TLDR: The the announcement was a big deal, but there are many unanswered questions and next steps that have to be achieved in order to reach the true potential of the “transformative investment” that was promised by many.
This week was a potentially transformative week for Windsor-Essex. We are still years away from the plant being open and the hot takes are flowing free, I took a few days to contemplate what this plan means for Windsor and Essex County. Here is 1 shameless plug and 10 thoughts that I am taking away from this announcement:
I had Stephen Mackenzie – President and CEO of Invest Windsor Essex on my podcast Council Conversations to talk about economic development in our region. I would encourage you to listen to full episode and the “Battery Powered” special about the announcement, how we got there, and where we go forward. It provides a great level setting for many of the points below.
I personally don’t always agree with the role of the sector, but I understand the what and why of the sector. During the conversation, we talk about a venn diagram of community and economic development ecosystems and where they overlap. One of the big opportunities that I see from this announcement is how we bring those sectors closer together to tackle root causes issues in our community.
1. It is a big deal!!!
$4.5+ Billion, 2,500 jobs, largest investment in the auto sector in Canadian history, a reported 4:1 expected spinoffs is nothing to shake a stick at. Although we can (and will) pull apart these numbers a bit, this is a transformative investment for Windsor and Essex County. From a marketing perspective it certainly puts us on the maps for EVs production. The supply chain (likely provided by CN Rail via their lines to the site) that will flow here will support broader diversification efforts wile the forthcoming Gordie Howe International Bridge will mean that there will be redundant access to the US markets. Congratulations to the Mayor, Council, InvestWE, Provincial and Federal Officials and everyone involved!
2. The Eco-System
This definitely puts Windsor on the map, but we are not the only ones playing this game. Canada has landed one large plant, the US has landed many, many more. Just across the river GM is spending $7 billion on electric vehicle production and battery plants in Michigan alone also partnered with LG.
Although this is a differentiator for Canada, in the North American context, there are many players and another Stellantis announcement is to come. By the table above we will be the sole supplier of batteries for a year or two before the other plant comes online to to expand capacity and redundancy. Stellantis also appears to have a more diverse set of suppliers (Samsung and LG) which could lead to opportunities or frictions down the road.
For the Canadian auto sector more broadly you have to think about where are the other plants in their respective supply chain. One of the Ford plants in Kentucky will likely be supplying Oakville Ford plant. Maybe the Michigan GM plant will supply CAMI in Ingersoll. The retooling announcement at the Honda plant in Allison Ontario is likely being supported by a recently announced partnership with LG that is targeting the US for another plant. Woodstock and Cambridge Toyota plants could see their batteries coming from North Carolina.
There were hints of other battery announcements coming but it is unclear where they will land as most major OEMs have locked in their locations now. The Stellantis Plant was our last and best hope that allowed us to stay in the game, this week’s announcement keeps us on the field but we didn’t win the game.
3. What Kind of Jobs and for who?
I have been thinking about how to frame this plant in a traditional automotive eco-system. Is it an OEM tier facility; Tier 1 part supplier, or something else. To me, despite Stellantis’ name being attached, this is a joint venture and from my understanding, employees of the eventual battery plant will work for LG not the automaker. This distinction has created tensions in the US where the UAW is battling with a GM/LG partnership because it means that plant workers at the joint venture do not receive top rate comparable to assembly workers. Companies have said that top union rates are not competitive in the battery ecosystem and following the announcement of the Lordstown plant in 2019, GM CEO Mary Barra indicated that workers would be paid less than top union wages in order to remain cost-competitive. Based on US pay scales we are talking $10,000 – $20,000 per year differences in pay. That gap if it occurs in our community will be a big deal, and will probably be a point of contention when both Canada and the US auto unions negotiate in 2023.
Beyond what people will be paid, types of jobs matter in the 21st Century.
“The jobs are amazing from assembly line to skilled trades to manufacturing design to machine equipment and adjustment to logistics to marketing and training,” Gray said.LG Energy Solution director of external affairs and government relations Denise Gray
By this description, the jobs are varied but also not specialized from our traditional skill set. We already have skill trades and assembly people; designers and marketing; HR and legal expertise. Certainly adding more of those is a good thing but they are not the premium jobs that you really want; ones that create intellectual property in Canada. It is true that spinoffs and SME could fill some of this role in supporting the battery plant as will potential partnerships with the University and St Clair College.
During the media conference Provincial Economic Development Minister Vic Fedeli stated that R&D commitments were for post-secondary institutions across the province, not just local ones. From my understanding the plant itself will not be an R&D Hub for LG. We have to recognize this is a parts plant, a big one but still a parts plant, which is not a pivot from the traditional manufacturing base of our region, we are just building something different that is hedging against future disruptions in the auto sector.
