Canada Lands Volkswagen Battery Plant With Billions in Subsidies

Volkswagen’s first North American battery plant for electric vehicles will be built in Canada, and Prime Minister Justin Trudeau and other Canadian politicians made it clear on Friday that the country had effectively been in a bidding war with the United States.

“We put up a lot of money,” Mr. Trudeau said at a news conference in St. Thomas, Ontario, where six assembly lines covering 370 acres will be built. “Everyone wanted this.”

Volkswagen announced last month that it would put its first battery plant outside Europe in Canada, but provided few details. On Friday, Canada and the province of Ontario said they would give the company a combined 1 billion Canadian dollars — about $750 million in U.S. currency — to construct the factory, which will cost 7 billion Canadian dollars overall.

A separate agreement will provide 8 billion to 10 billion Canadian dollars in subsidies over the next decade to match benefits that Volkswagen would have received under the Inflation Reduction Act if it had put the factory in the United States. That amount is tied to battery production.

Mr. Trudeau, speaking at a railway museum in front of a steam locomotive and two electric Volkswagen models, said that while it was impossible for Canada to broadly match U.S. industrial subsidies, the deal with Volkswagen had come out of a policy decision by Canada to strategically challenge its neighbor.

Volkswagen considered about a dozen other places in North America for the plant, which it said would eventually employ 3,000 people and make enough batteries annually for one million vehicles.

“Congratulations from our side for outperforming the competition and bringing this gigafactory to St. Thomas,” said Frank Blome, the chief executive of PowerCo, Volkswagen’s battery subsidiary “That wasn’t easy.”

The Volkswagen plant will be the second major battery operation in Ontario. Last year, the automaker Stellantis and the South Korean company LG Energy Solution announced a factory in Windsor, where Stellantis has a large assembly plant that Chrysler built. That factory, which will employ 2,500 people and start production next year, also received substantial government subsidies toward its cost of 5 billion Canadian dollars.

Volkswagen will become the sixth automaker with large operations in Ontario, Canada’s most populous province, and the first to establish operations there since Honda and Toyota arrived in the 1980s. St. Thomas was once home to a heavy-truck plant owned by Daimler of Germany as well as a Ford Motor factory that, in its final years, assembled cars primarily used as police cruisers and taxis. Both were closed by 2011 and not replaced by other industries.

After the initial announcement last month, Pierre Poilievre, the leader of the opposition Conservative Party of Canada, criticized the government for subsidizing Volkswagen.

“This money belongs to Canadians,” he wrote on Twitter. “Not to a foreign corporation. Not to Justin Trudeau.”

But Andreas Schotter, an associate professor of international business at Western University in London, Ontario, and a former financial executive with Volkswagen North America, said subsidies were the reality for countries seeking to maintain their automotive industries.

“It’s a good thing, but with a high risk,” he said, noting that policy shifts, particularly in the United States, could slow the transition to electric vehicles or that other technologies, like hydrogen fuel cells, could dislodge batteries over time.

While St. Thomas, which is midway between Detroit and Toronto, is in the center of Canada’s automotive corridor, it is a considerable distance from Volkswagen’s North American factories in Tennessee and Mexico. It is, however, just down the road from a factory where General Motors recently began building electric delivery vans and a Toyota factory that makes hybrid crossovers.

Over time, Dr. Schotter said, the new factory may end up supplying batteries to other companies.