Canada’s Trudeau to visit Seoul as LG-Stellantis battery JV suspended

South Korea’s LG Energy Solution Ltd. and multinational automaker Stellantis N.V. have stopped construction at a $ 4 billion electric vehicle battery plant in Canada amid a dispute between the country’s federal and provincial governments over financial aid to the facility.

The project, if scrapped, would deal a heavy blow to Canada competing with the US to attract battery makers and electric car manufacturers to roll out more eco-friendly vehicles and create jobs in their respective countries, analysts said.

“Effective immediately, all construction related to the battery module production on the Windsor site has stopped,” a Stellantis spokesman said on Monday.

Some construction related to battery cell production continues while government officials are discussing with Stellantis and LG about ways to settle the matter, media reports said.

The Canadian government has not delivered on what was agreed to, so Stellantis and LG are implementing their contingency plans, Bloomberg reported, citing a Stellantis statement.

Stellantis didn’t elaborate on what specifically was at issue, but industry officials said Canada wasn’t delivering on incentives it promised when announcing the deal last year.

The move comes a month after Canada agreed to provide up to C$130 billion in subsidies and a C$700 million grant to lure German automaker Volkswagen AG to build its North American battery plant in Ontario.

“I am absolutely confident that we’re going to get a deal. But I also want to point out that the resources of the federal government are not infinite,” Reuters cited Canada’s Finance Minister Chrystia Freeland as saying.

She was further quoted as saying that the provincial government of Ontario must do its “fair share.”

Doug Ford, Ontario’s premier, reportedly said Stellantis and LG’s decision “really worries” him, adding that the federal government should step up in the way they did for Volkswagen.

CANADIAN PRIME MINISTER’S KOREA VISIT

Canada’s trade union Unifor is also said to be involved in Canada’s negotiations with LG and Stellantis.

Industry officials said a breakthrough may come when Canadian Prime Minister Justin Trudeau visits Korea on Wednesday for a summit meeting with Korean President Yoon Suk Yeol before heading to Japan for a G7 summit.

During his stay in Seoul, the Canadian premier will also meet with LG Energy executives to seek solutions to the suspended construction of the battery plant, sources said on Tuesday.

In March 2022, LG Energy, one of the world’s leading battery makers, and its partner Stellantis announced their battery plant investment in Ontario to manufacture cutting-edge lithium-ion battery cells and modules to meet a significant portion of Stellantis’ vehicle production requirements.

Under the deal, LG owns 51% of the JV, NextStar Energy. Stellantis, the world’s No. 4 automaker, has the remaining stake.

The plant, to be built in Windsor, Ontario, home to Canada’s largest automotive cluster, will have an annual production capacity in excess of 45 gigawatt hours (GWh) by 2026 and create an estimated 2,500 new jobs in the region, the companies said at the time.

The plant was scheduled to start operations in the first half of 2024.

Stellantis said at the time the joint venture with LG Energy Solution is a stepping stone to achieving its electrification roadmap in the region, aimed at hitting 50% of battery electric vehicle sales in the US and Canada by the end of the decade.

LG EXPANDS IN THE US FOR TAX CREDITS

LG is aggressively expanding its presence in North America, particularly in the US to benefit from the tax breaks under the Inflation Reduction Act (IRA).

LG said last month its strong first-quarter operating profit was buoyed by an estimated 100.3 billion won in tax credits it expects from the US government with regard to its US battery manufacturing facilities and cells processed in Korea.

The IRA grants up to $7,500 per EV if the clean vehicle is assembled in the US and the battery's minerals are mined or processed in the US or countries that have free trade agreements with Washington.

Industry watchers said LG is one of the major beneficiaries of the IRA because it runs the largest battery manufacturing capacity among global battery players in the US.

LG said in March it is investing $5.6 billion to build a battery complex in Queen Creek, Arizona to meet rising demand for clean cars in North America.

The complex marks LG’s single largest investment in constructing its own battery manufacturing facility in the US.

In addition to another standalone battery plant in Holland, Michigan, LG also operates a battery joint venture, Ultium Cells LCC, with its US partner General Motors Co.

Write to Sungsu Bae at baebae@hankyung.com

In-Soo Nam edited this article.