Stellantis NV (NYSE: STLA) is likely to earn more subsidies for a new electric-vehicle battery plant in Canada than Volkswagen AG did for a similar project.
Stellantis and South Korean partner LG Energy Solution Ltd. unveiled the Windsor, Ontario factory last year, but work has been paused as they negotiate further financial assistance from Prime Minister Justin Trudeau’s administration. The firms are requesting the equivalent of what they would earn under the Inflation Reduction Act if the plant were located in the United States.
According to Johns Hopkins University professor Bentley Allan, the cost of the factory to Canada might reach $19 billion over a decade, making it even more expensive than the deal Canada signed to entice Volkswagen.
However, Allan believes that there are some aspects that may help Canada to reduce the cost. For example, Finance Minister Chrystia Freeland’s recent budget proposal to provide investment tax credits will assist in covering the factory’s equipment expenses.
In comparison, the US legislation signed into law by President Joe Biden last summer offers to subsidize battery cell manufacture, not just the capital expenditures of establishing and equipping a new factory.
Although the Stellantis-LG plant would be smaller at full capacity than the proposed Volkswagen plant, the firm intend to begin production next year, three years earlier than Volkswagen’s projected start date of 2027 for its site in St. Thomas, Ontario.
Given the 10-year cost projection, some Canadian economists have criticized the Volkswagen deal. While a recent Nanos Research poll for Bloomberg News said a majority of the people supports it, it’s unknown how the Canadian public would react to a second, more expensive arrangement with an automaker.
The hefty price tag may explain why Trudeau’s cabinet has spat with Ontario’s government over how much the latter is donating to the $5 billion Windsor project.
Despite Stellantis and LG’s warnings that they are examining alternative locations, Canadian and Ontario government officials have consistently stated that they are sure they will reach an agreement to keep the facility in Windsor.
The CEOs of the two businesses wrote Trudeau in April, saying his government had promised in writing to matching the IRA incentives, but they were still waiting for a signature on a “special contribution agreement” finalized in February.
“The continued delay in executing this agreement is bringing significant risk to the project,” they said.
At a hypothetical $19 billion price tag, it is currently higher than the total gross domestic product contribution by the automotive industry of $13.5 billion in 2022.
Similarly, the Volkswagen deal, lately estimated at about $13.7 billion is still higher than the industry’s share in the country’s GDP for 2022.
Information for this briefing was found via Bloomberg and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.