Canadian Manufacturing

How Volkswagen was wooed

The Canadian Press

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It was in early 2022 that Volkswagen was beginning to consider where it might locate a battery plant to service its North American manufacturing sites.

The $14-billion deal that will see Volkswagen, the world’s largest automaker, set up a manufacturing presence in Canada for the first time in history, took a year of negotiations on both sides of the Atlantic Ocean.

But the talks that led Volkswagen to choose southwestern Ontario for the location of its first battery plant outside Europe all started with a whim.

Out of the blue in early 2022, Industry Minister Francois-Philippe Champagne decided he should call the company’s then-North American CEO, Scott Keogh. His staff dug up the number.

Champagne said in an interview with The Canadian Press that he’d never met Keogh before, but he got him on the phone on St. Patrick’s Day last year.


“I introduced myself, and I said, ‘Listen, here I am, Minister Champagne from Canada. I would like to start a discussion.'”

Volkswagen has sold cars in Canada for decades, but it has never made them here. Still, like other large automakers, it is making the transition to produce electric vehicles. And producing the batteries that power them requires a solid supply chain.

Canada is in the midst of a massive push to corner at least some of that industry for itself, with enthusiastic buy-in from provincial and municipal governments.

Canada also had electric-vehicle manufacturing deals announced or in the works with Ford, General Motors, Honda and Toyota.

But, as always, Europe’s car manufacturers were proving elusive.

“We have never really had strong relationships with the European automakers,'” said Champagne. “So when I saw that there was this big generational shift toward electric vehicles and I said, ‘There must be a fit.'”

In 2021, Volkswagen had announced its intention to build six battery plants by the end of the decade. Last July, it launched a new company, PowerCo, to run them.

The first, in Salzgitter, Germany, is set to open in 2025. The second will be in Valencia, Spain.

It was in early 2022 that Volkswagen was beginning to consider where it might locate a battery plant to service its North American manufacturing sites. Champagne’s perfectly timed call led to a meeting being scheduled in Toronto just over a month later, in late April.

Keogh invited the entire board of directors of Volkswagen’s North American arm to join him, and Ontario’s Economic Development Minister Vic Fedeli would be in the room to help make the first pitch.

But Champagne said he thinks the first glimmer of a potential partnership came a few hours before, when he chased down Volkswagen’s chief procurement officer after seeing him on the street.

“He was a bit flabbergasted,” Champagne said, chuckling that the man couldn’t believe someone had recognized him.

“I said, ‘I just want to welcome you in Canada.’ And I think from that moment, there was kind of a spark that was created.”

The meeting was considered to be a great success.

“You could see the Volkswagen team being drawn into the Ontario story,” Fedeli said April 21 when the details of the deal were announced.

Within two weeks of that meeting in Toronto, Champagne was in Germany, meeting with the company’s big leaders. Another two weeks after that, he made the pitch again on the sidelines of the annual World Economic Forum meeting in Switzerland.

By December, when Champagne met with new Volkswagen CEO Oliver Blume, the executive made it clear that Canada was at least on the company’s shortlist. They signed an addendum to the August agreement confirming the search for a suitable site for a Canadian plant would begin.

Even so, the company held its cards close to the chest. Fedeli said that while Volkswagen told them there was fierce competition, it was never clear who Canada was competing against. They were “the nicest we’ve ever met” but also “the hardest negotiators ever,” he said.

Amid that uncertainty, the Canadian ministers had a big question to answer: If Volkswagen was going to build a plant in Canada, where would it go?

Enter St. Thomas, Ont.

The city of fewer than 40,000 people, located about a 30-minute drive south of London, is in the heartland of Ontario’s auto belt. More than eight million vehicles rolled off the assembly line of a Ford plant in St. Thomas between 1967 and its closure in 2011.

St. Thomas began putting together a new industrial park in its northeast corner, buying two large of tracts of land and working to get the area serviced with everything a new tenant would need: water, electricity, wastewater and even access to a functional rail line.

The city was almost ready when Volkswagen came knocking.

But to make that happen, Preston said, some of the work needed to happen on the sly.

When talks began, he wasn’t even told which company he was dealing with. Scouts swanned into town but declined to say who their client was.

“They didn’t even want us to know it was Volkswagen for the longest time,” said the mayor. “They wanted to finish their due diligence on the site before we talked about it. And so between us and the provincial government, we were almost talking in code about what we’re working on.”

The city had abundant clean electricity and a trained workforce to offer. Job candidates would have skills in auto manufacturing and high-tech.

Between mid-December and late February, the premier hosted officials at his Queen’s Park office.

It was the final Feb. 23 meeting when Ford seemed to sense that things were coming to a head, and laid it all out on the line.

“This is the right place for you to be,” Fedeli recalled Ford telling Volkswagen executives that day. “This is a place you’ll be able to call home for a hundred years.”

A little over two weeks later, on March 13, days before the anniversary of Champagne’s first entreaties to the company, Fedeli said he was sitting alone in his office. The phone rang. It was Volkswagen.

He told the premier first. Then his wife. Later, he spoke to Preston.

“Minister Fedeli gave me a call and said ‘Mayor, you know how you’re always saying yes?'” Preston recalled. “‘Well, somebody else did today, too.’ And I haven’t stopped smiling since.”

The company aims to build a gigafactory that will be twice the size of those planned in Germany and Spain. Planned to begin operating in 2027, the plant is expected to be able to make enough batteries for up to one million electric vehicles every year.

The plant itself is going to be so big that the front door will be located 1.6 km from the end of the parking lot. It could directly employ up to 3,000 people, and Volkswagen intends to make batteries there for decades to come.

The spinoff jobs at companies expected to source the supplies this plant needs could number close to 30,000.

The deal includes $700 million in up front capital cash from the federal government, $500 million from Ontario and a unique agreement that will see Canada subsidize the cost of every battery that is produced, to the tune of between $8 billion and $13 billion over a decade.


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