Steep political stakes involved in battery plant talks, observer says

Facing a political price possibly even greater than the eye-popping bill for the subsidies required to secure the $5-billion NextStar Energy battery plant deal, it was quite predictable that Ontario would offer more money to keep the plug being pulled on the Windsor project, said a local political observer.

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"The premier didn't have much choice, they’re such a big employer and such an important part of the economy," said University of Windsor political science professor Lydia Miljan. "If he didn't act, it would be too easy for the feds to blame him.

"This way the ball is in the feds’ court. Now they’re the ones that have to close the deal."

The dispute between the federal government and Stellantis and LG Energy Solutions over the public subsidies, which could reach about $1.8 billion annually, saw the partners threatening to withdraw from the project.

While the two companies were accusing the federal government of reneging on promises made in February, the Trudeau government argued the Ontario government needed to pay more to help match the massive subsidies being offered by the Americans’ Inflation Reduction Act.

Miljan said once Stellantis/LG went public with the negotiations, the pressure on both governments virtually assured they’d have to respond.

She cited the leak that Stellantis's Brampton assembly plant ‘was on the chopping block’ if the battery plant deal collapsed as a shrewd move on the private company's part that likely helped break the logjam.

It took what had been viewed elsewhere as a strictly Windsor issue and made it a problem in the voter rich Greater Toronto Area. All five federal seats in Brampton are held by the Liberals, while all five provincial seats are represented by Progressive Conservatives.

"When you can raise an issue that affects more than one location, especially one with so many seats the Liberals and PCs need to form a government, it increases the pressure and the attention you’ll get," Miljan said.

"It says, ‘We’re serious and we know how to hurt you.’ Stellantis is doing what they need to do maximize their profits for their shareholders."

Now that the federal government has gotten Ontario to kick in more support (Premier Doug Ford made the announcement on Friday), Miljan believes a deal should get finalized. She added Justin Trudeau's federal Liberals has always had more political capital at risk than the province in this dispute.

"Ultimately, this would hurt the federal government more than the province," Miljan said if the Windsor project being killed.

"We’d lose a plant and all the jobs, but it would also show we’re not really committed to the plan to compete versus the Americans in a non-carbon economy. It would put us behind."

Miljan added what played out last week was a classic formula to help the government justify the subsidies to the public and other political players, as well as set some funding precedents.

"They manufactured a crisis to get people up in the air and demand they do something they want to do anyway," Miljan said.

"You create the demand for the justification, and in the end you can say you’re responding to the people."

Those following the talks have said the government's hesitation in signing off on the promises made to Stellantis in February can be traced back to the reaction to the scale of the subsidies by the Liberals’ own caucus and cabinet members, along with premiers from outside of Ontario.

The federal government has also been fending off public criticism since Volkswagen's St. Thomas battery plant deal was announced in April, which offers the German automaker up to $13 billion in supports.

"Politicians cannot allow themselves to be held hostage by wealthy corporations demanding taxpayer cash," Jay Goldberg, the Canadian Taxpayers Federation's Ontario director, said in a statement following the premier's promise to boost Ontario's contribution.

"By giving into Stellantis's demands and giving the company even more money, Ford is not only disrespecting Ontario taxpayers, but he's also setting himself up to be held hostage by other companies in the future," said Goldberg. Doug Ford didn't provide a figure of what the province's new NextStar subsidy might be.

Sources have told the Star the federal government was also concerned about reaction to the Windsor subsidies being the same or even larger than the VW plant, though it is only half its size at 45 gigawatts.

The Windsor numbers might be comparable as the plant could draw maximum subsidies for three years before the VW plant becomes operational in 2027. The subsidies begin to taper off by 25 percentage points in each year beginning in 2030.

To help defray future subsidy costs for any new electric vehicle projects, the Liberals were also looking to set a precedent by getting Ontario to pony up on IRA-related subsidies in the Stellantis deal.

"I would agree with that," said Windsor-Tecumseh Liberal MP Irek Kusmierczyk. "(President Joe) Biden's IRA bill created a new reality.

"For us to be successful for future investments, we need all-hands-on deck. It's not just Ontario, but also for Quebec or any other jurisdiction. We need partnership."

Before Ontario agreed to kick in more cash, multiple sources told the Star the federal government was toying with not subsidizing the NextStar module plant, part of the overall project. The subsidy savings for doing that would be around $450 million annually and the fear was that those funds would be redirected to support current efforts to land a battery factory in Quebec.

Tesla has long been a rumoured partner and the French firm Automotive Cells Company is believed to be eyeing the province.

"It's always a risk favouring Quebec over other regions," said Miljan of redirecting funds from the Windsor project.

"The feds may be able to do that if it was Alberta, because they’re not winning many seats in Alberta. Ontario has a lot more Liberal seats and they need them to form a majority.

"You can't play those two regions off against each other. That's a risky for game for the Liberals."

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