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Prime Minister Justin Trudeau and Quebec Premier Francois Legault, third from left, hold a prismatic cell after an announcement on Sept. 28 that Northvolt Batteries North America will build a new electric vehicle battery manufacturing plant near Montreal.Christinne Muschi/The Canadian Press

Quebec Premier François Legault’s government is making one of the biggest bets in its five years of power, pledging $2.9-billion in financing to Swedish battery maker Northvolt AB as the province builds out an electric-vehicle battery industry it hopes will be the envy of the world.

The province is providing loans and taking equity worth $1.37-billion in Northvolt to allow the company to build the first phase of a new $7-billion lithium-ion battery factory just outside Montreal in Saint-Basile-le-Grand. Quebec will also offer to pay up to one-third, or $1.53-billion, of $4.6-billion in production incentives to the corporation, the province said in a news release Thursday.

Ottawa is committing up to $4.4-billion to Northvolt, including $1.34-billion to build the plant, and providing the bulk of the production incentives. The two levels of government are seeking to compete with a U.S. clean-tech industry that has been turbocharged over the past year by incentives that are part of President Joe Biden’s Inflation Reduction Act.

Sweden’s Northvolt picks Quebec for new multibillion-dollar EV battery factory

It’s the largest private investment in Quebec history. It’s also a major wager of public money on a company still in its infancy, the latest opening of the purse strings in what Quebec Economy Minister Pierre Fitzgibbon has said could be $5-billion of public spending on the battery industry when all is said and done.

Northvolt is aiming to start construction this year and begin operations in 2026.

“This is an extremely strategic development for the Quebec economy,” Mr. Legault said. He joined Prime Minister Justin Trudeau and other senior political leaders for the announcement in Montreal on Thursday morning.

Mr. Legault said his government is building on the legacy of former premier Robert Bourassa, who had the foresight in the 1970s to use an extensive hydroelectric dam system in the province’s north to modernize the province and create jobs. He said the same criticisms levelled at Mr. Bourassa then – that the government was spending a crazy amount of money to achieve its goals – are popping up now. They are misplaced, he said, because Quebec is building a green economy for future generations.

“Could this happen without any external subsidies? Probably yes. But probably not at the same speed,” Northvolt chief operating officer Paolo Cerruti said in an interview. He and chief executive officer Peter Carlsson, both former executives at Tesla Motors, founded Northvolt in 2016.

Northvolt is taking over a site stretching over 170 hectares, roughly equivalent to 140 soccer fields under the rules of the sport’s international governing body. The company says the plant will have 60 gigawatt hours of annual battery cell production capacity at maximum output, enough for one million EVs. Adjacent facilities for battery recycling and cathode active material making will also be set up.

“Northvolt’s investment will bring end-to-end battery manufacturing to Canada, making our country one of only a few locations to have this capacity outside of Asia,” Mr. Trudeau said.

As the adoption of zero-emission vehicles takes hold as part of an energy transition away from fossil fuels, batteries will be an instrumental cornerstone in that change, Mr. Cerruti said. “This is a damn difficult, technologically advanced and very capital-intensive industry to be in. If we want this to happen, it has to happen faster.”

In Quebec, the company has found a willing partner. The province believes it can become a global hub for EV battery production and development, luring companies with its low-carbon hydroelectricity, access to raw materials and generous financial backing in tandem with the federal government. It has scored some early victories in that effort.

In addition to the Northvolt investment, General Motors Co. GM-N is partnering with South Korean battery material maker Posco Chemical Co. Ltd. on a new cathode factory in Bécancour, Que. Ford Motor Co. F-N is working with South Korea’s EcoProBM and SK On Co. Ltd. on a $1.2-billion plant that would produce EV battery materials in that same city. And earlier this month, South Korea’s Solus Advanced Materials Co. Ltd. said it is opening a new plant in Granby, Que., to make copper foils for electric vehicles, the first such facility in Canada.

Northvolt considered sites in the United States but chose Quebec chiefly because of its renewable energy and access to natural resources, Mr. Cerruti said. He said the company plans to source much of the lithium and other raw materials needed locally, giving Quebec and Canada a chance to benefit more fully from the transformation of metals being pulled out of the ground and move beyond its historic role as an exporter of ore.

“This is a kind of opportunity of a lifetime to get much more value out of the natural resources which are in this country,” Mr. Cerruti said. In that sense, “We have certainly selected Quebec. But Quebec has also selected us.”

Northvolt currently produces batteries for transport and energy storage at a factory in northern Sweden and has the backing of U.S. asset manager BlackRock Inc. among several institutional investors. It has signed US$55-billion in supply deals with such European companies as Volkswagen, BMW, Fluence Energy, Scania AB, Volvo Cars and Polestar.

Still, providing this level of public funding to a company in its early development carries risk. The Sweden plant isn’t yet at full capacity, and the company has yet to prove that it can produce consistently on a large volume basis. A handful of other factories in Europe are also in the works.

More broadly, there’s no guarantee the lithium-ion batteries that will be made for automakers such as Volkswagen and BMW will remain the dominant technology in the industry 10 years from now. That could mean more public money down the road to help the companies now working here adapt and change tack.

And there’s a more immediate issue. Northvolt says the factory project will employ up to 3,000 people in the first phase. Where will it find that many people in an economy already near full employment if not by poaching them from other industries? And as Canada experiences an acute housing shortage, where will they live?

The Canadian Taxpayers Federation called on Quebec to stop the “corporate welfare” to Northvolt, saying the government doesn’t have $3-billion to waste.

“This money could be used to renovate or rebuild more than a dozen dilapidated schools in Quebec or to reduce taxes for struggling Quebeckers,” said Nicolas Gagnon, the group’s Quebec director. “Instead of giving buckets of cash to hand-picked multinational corporations, Legault should be cutting taxes and red tape to help all Quebec’s businesses.”

Others have a different view.

“Basically, it’s a calculated risk” for the federal and Quebec governments to support Northvolt and other major players, said Yan Cimon, a specialist in corporate strategy and governance at Quebec City’s Laval University.

“We would have the moral high ground” if no public money was injected into the industry, he said. “But we wouldn’t have the high-quality jobs. We wouldn’t have the structuring plants in an industry that’s booming and about to boom even more. … The fact that these big players are actually positioning themselves and coming here says a lot about what we can do and what we can offer.”

Quebec has been in talks for the Northvolt factory for months as Canada seeks to compete with the U.S. for next-generation manufacturing. America’s Inflation Reduction Act includes US$369-billion in funding for green energy and related technology, as well as EVs and energy efficiency measures. Ottawa and provincial governments have responded with billions of dollars in public funding to lure battery makers and suppliers into building plants in Quebec and Ontario.

The federal and Ontario governments announced a deal in April to provide Volkswagen with up to $13.2-billion in subsidies for production support after the company builds a battery plant in St. Thomas, Ont. In June, Stellantis NV and LG Energy Solution Ltd. reached a deal with those governments for as much as $15-billion in subsidies to restart construction on their EV battery factory in Windsor, Ont.

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