Finally, the 2,500 job and their spinoffs are important as they form a foundational hedge for disruption that is to come. Workforce Windsor Essex states that the spinoff jobs from this announcement will be approximately 10,000 or 4 to 1 where while a full OEM assembly plant spin offs are between 6 and 10 jobs to 1 depending on your source. All of the major automakers have pledged to be 100% EV at some point in the near future, this puts any local manufacturer in the business of building/assembling parts or components of transmissions, engines, fuel systems or exhaust systems on the clock. The 850 workers at the Ford Engine plant are all at risk, the net benefit of this plant and potential spinoffs will mitigate disruption in other parts of the sector or community. Many will be able to pivot but less complex propulsion systems of electric vehicles will likely mean easier automation and fewer people needed to manufacture and assemble. Certainly opportunities to retrain and re-skill be will rolled out (as articulated in the podcasts with Stephen Mackenzie), but for some companies and workers disruption will come.
Unfortunately not every business will be able or selected to transition (contracts will have to be bid on) and there likely will be jobs losses. The last major disruption to manufacturing, cost Canada almost 200,000 jobs, we don’t know what this shift will do. You can’t view this investment as strictly adding 2,500 jobs to the local economy, as we don’t know how the rest of the EV shift will impact our community.
During the media conference, a question about the size of incentives was deflected by the Premier. Less that 12 hours later news leaked out (I think an MP tweeted now deleted) that the federal incentives were approximately $500 Million. Generally speaking government incentives tends to land in the 15-20% range, on major projects like this, which would put the amount close to $1 billion if true. I assume $1 billion for the rest of this post is the total approximate amount for purposes of calculations and narrative. What is public is approximately $650M between feds and the city to the province providing $350M is not unreasonable Maybe it isn’t that much but I don’t know as the numbers haven’t been transparently released.
In Canada, incentives usually are not direct cash incentives rather it is usually in the form of tax credits on capital depreciation, research and development grants, green energy funding, job training grants etc. The province usually kicks in funding for infrastructure, preferred energy rates, as well as it’s own employment and training tax credits. A billion dollars (if that is the amount) is a lot of money.
One question I asked Stephen Mackenzie is about the roll of Community Benefits should play in economic development particularly when government incentives are on the line. His answer was that they can play a role but it depends on the leverage that the project and community have. This leverage question is an important one and it stuck with me as I thought about this.
Overall, the governments are likely in for almost a billion dollars on this project yet no broader community benefit provision is publicly available that I am aware of. Stephen MacKenzie mentioned that someone during the press conference mentioned community benefits but not specifically what kind. Unfortunately I couldn’t find the mention at the link above, so if someone knows who and when, it was mentioned let me know.
Some might say that it would be too much of a burden, yet Stellantis in Detroit, on a $2.5 Billion plant that will employ 5,000 (likely supplied by the new battery plant) provided $35 million in benefits to the neighbourhoods around the plant and the broader city. During WE-Tech Alliance Teck Week conversation on cross-board mobility and the Michigan Central Station – the speaker outlined how Ford entered into legal binding agreements with the City of Detroit and Corktown neighbourhood that allowed $10 million to be directed based on a community consultation process. My question is why not here?
Although there will likely be job training programs etc. and research opportunities. These are not by definition community benefits, these are programs. We saw what community benefits are on the Gordie Howe Bridge, both the province and federals government know how to implement them. Based on the comments about leverage I can only come to one of two conclusions:
- That Canada really is an unattractive jurisdiction for this kind of investment (hence all the US announcements) and governments had to overpay just to get to the table. In other words we had no leverage and we really wanted a battery plant so we paid for it.
- There was a failure of leadership (all levels) to ask for a basic requirement that is present right across the river. In other words, money and benefits were left on the table for our taxpayers dollars.
Maybe the answer falls somewhere in the middle or there is a third reason but you telling me for 0.007% of the total project cost Stellantis could not provide this community the $35 million they provided Detroit? That was a deal breaker? The City isn’t serviced by transit, you are telling me that the City couldn’t use $30 million for transit or other benefits? If there an unannounced agreement (I hope there is) I hope it is released soon and the community get a voice on what those benefits go towards but as of right now it looks like taxpayers are paying $400,000 per job and hoping that investment trickles down to the broader community.
5. City of Windsor
According to reporting the City provided approximately $150 million in incentives as well as acquiring the land for the battery plant. Most of this incentive is actually forgone revenue from development charges and property taxes on the site (more on that in a bit) but $40-$50 million for land acquisition spent (to be spent), and we have to ask where the money came from?
The City of Windsor had predicted $25 million in COVID expenditures this year that the City can’t deal with without Provincial or Federal support – yet they came up with $40-50 million for this project. Did they pull from reserves and do those reserves need to be replenished; decide to reallocate funds that were previously allocated to projects this year or was debt taken on or is the a Battery tax coming on our property taxes in 2023? According to financial statements that City has strong reserves, low debt levels to pull from but where the money comes from matters.
