Deal reached on LG-Stellantis battery plant subsidy; construction resumes

All construction work at a battery joint venture in Canada between South Korea’s LG Energy Solution Ltd. and multinational automaker Stellantis N.V. has resumed after Canada’s federal government agreed on financial support for the project.

LG and Stellantis said on Thursday they have reached a “binding” financial deal with the governments of Canada and Ontario and that construction of the $4 billion JV, NextStar Energy, is back on track.

“We are pleased that the federal government with the support of the provincial government came back and met their commitment of leveling the playing field with the (US) Inflation Reduction Act,” said Mark Stewart, chief operating officer of Stellantis North America.

LG Energy Solution's head of advanced automotive battery division Kim Dong-myung expressed his satisfaction with the deal, saying the governments’ decision is good not just for the joint venture but for Canada as a whole.

“We are happy to finally move forward with the construction of the country’s first major battery plant and become a central part of the local battery ecosystem,” he said.

Financial details weren’t disclosed.

MATCHING US IRA INCENTIVES

In May, LG and Stellantis decided to stop all construction related to the battery module production at the plant in Windsor, Ontario, saying that the Canadian government wasn’t honoring the earlier agreement.

Industry officials said the impasse was connected to Canada’s financial package with another automaker, Volkswagen AG, which plans to open a massive battery factory in St. Thomas, Ontario.

Canada previously said it would provide up to C$130 billion in subsidies and a C$700 million grant to lure the German automaker to build its North American battery plant in Ontario.

LG and Stellantis stopped construction also to negotiate Canadian government funding to match what the US would offer under its IRA rules, industry watchers said.

Stellantis COO Stewart said that the IRA has “changed the landscape for battery production in North America, making it challenging to produce competitively priced, state-of-the-art batteries in Canada without an equivalent level of support from the government.”

Unifor, which represents many Windsor auto workers, said the deal will preserve jobs.

LG’S AMBITIONS IN NORTH AMERICA

As the construction of the JV was halted, Canadian Prime Minister Justin Trudeau flew to Seoul in May to address the deadlock.

During his stay in Seoul, he met with Korean President Yoon Suk Yeol and LG Energy executives, including CEO Kwon Young-soo.

In March 2022, LG 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 NextStar Energy and Stellantis has the remaining stake.

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

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

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.

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.

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.