The stakes in the $3 trillion electric vehicle game couldn’t be higher. Why Canada needs to ante up

If Stellantis N.V., the world’s third-largest automaker, extracts as much as $19 billion in government subsidies for its electric vehicle (EV) battery plant under development in Windsor, the reason won’t be that Ottawa and Ontario are engaged in a “subsidy war” with the U.S., as critics have alleged.

Canada is matching, and not outbidding, the decarbonization incentives in last year’s U.S. Inflation Reduction Act (IRA) in subsidizing EV assembly plants and EV battery manufacturing in Canada.

It’s trying to hold its own against the staggering $369 billion (U.S.) that the IRA commits to private-sector green subsidies.

Stellantis halted construction of its Windsor plant last month pending further Canadian government subsidies it seeks. The unspoken threat is that Stellantis will build its plant in the U.S. instead.

Negotiations have been difficult because Stellantis CEO Carlos Tavares is emerging as the tough guy of the global auto industry.

Tavares, 64, is so occupied with cost control that Stellantis employees in Italy claim his stingy maintenance budgets account for clogged toilets and uncut grass at Stellantis factories.

Tavares is demanding a top-up of Canadian state subsidies for his $5-billion Windsor battery plant, announced early last year with about $1 billion in Ottawa and Ontario subsidies.

Later last year, the IRA came into force, threatening to attract an ungainly share of global green-tech investment to the U.S. at the expense of Canada and other countries.

That obliged Ottawa in April to pony up as much as $13 billion over 10 years for Volkswagen AG’s first “gigafactory” (industry jargon for large EV battery plants) outside of Europe, in St. Thomas, Ont.

In coming days, Stellantis is expected to get a VW-type deal, in which Canadian governments subsidize not only battery-plant construction costs but ongoing battery output, as the IRA does.

Tavares, 64, earned his reputation for hard bargaining as a top executive at French automaker Renault S.A. and then as CEO at Peugeot-Citroën maker PSA Group.

In 2021, PSA merged with the Fiat-Chrysler auto group to create Stellantis (which roughly translates as “to brighten with stars”).

The merger rationale was to cut billions of dollars in costs from a combined entity primed for rationalization.

Saddled with more brands (14) than any major automaker, Stellantis will scrap or downsize several of them.

The Fiat brand will probably disappear from Canada and the U.S. in the next few years after a decade of dismal sales. And weak Stellantis brands like Alfa Romeo, Lancia and the Chrysler 300 might not survive Tavares’ culling of marginal businesses.

Ahead of that rationalization, Tavares is already reducing payroll, offering buyouts to 33,500 U.S. employees and cutting Stellantis’ Italian workforce by 4.3 per cent.

Tavares is mulling a withdrawal from China, the world’s biggest auto market, to make lower-cost EVs in India instead.

If they underestimated Tavares, Ottawa and Queen’s Park probably have taken note of the downsizing of Britain’s auto sector.

Several U.K. auto plants have closed. And Stellantis and other automakers are threatening to abandon the U.K. altogether due to unfavourable post-Brexit trading arrangements.

But another factor is Britain’s inability to develop the kind of domestic EV supply chain to which Ottawa, Ontario and Quebec are committed.

And none too soon. After a slow start, EV sales are now booming. Last year, they topped 10 per cent of total global vehicle sales for the first time.

At Stellantis, Tavares is aiming for annual EV production of 5 million units by 2030, close to Stellantis’ 2022 total production of 5.8 million vehicles.

The EV transition is hugely expensive in retooled assembly plants, new gigafactories and copious R&D spending. Automakers have committed about $40 billion (U.S.) to their dozen or so planned North American battery plants alone.

And that has Tavares and his peers obsessing as much over potential runaway costs as their pursuit of secure access to batteries and computer chips.

While EV showroom prices have eased, they remain higher than gas-powered cars. EV production costs remain high, with Ford Motor Co., for one, losing money on each of the popular Mustang Mach-Es it sells.

Eventually, higher EV production volumes will reduce unit costs and sticker prices. But for now, relentless cost control is a top priority.

In reaching a deal with Stellantis, Ottawa and Queen’s Park have some leverage to prevent excessive subsidies.

Automakers want their battery factories close to their assembly plants to keep costs down. Windsor has the advantage of proximity to Stellantis assembly plants in Windsor and Brampton, and to the Windsor-Detroit gateway to Stellantis’ network of U.S. plants and dealerships.

Canadians have seldom seen such an infusion of “corporate welfare” as the Ontario-centred auto sector has received in recent years.

But if Canada wants to remain a significant force in the $3 trillion (U.S.) global auto industry, it should come as no surprise that the entry fee to the small club of major 21st-century automaking jurisdictions is high.

David Olive is a Toronto-based business columnist for the Star. Follow him on Twitter: @TheGrtRecession