Volkswagen could be a legacy-building moment or a boomtown pipe dream

Open this photo in gallery:

Inside a monument to a Rust Belt city’s past, the path to its brave new future was being paved.

Prime Minister Justin Trudeau, Ontario Premier Doug Ford, the local mayor and the global leadership of one of the world’s largest automakers – all of them gathered on Friday inside an old railway building turned museum. They were there to lay out plans for the $7-billion Volkswagen electric-vehicle battery plant that will put St. Thomas, Ont., on the map in a way it’s never been before.

The excitement inside that building wasn’t yet evident a few blocks away, in a sleepy downtown that feels like it hasn’t fully recovered from the exits of some of its biggest past employers – railways that once made it a hub, then traditional manufacturers.

But it will be visible soon enough. The battery plant, to open in 2027, will provide as many as 3,000 well-paying jobs once operational, in a town with a population of about 40,000. The province has designated a big swath of land around the factory to be an industrial park, possibly populated by Volkswagen suppliers. St. Thomas is going to boom.

It’s a heartening story, about the way that the transition to a low-carbon economy can bring hope to places that once prospered from carbon-intensive ones.

But that alone is not enough to justify the massive amount of public money that Ottawa is throwing at this one factory – as much as $13-billion in production subsidies once the plant is operational, plus another $700-million to help cover capital costs, with the Ontario government kicking in $500-million more.

Neither is the symbolism of Volkswagen choosing Canada (which matched but did not exceed new U.S. Inflation Reduction Act subsidies) for its first battery plant outside Europe, even if that’s an encouraging signal about Canadian competitiveness.

The only way these subsidies will really be worth it is if the Volkswagen factory – along with another battery plant being built by Stellantis NV and LG Battery Solution in Windsor, which in the interest of fairness will now probably get production subsidies of its own – is successfully leveraged to build a Canadian EV supply chain that brings growth to other communities across Ontario and beyond.

That vision, in broad strokes, will by now be familiar to anyone who has heard Canadian politicians explain their vision of clean-economy competitiveness. It starts with the mining and refining of critical metals, continues through manufacturing and assembly, and ends with battery recycling. Ideally it also includes greater research-and-development of EV technology here, though they don’t tend to talk quite as much about that when courting multinational companies with headquarters and brain trust in the U.S. or overseas.

Some of it has been starting to come together, even before the Volkswagen announcement. Plans for facilities in Kingston, Ont., and Bécancour, Que., to produce cathode active materials (raw minerals converted into battery components) have signalled progress with the refining part of the equation, though more such commitments need to be landed.

There’s been less headway on other fronts, most glaringly when it comes to mining. The idea is that a plant like the one in St. Thomas will use lithium, cobalt, or other minerals that Canada has in significant reserve. That won’t be the case when the factory starts operations, and the jury is out on whether it ever will be, because Canada has lacked the regulatory expedience and the infrastructure to get those materials out of the ground.

Not all the successes or failures of potential offshoots will rest on governments’ shoulders. It’s incumbent on the many southwestern Ontario auto-parts manufacturers that have to this point supplied makers of internal combustion engines to transition to EV components (though there need to be public-policy supports, such as for training programs, even there).

But the idea is that all of this will accelerate, now that there is the biggest possible taker for whatever battery components Canada can produce.

There is some cause to question whether Ottawa has rigorously analyzed how much Volkswagen alone will spur that activity, and whether it will be enough to justify the money it’s put on the table.

Mr. Trudeau and Industry Minister François-Philippe Champagne came to the announcement armed with all sorts of encouraging projections – including that the factory will produce as many as 30,000 indirect jobs, will provide over $200-billion in economic value, and will pay off the public investment within its first five years.

Asked where these forecasts came from, Mr. Champagne’s office said it was drawn from analysis by the Trillium Network for Advanced Manufacturing, a non-profit organization. While the research is serious, it involves fairly optimistic scenarios in which the supply chain comes together as hoped, and the government may have oversimplified it.

There will be other, more critical value assessments to come – possibly including a review of the Volkswagen subsidies’ value by the federal Parliamentary Budget Officer, which Conservative Leader Pierre Poilievre wasted no time in requesting on Friday.

The reality is that it may be impossible to calculate the exact economic benefits of what will be built here. The next time Canada lands a cathode facility, for instance, nobody will be able to say for certain whether it directly correlates to Volkswagen being an off-taker right here in Ontario, or would have otherwise just supplied U.S.-based factories. It will similarly be hard to calculate how many shutdowns of existing Canadian auto-parts manufacturers the new factory averts.

What we do know is that, if Volkswagen is ultimately producing batteries with materials mined in one part of Canada and refined in another, using parts supplied by smaller domestic manufacturers, maybe even drawing on Canadian ingenuity to improve performance or sustainability, this week’s announcement will hold up as the nation-building legacy that Mr. Trudeau, Mr. Ford and others clearly hope it will be.

If not, $13-billion could prove to have been an awful lot to create a boomtown in one corner of Ontario, and come to symbolize a major miscalculation about how to seize a moment for industrial transformation.