Inside the Volkswagen deal: How Canada fought off the U.S. to land a coveted electric vehicle battery plant

OTTAWA—An intense Canadian lobbying effort to woo Volkswagen to build an electric vehicle battery plant in Ontario began more than a year ago, and ended with an hour’s notice on Monday when the global automaker finally made its decision public.

The German-based company capped months of speculation with a simple news release out of its headquarters in Wolfsburg. No fanfare or fancy political photo op with top global auto executives, the premier, the prime minister or the ministers who crisscrossed the Atlantic to plead Canada’s case even as the United States also fiercely competed for Volkswagen’s attention.

That political show is still to come.

Even when it does, many of the big numbers — particularly, how much taxpayer money governments put on the table to lure Volkswagen here — may not be fully known.

Faced with demands Tuesday for transparency, federal and provincial government officials say that’s because they are still at the height of sensitive and competitive commercial talks to persuade other companies to come here rather than to the U.S. They claim that — despite all the talk about how integrated the two countries’ auto sectors are — revealing detailed numbers at this time not only risks driving up demands for more financial incentives, but also, if Canada is outbid, losing those plants to the Americans.

“We’re still negotiating with so many other people right now,” said Ontario Economic Development Minister Vic Fedeli in an interview with the Star.

After Volkswagen and its subsidiary PowerCo SE finally revealed they had selected St. Thomas, Ont. — a decision finalized within the last two weeks — at federal and provincial political levels there was a massive sigh of relief.

Several Canadian officials and industry players with knowledge of the talks tell a story of a high-stakes campaign behind the scenes to ensure the plant landed in Canada.

The first federal discussions took place last spring, with Innovation Minister François-Philippe Champagne meeting with Volkswagen North America’s regional board of directors.

From then on, Champagne exchanged “dozens and dozens of texts” and calls with top Volkswagen executives, including Thomas Schmall and Oliver Blume. He met with Schmall in Davos last May. In August, when German Chancellor Olaf Scholz visited Canada, he flanked Prime Minister Justin Trudeau and Champagne as they signed a memorandum of understanding with Herbert Diess, then CEO of the Volkswagen Group.

Fedeli, who also travelled several times to Germany as part of Canada’s effort, said he was “confident” that Canada had the best pitch in October when “we stood on a roof in a building in Wolfsburg looking down at the gigafactory being built there, and I thought, ‘Yeah, we know how to do this. It should land here.’”

But from Champagne’s perspective, it wasn’t a done deal until everything was signed off.

Competition from American car-making states had been fierce.

In December, Volkswagen had signalled it was serious about Canada’s offer, with CEO Oliver Blume saying at the time, “Canada is one logical option for the construction of a gigafactory in the region of North America.”

A Canadian government official, speaking confidentially to discuss internal deliberations, said “once the U.S. Commerce Department got wind of the fact that they were seriously leaning toward Canada, there was enormous pressure on Volkswagen in the last mile … to try and get them to come to the U.S., like throwing all kinds of money at them. And that’s why until the very end, although they had given us pretty solid assurances that they were coming to Canada, we were very nervous about the fact that the U.S. was really doing a full-court press on them.”

Flavio Volpe, head of the Canadian Automotive Parts Manufacturers’ Association, said in an interview he understood several states — South Carolina, North Carolina, Oklahoma, Michigan and Texas — were battling for the plant. “Volkswagen is not going to ever release the short list,” he said, but “those are very good bets.”

Volpe says the governors of those states were likely part of the pitches, and in his view, the fact that Trudeau got personally involved helped, but Volpe gives “equal credit” to the federal and provincial governments for deciding to work together to make the deal happen.

It was expected to be officially decided two weeks ago. Champagne and senior staff were travelling at the time to Detroit and New York City, and had expected Volkswagen to make a statement after a meeting of its supervisory board, the decision-making body. Yet no announcement came, with no word of explanation from Volkswagen.

Canada later learned a “technicality” had held things up that didn’t allow the company to make its decision public. For such a major investment, Volkswagen’s lawyers required documents be personally signed by all board members, said a source with knowledge of the talks.

Champagne didn’t assume anything until the hour when the company confirmed Monday a news release was imminent.

Fedeli says he never doubted it would be Canada.

A Canadian official said in the end, it almost took more time to persuade all the federal departments needed to come on board to put together an “architecture” of supports than it did to persuade Volkswagen decision-makers.

A second Canadian government official said that in August, companies that were considering Canada began to look at the incentives they could receive in the U.S. after President Joe Biden signed into law the Inflation Reduction Act, a package of about $370 billion (U.S.) in new and extended tax credits to boost the clean energy transition.

As a result, the conversations Canada was having with many of those companies became “much more serious,” with federal Finance Minister Chrystia Freeland trying to determine “the level and scope of support that Canada could provide to attract these investments while balancing the other pieces of the budget” that will respond to America’s massive aid package.

Some details of what kind of supports are on offer may become clearer when Ontario tables its budget March 23, and Freeland tables a federal budget March 28. But Fedeli cautioned that “we’re talking about a lot at stake here. We don’t need our competitors in the U.S. to know what we are or aren’t doing.”

Trudeau on Tuesday deflected questions about how much it will cost Canadian taxpayers, saying his government will continue to “do what we need to make sure that the financial incentives are there to make us competitive around the world.”

Speaking in Bridgewater, N.S., Trudeau said those are “important … in a world where all sorts of different countries are willing to throw massive amounts of capital to draw in investments, but at the same time, Canada also has tremendous other advantages that is extraordinarily difficult for countries around the world to match.”

That was the core of Champagne and Fedeli’s pitch: Canada is a reliable source of critical minerals needed for electric battery cell production, and can supply clean energy, “green” steel, a stable labour force with access to publicly funded health care, and tariff-free access to all Group of Seven markets, not just the U.S.

“It’s not always about the money. That’s the point,” Fedeli said.

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