Ottawa at stalemate over Stellantis battery factory, calls on Ontario to pay its ‘fair share’

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Innovation Minister François-Philippe Champagne is calling on Ontario to help end a stalemate over subsidies that has halted construction of Canada’s first electric-vehicle battery plant, but the province says it’s up to the federal government to honour its commitments.

As automaking giant Stellantis NV STAL-N and battery maker LG Energy Solution Ltd. threaten to relocate their joint $5-billion project from Windsor, Ont., unless Canada matches billions of dollars in incentives offered in the United States through the Inflation Reduction Act – as it did for a second battery plant being built in Ontario by Volkswagen – Mr. Champagne said on Tuesday that the province needs to contribute an unspecified “fair share” of that tab.

Speaking to reporters from South Korea, where he is on an official visit with Prime Minister Justin Trudeau before the Group of Seven summit in Japan later this week, Mr. Champagne said he plans on having an impromptu meeting with LG’s leadership – which is based in that country and has been less vocal than Stellantis in the subsidy dispute – at a state dinner on Wednesday in Seoul.

“I’m very confident that we will come to an agreement with LG and Stellantis,” Mr. Champagne said.

“The message to our colleagues in Ontario is, you know, pay your fair share. And we will bring this stalemate, if you want, to a conclusion.”

Future of Ontario’s Stellantis battery plant remains unclear as Ford ‘disappointed’ in Ottawa

While Mr. Champagne struck an optimistic tone about the dispute being resolved, the industry group that represents Stellantis in Canada cautioned against taking the threat to pull up stakes in Windsor lightly, particularly with the auto maker needing to make quick decisions to be able to meet its target of starting to produce batteries in 2024.

“This is a very serious situation,” Brian Kingston, president of the Canadian Vehicle Manufacturers’ Association, told The Globe and Mail. “If this is not resolved quickly, there are contingency plans. This is not a negotiating tactic.”

To avoid losing the project, Mr. Kingston said, Canada needs to be willing to match the Inflation Reduction Act subsidies “dollar-for-dollar.”

While the dispute between Stellantis-LG and Ottawa has only boiled over into public view in recent days, it has been percolating for months.

Stellantis and LG initially struck a deal for approximately $1-billion in capital-cost subsidies, split between Ottawa and Queen’s Park, in return for locating in Windsor. But that was before the implementation of the Inflation Reduction Act (IRA) in August, 2022.

Almost immediately after that legislation passed, the companies began to seek assurances from Ottawa that the Windsor plant would not be on an “uncompetitive footing” with the U.S., according to a letter sent last month from the companies’ chief executives to Mr. Trudeau and obtained by The Globe. The letter was first reported in the Toronto Star.

The letter says Ottawa provided five written documents confirming commitments to match production incentives under the IRA, but has failed to follow through, and it warns that the companies will be forced to make “difficult decisions” about the project and other investments if those commitments aren’t met.

Mr. Champagne confirmed to reporters that after the IRA passed, his government committed to levelling the playing field with the U.S. and offering a deal “quite similar to what we’ve offered Volkswagen.”

The exact cost to taxpayers of matching the IRA for either of the factories is not possible to predict, because the U.S. subsidies – provided through production tax credits – are tied to how many battery cells and modules are produced by plants between now and a phase-out of the subsidies by 2032.

But the Canadian subsidies for the Volkswagen plant have been projected to cost between $7-billion and $13-billion. And the Stellantis-LG plant, which would have somewhat lower capacity than Volkswagen’s but begin operations sooner, would likely be in the same range.

Mr. Champagne’s office did not provide a specific figure of what a “fair share” of that funding would be for Ontario, adding that it would be part of negotiations. He told reporters he is looking for Ontario to provide “production support” on the Windsor plant, but didn’t specify what that would entail.

Ontario Premier Doug Ford has rebuffed Ottawa’s demands for more money, arguing the federal government was negotiating separately with Stellantis. Mr. Ford said it is up to Mr. Trudeau’s government to match the federal subsidies offered by the U.S.

Ontario Finance Minister Peter Bethlenfalvy on Tuesday told The Globe that the province has upheld its commitments.

Asked about the pressure from Ottawa for the province to pay more, Mr. Bethlenfalvy said, “Joe Biden isn’t putting pressure on Michigan. And I think that they’ve got a commitment in place with Stellantis, they should honour their commitments.”

Despite the public finger-pointing between Ottawa and Queen’s Park, a senior federal official said that behind the scenes, talks are under way between high-level representatives of both governments to determine responsibility for additional Stellantis-LG funding.

An Ontario official confirmed that such talks were continuing, but said the province was not involved in the federal government’s negotiations with Stellantis about IRA measures and was not aware that commitments were made to the company since last August.

The Globe is not identifying the officials because they were not authorized to speak on their governments’ behalf.

Both governments face mounting pressure to save what is supposed to be an anchor investment that will help Canada meet its ambitions of building a full supply chain for electric vehicles, which are expected to dominate the automotive market in the coming decades.

Lana Payne, national president of Unifor, the lead union for auto workers and auto-parts workers in Canada, said that thousands of jobs in other areas of Ontario are now at stake if Stellantis and LG walk away from the Windsor plant.

“Once that piece is removed from a very significant plan, then other things start getting re-examined,” she said.