Canadian VW battery plant would be a coup

On Dec. 1, 2022, the Volkswagen Group came tantalizingly close to naming Canada as home to the automaker’s first North American battery cell plant.

CEO Oliver Blume stopped short of singling out the country as the only place Volkswagen was considering but said Canada is “a logical option.”

His comments came as the automaker agreed to work with the federal government to identify sites for a planned battery cell plant for VW subsidiary PowerCo.

If Ottawa can close out the deal, it would likely be the Canadian auto industry’s biggest coup since the arrival of Honda and Toyota in the 1980s.

In the spring of 2022, Stellantis announced plans to build a $5-billion cell factory in Windsor, Ont., with LG Energy Solution. But unlike the Chrysler, Dodge, Jeep and Ram parent company, which has operated in Ontario for decades, Volkswagen would be a new addition to Canada’s manufacturing sector.

The automaker has provided few other details on its search but said PowerCo has a short list and will enter negotiations “in the near future” to identify the most competitive site.

The process will put Canada’s two largest provinces in competition.

Ontario already has the assembly operations of five automakers and a lengthy list of parts suppliers. But recent battery supply-chain activity in Quebec, plus the province’s stores of hydro-electric power, makes it a contender.

In fact, Thomas Schmall, VW’s technology chief, named “adequate quantities of energy from renewable sources and competitive financial conditions” as among the key inputs that PowerCo is considering. On these metrics, Quebec holds an edge. Its electricity grid runs almost entirely hydroelectric. For large customers, that power is also the cheapest of any major market in Canada or the United States — $5.33 cents per kilowatt-hour in the Montreal area as of April, according to a HydroQuebec report.

Ontario’s grid is also extraordinarily clean by global standards, generating 94 per cent of its power emissions-free, according to the provincial government. That comes mainly through a blend of nuclear and hydro.

But the role of gas-fired generation has risen in recent years, and in October, Ontario’s grid operator called for the province to invest in natural-gas plants to meet nearterm supply constraints.

Costs are also higher. Large commercial customers in the Toronto area were paying $9.76 cents per kWh as of April, according to the same Hydro-Quebec report.

On the other hand, Ontario has its nose ahead when it comes to proximity to Volkswagen’s nearest assembly operation. A plant in the province’s automotive heartland would be about 700 kilometres closer to supplying VW’s plant in Chattanooga, Tenn., than one located, for example, in the Montreal area.

A decision could come sooner rather than later, with some industry observers predicting an announcement sometime over the next six months.

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