This will the trickle down to City planning this year and beyond. If reserves have to be replenished at a pace of X millions of dollars per year, are we going to see a tax hike to offset this investment or are we going to forgo other projects? The site currently isn’t planned to be service in the transit master plan by Transit Windsor. Now I am realistic, are hundreds of workers going to be taking the bus to this plant, probably not but still needs to be serviced. That means creating a new north/south spine route down Banwell – ideally into Tecumseh Vista Academy as logical end point. What other route gets delayed or cancelled so in the next 2 years a East Windsor spine can be developed? Or do we just leave the site not serviced and prevent a whole class of people from reaching a potential place of employment?
The City also faces the bulk of the burden of improvements to Banwell Rd with over $100M flagged:
The question becomes do you pull forward the future phases of the project sooner than the city was planning? The work to be done before 2026 was largely north of EC Row, not necessarily the priority to support the plant but would improve local traffic flow north of EC Row. Meanwhile the $100 million price tag is for a full overpass at Banwell Rd. to replace the current stoplight. It is unlikely this work will be done before the 2024 opening date but it becomes a major ticket item that needs to be built with this and other development coming.
The Queens Park trip by Mayor Dilkens from December of 2021 suddenly makes so much sense. Widening EC Row would mean three lanes for battery laden trucks to reach the newly completed Gordie Howe Bridge without significantly contributing to local traffic on EC Row (ignoring induced demand). It also aligns with the Ford Government’s plans of building highways and infrastructure. The interchange with the 401 that was also discussed is in the long term capital plan for the City as a part of the Sandwich South development plan that would see Lauzon Parkway continuing south and connecting to the 401. Both projects would require provincial support/investment and it just so happens that the budget is scheduled to drop in late April in the lead up to the provincial campaign. As of the announcement funding hasn’t been secured as of yet but advocacy requests seem to be in the works from the City and potentially the County.
A third element is the Community Improvement Plan (CIP) and waiving of development charges added up to almost $70 Million over 20 years. Although not actually broken up this way (development charges are usually paid up front), this equates to approximately $3.5 million per year in forgone revenue (approximately 0.70% tax increase). Not a deal breaker but in a city that has a long list of needs, every penny pinched hurts.
Now in 2042 we will begin collecting full property taxes from the site. What I would caution is who knows what the automotive landscape will look like then. If you predicted in 2002 what the auto sector would look like today (Stellantis has been sold/merged 3 time and went bankrupt once; Tesla is a thing; Apple first Ipod had just went on sale, now they are getting ready to build cars) I would call you a lair. In 20 years time, if major sites improvements are needed it can allow a developer to re-qualify for CIPs from my understanding – I believe WAP did this with retooling, so to assume there will be a long term tax benefit from the site is a risky bet.
Finally the City is going to be a landlord, leasing the site to LG/Stellantis for what I assume is the value of the property taxes each year. City has agreed to do some site prep work, to ensure shovel ready status (moving an open drain, additional utilities connections), this work is forthcoming this year so the plant can be open in August of 2024. I have no idea what is in that lease agreement like this but are we on the hook for ongoing site maintenance? Who is responsible if the basement floods or if the sidewalk isn’t properly shoveled? What are the commitments of the city to the site? What happens when (god forbid) the plant closes, do they keep the buildings?
Honestly the biggest winner in this announcement is the town of Tecumseh. Doesn’t have to pay for the plant (although City and County are talking about sharing some costs) and may see the largest potential benefit from the development in the area.
During my conversation with Tecumseh Mayor Gary McNamara I asked him a question about why his town has lagged in growth (about the 17 minute mark) in the census. He provided a really robust answer about why the pause in growth, where it is coming, which I have crudely mapped below.
Where are the workers going to live do you think?
In many cases studies are already in place and land has been purchases by developers. Tecumseh Vista Academy is getting a subdivision with plan coming forward soon to town council. The town of Tecumseh is going to immediate gain the property tax bases from these developments, in theory if all of these units are developed say over the next decade – using average household size, the town would add about 9,000 people and 3,500 homes with an average assessed value of (by my estimation) $700,000 the town of Tecumseh will reap approximate $2 million per year in additional revenues (based on 2021 mill rate). Windsor’s hope would be that Sandwich South lands offer a similar development boast but to me it feels like those projects are further off as described by the mayor.
A potential transit link to the site could also make a lot of sense for the town but it remains to be seen if it is a priority. There is an opportunity to build a regional transit network headed to Lakeshore with this site facilitating students and workers moving down Banwell Rd.
Additionally the Manning Road Corridor was been identified by Lakeshore and the County of Essex in 2021 Official Plan update as a potential site for new employment lands to service the entire county along the 401 corridor. Although a few years away, it provides a county alternative to the spinoff industrial development that may come from this plant and its location. Even Chatham-Kent is going to benefit with the new Magna plant being announced. This plant was also leaked in early March but the big shoe needed to drop first.
