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Ford Motor Co. has committed to the largest investment that Canada has yet seen in EV assembly, but has not yet decided whether to make batteries here.Rebecca Cook/Reuters

Canada is racing to close deals for new plants to produce electric-vehicle batteries amid an increasingly heated North America-wide competition for investment in EV manufacturing.

Government negotiations with at least three companies looking to make major battery-building investments have reached a critical stage, sources familiar with the talks confirmed on Wednesday.

The most advanced involve construction of a manufacturing facility in Ontario by South Korea’s LG Energy, according to the sources, whom The Globe and Mail is not identifying due to the negotiations’ sensitivity. The construction of the LG facility would be partly funded by the federal and provincial governments, and the sources said its primary client would likely be Stellantis NV, the company formed earlier this year by the merger of Fiat Chrysler and France’s PSA Group.

Stellantis NV is also directly involved in talks with Canadian governments around another battery plant, which it is looking to build as part of a partnership with the French company TotalEnergies.

The sources said a third set of negotiations involves Ford Motor Co. , which has committed to the largest investment that Canada has yet seen in EV assembly, but has not yet decided whether to make batteries here.

The pressure on the federal and provincial governments to land such investment is immense, because the negotiations are happening at an especially pivotal and fraught moment for the Canadian auto sector, under the shadow of U.S. protectionism that threatens the industry’s future.

As auto makers shift from gasoline-fueled cars and light-duty trucks to electric vehicles, Ottawa has promised to capitalize on Canada’s combination of natural resources and manufacturing infrastructure and expertise to be a major EV player. But its efforts are being challenged by U.S. President Joe Biden’s plan to introduce EV purchase rebates of up to $12,500, with a large chunk of that contingent on the vehicles being made in the United States.

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The rebate plan, which Ottawa is lobbying Washington to change in recognition of the auto sector’s heretofore continental integration, is making it more difficult for Canada to compete for new EV investments. It has also given extra urgency to Canadian efforts to win those deals and lock in Canada’s role in the supply chain.

Battery manufacturing is an area of particular focus. Anticipating an increase in North American demand for EVs bolstered by government incentives and regulations aimed at reducing greenhouse gas emissions, auto makers are deciding where to make batteries. Those plants will serve as anchors for supply-chain components, and influence future decisions about where EVs are made.

“Any of the major assemblers in North America is probably looking at a maximum of two battery plants,” said Flavio Volpe, the president of Canada’s Automotive Parts Manufacturers’ Association. “And once they decide on where the first and second ones go, the next investment window probably won’t open for another 10 years.”

So far, Canada has been frustrated in its efforts to win those investments. Most recently that included a US$1.3-billion Toyota battery plant that went to North Carolina.

Ottawa is nevertheless projecting optimism about the current negotiations. Federal Innovation, Science and Industry Minister François-Philippe Champagne – who has spent much of his time lately jetting around the U.S. and Europe to pitch auto executives – recently told the digital media outlet The Logic that “we’re getting closer and closer to land some very significant investment.”

In addition to its importance for the domestic auto industry, and the thousands of jobs at stake, the pursuit of such deals is also an early test of the federal government’s recent commitment to spend large sums of money to attract climate-friendly industry.

Over the past year, Ottawa has launched an $8-billion “Net Zero Accelerator” aimed at helping industries decarbonize and attracting new clean-technology manufacturing. Building an EV supply chain is one of that fund’s explicit aims, and Mr. Champagne is offering money from it to partly subsidize the battery plants.

Provincial governments are being tested for willingness to put their own money on the table and to work with Ottawa to make the case to manufacturers. They are also to some extent competing against each other. Ontario has traditionally dominated Canadian auto-making, and is the likeliest destination in this country for investments such as LG’s; Quebec has a burgeoning EV industry and a much stronger EV consumer market, and is trying to secure large-scale battery investments as well.

One reason that all concerned may be able to overcome the U.S. protectionism is that batteries make up a relatively small part of the made-in-America rebates. Under Mr. Biden’s plan, EV purchases would get $7,500 in rebates regardless of where the cars were made, and another $4,500 if they were assembled at unionized U.S. factories. Only $500 more would be for battery packs with at least 50 per cent of their components made in the U.S.

But that plan calls for only U.S.-made vehicles to be eligible for the base $7,500 starting in 2027, so Canadian officials have their work cut out for them getting manufacturers to make long-term commitments on this side of the border.

Even EV assembly commitments Canada has already secured “could be at risk” if the U.S. subsidy plans send a chill through the industry, suggested Moe Kabbara, a consultant with Dunsky Energy who closely monitors the industry – underscoring the challenge and the imperative of attracting the battery-making.

“A lot of these investments are going to really depend on having an integrated North American supply chain,” he said.

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