TORONTO—Multinational companies are pumping billions of dollars into Canada’s electric-vehicle manufacturing sector, lured by government incentives, access to raw materials and cheap renewable energy.
“This is a big moment for Canada,” said Franois-Philippe Champagne, Canada’s minister of innovation, science and industry, about the many investments.
Volkswagen cited Canada’s natural resources as one of the reasons for choosing Ontario.
“Canada offers ideal conditions, including the local supply of raw materials and wide access to clean electricity,” the company said in a news release.
Volkswagen’s planned factory follows recent electric-vehicle and battery-making project investments by General Motors Co. , Stellantis NV, French tire-maker Michelin NV, Brazilian miner Vale, its U.K.-based rival Rio Tinto PLC, and German chemicals company BASF SE, among others.
Canada is benefiting from a push by the U.S. and its allies to reduce their dependence on China for the critical minerals used in electric-vehicle batteries and military equipment. Companies announced more than $11 billion in investments in electric-vehicle-related projects in Canada last year, according to a tally of company announcements. The U.S., which has an economy that is 12 times as large as Canada’s, recorded $38.9 billion of similar investments in 2022, according to the Center for Automotive Research, a Michigan-based nonprofit.
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Photo illustration: Clment Brge/WSJ In one example, Stellantis and South Korea’s LG Energy Solution are building a $4.1 billion battery plant in Windsor, Ontario, just across the river from Detroit. The joint venture, named NextStar Energy Inc., broke ground on the factory late last year and could employ 2,500 workers when it becomes operational in 2024, Stellantis said.
Rio Tinto plans to upgrade its iron-ore and titanium refining facility in Sorel, Quebec.
Canada has had to pay up to win the investments, scrambling to keep up with the U.S., which has unveiled a raft of subsidies and tax breaks meant to draw capital investment in the EV industry.
In the case of the NextStar project, Canada’s federal government and the province of Ontario gave more than one billion Canadian dollars, equivalent to $732 million, to the joint venture, said people with knowledge of the transaction. The Canadian government has also contributed money to investments by Rio Tinto, Honda Canada Inc., GM and others.
The new investments, many of which are still in the early stages, come amid a decadeslong decline in the Canadian auto industry. Canada is among the most expensive countries in the world to build cars and the highest-cost market for car assembly in the North American free-trade zone. To save money, auto makers in recent decades moved thousands of manufacturing jobs and motor-vehicle assembly capacity to Mexico.
At its peak in 1999, Canadian auto production surpassed three million vehicles and employed more than 175,000 people, according to the Trillium Network for Advanced Manufacturing, a nonprofit. Last year, the local industry produced 1.2 million vehicles and employed 110,000 people.
It is unclear whether the new investments will reverse the declining trend, said Greig Mordue, an associate professor at McMaster University’s W. Booth School of Engineering Practice and Technology. Making batteries and electric vehicles needs fewer people than assembling internal-combustion-engine cars, he said, and the amount of money invested using taxpayer funds could limit the economic benefit.
Rio Tinto plans to use its plant in Sorel-Tracy, Quebec, to expand its processing of the rare-earth element scandium oxide.
“Until we know how much we paid for this, I’ll reserve my judgment on how good a deal this is,” said Mr. Mordue, in reference to the Volkswagen deal.
Mr. Champagne declined to disclose the value of subsidies and incentives that the government offered Volkswagen. He said the long-term benefits to the Canadian economy from the new projects justify the government’s investments.
The Canadian government is pitching itself as a counterweight to China in the race to develop electric-vehicle technology. China leads the world in processing metals and minerals like nickel, copper, lithium and cobalt. It also is home to 78% of the world’s cell-manufacturing capacity for EV batteries, according to the Brookings Institution.
The desire to counterbalance China was one of the motivations behind President Biden’s Inflation Reduction Act, a climate, healthcare and tax plan that included several tax credits for electric-vehicle production.
Many of those credits also cover products made in Canada, and the country is hoping to leverage those to boost its own manufacturing base.
Also helping Canada’s pitch: It is one of the few places in the Western Hemisphere with the raw materials companies need to make their electric vehicles.
Aluminum is unloaded at the port in the industrial park in Bcancour, Quebec.
An excavator prepares the land for factories at the industrial park in Bcancour, Quebec.
Toronto-based Electra Battery Minerals Corp. owns a 40,000 square-foot refinery that is located near the Northern Ontario town of Cobalt, named for the silver-gray metal embedded in the area’s surrounding hard rock.
The refinery is the only facility available in North America for processing battery-grade cobalt, a metal used as a stabilizer in modern batteries. Most of the world’s cobalt processing happens in China. The only other similar refinery in the Western Hemisphere is in Brazil.
Electra’s refinery will produce enough material to supply 1.5 million car batteries next year, or roughly 5% of global supply, said Trent Mell, Electra’s CEO. Electra signed an agreement last year to supply battery-grade cobalt to LG Solution, Stellantis’s joint-venture partners in Windsor.
East of Ontario, Quebec is also vying to become a North American center for battery manufacturing, two decades after the last remnants of a small auto industry left the province when GM closed a Chevrolet Camaro and Pontiac Firebird assembly plant in the Montreal suburb of Sainte-Thrse.
Last year, GM announced it is coming back to the province. The car company formed a joint venture with South Korea’s POSCO Chemical, which will run a plant making battery materials in a new 17,000-acre industrial park in the town of Bcancour. German chemicals company BASF and Brazilian miner Vale also have proposed building factories in the town, located on the shore of the St. Lawrence River about 100 miles northeast of Montreal.
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Rio Tinto also announced last year that it would upgrade an iron-ore and titanium refining facility in the 380-year-old town of Sorel, Quebec, with an investment of more than $500 million. The company said it would use the money to lower carbon emissions at the plant and expand its processing of scandium, a rare-earth metal used to strengthen aluminum alloys for aerospace and military applications.
China and Russia produce most of the world’s scandium today, and Canada’s entry into the global market could provide Western manufacturers with a more friendly source for the critical metal, said Didier Arseguel, vice president of technology for Rio Tinto Iron and Titanium, a Quebec-based subsidiary of the mining company.
Access to hydroelectricity was a key reason GM and POSCO chose Quebec for their project, said David Paterson, vice president for corporate and environmental affairs at GM Canada. The renewable power helps lower GM’s greenhouse-gas emissions. Quebec also offers the lowest industrial rates for power in North America, with rates that are roughly half of the North American average, according to the provincial utility, Hydro-Quebec.
“It’s the gift that keeps on giving,” Mr. Paterson said.
Mr. Champagne has been pitching foreign manufacturers. He said in an interview that he cold-called Volkswagen’s board member Thomas Schmall in April last year and tried to sell him on the idea of Canada as a logical destination for any new plants. Later the same month, Mr. Champagne made an hourlong presentation to the company’s North American board in Toronto. He then met with company board members in Davos, Switzerland, and visited the company’s headquarters in Wolfsburg, Germany, several times. In December, he spoke at the company’s global management conference before an audience that included the German auto maker’s top executives.
On Monday, he found out an hour before Volkswagen sent out its press release that his efforts to woo the company had paid off.
“It’s been a good year, and it’s only March,” he said.