The European Union says Canada’s deal to dole out $13 billion in federal subsidies to secure a Volkswagen EV plant is a challenge to its battery industry, along with America’s Inflation Reduction Act (IRA).
Earlier this year, the federal government announced it would ply Volkswagen with federal funds in return for a battery plant to employ 2,500 people in southwestern Ontario.
An EU report says this deal, along with tax incentives granted for similar initiatives under the IRA, present a challenge to the value of Europe’s battery industry.
“There is now the potential knock-on effect that several net-zero tech manufacturing investment decisions which were originally targeting the EU are being jeopardised because of the IRA or other net-zero industry support policies around the globe, representing a challenge to EU’s industry,” the report reads.
The report is a working document from EU commission staff about establishing a framework of measures for strengthening Europe’s net-zero technology products manufacturing ecosystem, also known as the Net Zero Industry Act.
The Volkswagen plant will cost $5 billion to build, and the subsidies will flow over the next decade in return for the German vehicle manufacturer’s first overseas battery manufacturing plant.
The report also says the $13 billion going to Volkswagen matches what the company would have received in America under the IRA, another challenge to Europe’s industry.
The IRA, America’s climate legislation, became law in August 2022 as a means to incentivize businesses to accelerate transition to a clean energy economy.
EU analysts claimed that US manufacturing facilities are estimated to benefit largely from the IRA, and receive the highest influx of investments at the expense of Europe’s battery industry and its value chain.
The report notes that US electric vehicle maker Tesla recently announced that its German plant will continue to produce some parts of electric cars, but priority will be given to the US due to the “attractiveness” of the IRA.
“In particular, although Tesla began assembling battery systems and prepares to produce battery cell components such as electrodes at its plant in Germany, it announced that it will focus instead on battery cell production in the United States in light of tax incentives under the Inflation Reduction Act,” the report reads.
It further expresses concern that important supply chains and green investments will locate from the EU to the US over the medium term because of the legislation’s local content and production requirements
“Some EU-based businesses have expressed their possible intentions of diverting previously planned investments from the EU to the US.”
Ottawa has pledged to remain competitive with the US and convince electric vehicle battery producers to build plants in the north.
“This is game-changer for our nation,” Innovation Minister François-Philippe Champagne said of the Volkswagen plant in April.
“When you see a transformation in history like that, you have to seize the moment. You lose that, what’s going to happen to the auto sector? What’s the cost of inaction?”
The Canadian Taxpayers Federation federal director Franco Terrazzano argues the money given to Volkswagen would’ve been better suited for Canadians during tough economic times.
“Taxpayers don’t have $13 billion to give to a multinational corporation,” Terrazzano said when the deal was announced.
“For $13 billion, Canada could build 15 hospitals based on the construction costs of the Grande Prairie Regional Hospital.’
Conservative leader Pierre Poilievre was also critical of the deal, arguing that taxpayers’ money does not belong to foreign companies.
“This money belongs to Canadians, not to a foreign corporation,” he said when the factory was first announced.
