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'Everyone wanted this': Trudeau defends $13.2B in subsidies for VW battery plant

It'll be 5 years before the plant's economic impact will equal the government's investment in it, Ottawa says

Canada's Prime Minister Justin Trudeau speaks during a news conference to announce details on the construction of a gigafactory for electric vehicle battery production by Volkswagen Group's battery company PowerCo SE in St. Thomas, Ontario, Canada April 21, 2023.  REUTERS/Carlos Osorio
Canada's Prime Minister Justin Trudeau speaks during a news conference to announce details on the construction of a gigafactory for electric vehicle battery production by Volkswagen Group's battery company PowerCo SE in St. Thomas, Ont. (REUTERS/Carlos Osorio) (Carlos Osorio / reuters)

Prime Minister Justin Trudeau defended the federal government's plan to provide up to $13.2 billion in subsidies for Volkswagen AG to build an electric vehicle battery plant in Ontario, calling it a "generational investment" that will create thousands of jobs.

Trudeau was joined on Friday by Innovation Minister François-Philippe Champagne, Ontario Premier Doug Ford, Ontario Economic Development Minister Vic Fedeli and Volkswagen executives in St. Thomas, Ont., the site of the future Volkswagen plant, to promote the investment.

The plant will be Volkswagen's largest to date, expected to produce batteries for up to one million electric vehicles per year once it is completed in 2027. Construction is expected to begin next year.

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Volkswagen is investing $7 billion to build the plant, while the Canadian government is providing billions more in support. As first reported by Bloomberg News on Thursday, the Canadian government has agreed to provide up to $13.2 billion in subsidies and a $700 million grant to bring the automaker to Ontario.

"Other parts of the world, including our neighbours to the south, were willing to put up an awful lot of money to get this project," Trudeau said at the press conference in St. Thomas on Friday.

"Everyone wanted this. So yes, we put up a lot of money, money that's going to come back in investments in economic activity very quickly."

Both the federal and provincial governments say the new plant will create 3,000 direct jobs and 30,000 indirect jobs. The federal government has said that it will take five years for the economic impact of the plant to equal the government's investment in it.

"We're not just bringing back manufacturing. We're bringing back a strong, thriving economy for this community and we're delivering a national anchor for Canada's electric vehicle supply chain," Trudeau said.

"The Volkswagen EV battery plant is a generational investment in St. Thomas and all of Ontario and Canada."

Ford said on Friday that the Ontario government is providing $500 million in direct support to Volkswagen for the new battery plant. The province will also invest in infrastructure projects in the region, including making improvements to roads, highways, utility services and police and fire services.

The government subsidies and direct investments highlight the pressure governments outside the United States are facing to provide financial incentives to lure green investments. The U.S. Inflation Reduction Act (IRA), the Biden administration's signature climate change legislation, offers hundreds of millions of dollars in subsidies for electric vehicles and other clean technologies.

The federal government committed to providing Volkswagen with the same production supports to match the U.S. Advanced Manufacturing Production credit outlined in the IRA. Ottawa says its agreement with Volkswagen has the flexibility to be adjusted if the credits change in the U.S. The investment is expected to be between $8 billion and $13.2 billion, depending on production levels.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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