer to match U.S. subsidies.

Not only were jobs on the line, but so was international investor confidence, say industry watchers. The dispute also tested the Trudeau government’s ability to live up to its much-touted ambition to launch a new “green” EV auto industry in Canada.

In May, the Star first revealed the tense backroom negotiations had hit an impasse and that the future of the Windsor plant was up in the air.

Three days later, Stellantis — the parent company of Chrysler, Dodge, Jeep and Fiat — halted construction on the Windsor plant in what the federal government saw as a high-profile pressure tactic.

The company’s move also threatened jobs at its Windsor and Brampton-based car plants that the electric vehicle battery plant was intended to supply.

Several federal cabinet ministers and the Prime Minister’s Office tried to rescue the deal with Stellantis and its Korea-based partner, LG Energy Solution.

The joint venture had originally announced in March 2022 that it would build a $5-billion plant in Windsor that would produce 400,000 electric vehicle batteries a year starting as early as 2024, and provide 2,500 jobs.

The federal and provincial governments initially agreed to kick in $500 million apiece to the Stellantis project.

But six months later, the Biden administration rolled out the IRA, which includes a $369-billion package of tax credits and production subsidies to lure companies to build clean energy and EV projects in the United States.

When Stellantis sought matching subsidies from Ottawa, months of phone calls, written offers and counter-offers, and overseas crisis talks ensued.

Meanwhile, the Trudeau government was trying to persuade German-based automaker Volkswagen and its subsidiary PowerCo to build an even bigger $7-billion EV battery plant in Canada.

Volkswagen’s “gigafactory” — its first EV battery plant outside Europe — is slated to produce one million batteries a year, starting in 2027, and to create 3,000 direct jobs.

Ottawa competed with several U.S. states to land the Volkswagen deal.

The Trudeau government agreed to provide Volkswagen $700 million up front and an overall package worth up to $13 billion — tied to how many batteries are produced — that would match and keep pace with the U.S. tax credits. It ensures that if the American subsidies, available through 2032, dropped or ended before then, Canada’s would too.

In the wake of the Volkswagen announcement in April, Stellantis stepped up the pressure, demanding equal treatment.

As reported by the Star, the federal government first tried to distinguish between the two projects, saying the Volkswagen plant was meant to anchor an entire new supply chain, as behind the scenes Ottawa leaned on the Ontario provincial government to kick in more to prevent the plant from moving stateside.

However, the CEOs of Stellantis and LG Energy Solutions, in a letter obtained by the Star, demanded the federal government keep a written promise in several documents to level the playing field for its planned operation in Canada.

It warned that “continued delay in executing this agreement is bringing significant risk to the project.”

“In the event our agreement is not promptly executed, we will be forced to make difficult decisions regarding this project and other respective investments in Canada in order to deliver on our commitments to bring new technology to the North American market,” the CEOs wrote.

The Ford government also publicly insisted it was up to Ottawa to “step up” and match the U.S. offer.

Although Industry Minister Francois-Philippe Champagne led talks with the companies, interventions by Deputy Prime Minister Chrystia Freeland and Intergovernmental Affairs Minister Dominic LeBlanc with the Ford government were key to breaking the logjam.

Premier Doug Ford soon agreed to kick in a third of what it would take — a potentially richer subsidy than even Volkswagen will receive because the Stellantis plant will go into operation three years sooner than Volkswagen’s.

Meanwhile, construction on the Windsor plant had stalled in peak spring construction season. It is not clear how long a delay that will impose on the project’s overall timeline.