There is no doubt that this is a win for the region, SW Ontario and beyond but the benefits and burdens of this win, are not going to be equally distributed. Our local municipal structure is not set up to create regional benefit rather, winner take all of property taxes will be a windfall for some communities while the infrastructure burden will fall on others.
I am not an accountant, but I do like playing around with numbers. The chart below shows the depreciation of a building at the 5% rate which is one of the rates that CRA allows. This is before the federal incentive program that allows additional capital allocation deductions. I get that the total investment isn’t just the building but I want to point out that any business can claim depreciate of capital assets against their tax liabilities as a part of doing business.
When people say that this is a generational investment you have to remember that the companies don’t think that way. They think about what is good for their bottom lines. Over the next 20 year, the joint venture will have conservatively recovered 2/3 the investment at a basic rate of depreciations. Certain equipment types have much higher depreciation rates and while it is true they will have ongoing costs that will offset some of those write offs the value of their investment in our region will shrink overtime.
What we have to remember is just because $5 billion is being invested now, it doesn’t buy the community loyalty in the future and to assume they will be here in 25, 50 years is a long bet to take. The irony of the selected site being the former CS Wind plant which was also supposed to support the green energy transition in our province and community and then shuttered when incentives went away, isn’t lost on me.
Is it mission accomplished? Politically it might be. To be honest, if you are municipal elected official in Windsor running for re-election, congratulations. Wednesday, probably made any incumbent advantage insurmountable. Election style posts are already on social media celebrating the win. Ward Councillors may have some local issues that trump this announcement or have deal with questions on impacts – traffic on Banwell or EC Row Improvements as an example but incumbent advantage may have just become overwhelming despite the high costs.
As mentioned above the provincial election will likely see PC candidates running on this investment – despite the total provincial contribution currently being unknown. EC Row will be something to watch during the campaign as widening it seems to be on the table.
Federally, it is a big win, but given the new partnership between the Liberals and NDP an election is no longer an immediate concern it sets a status quo for the next few years, that I am sure we will be regularly reminded of.
9. Shifting the Centre
The location of this plant shifts the economic centre of the city to the south and east. Depending on your point of view this could be a good or bad thing. The map below shows the 10 largest employer locations in the City of Windsor and the new Battery plant.
As of right now the employment centre of the region sits somewhere in South Walkerville. Although I haven’t run a weighed geographic analysis this plant will probably pull the employment centre somewhere east of the Stellantis WAP. The eventual hospital move to CR 42 will further entrench this shift.
This will transform regional traffic flows, shopping patterns, and entertainment prospects. Although the Windsor CMA (the old one) is home to one of the shortest commutes in Canada (2016 census data pending for 2021), the easy EC Row and CR 42 access encourages this plant to be serviced by regional population, not a city one. The fact that jobs are being drawn to the City fringe creates less need to go downtown, a truly south of EC Row lifestyle is now more possible than ever.
What this means for those of an urban ilk in the City of Windsor is the fight for their political priorities is going to become more difficult. Simply to fully service this site will be a financial challenge (based on what is outlined above), that doesn’t take into consideration broader externalities on an already tight construction industry.
To be honest, regionalism needs to be on the table. The fact that the country hasn’t been willing (to date) to support this development is concerning.
10. What is next?
This past week was a cause for celebration but this plant alone will not diversify the region’s economy on it’s own. As mentioned above and in the podcasts, the auto sector is going through a broad disruption. This plant gives us stability but doesn’t on it’s own fundamentally change the facts on the ground right now. It doesn’t solve supply chain issues that is impacting WAP. It doesn’t bring back the third shift, although I feel it is more likely that new product will be coming soon. It doesn’t remove the risk of “Buy American” provisions on EV vehicles.
It certainly creates a window of opportunity to capitalize but as a community and region, we need to understand the impacts of this investment both positives and negatives. Stephen Mackenzie outlined some of the next steps for Invest Windsor Essex will be taking in the coming weeks and months. The next steps for the community are just as important as what steps were taken to get this past week.
The same day as this announcement the Canadian Income Survey announced that poverty rates across Canada declined by a 1/3 in 2020. Statistics Canada states that this decline is almost entirely due to government pandemic supports that overlapped with existing social supports to bring people over the income thresholds. In 2024 we could very well be celebrating a battery plant opening and data saying that in 2022, poverty regressed to the mean and rose by 33% in our community. Based on my experience those who are living in low income are not prepared to take advantage of the opportunities generated by this plant and it’s potential spinoffs. It has been said that a rising tide will raise all boats in our community, it is unfortunately that some people’s boats are leaking.
Windsor-Essex caught a hail marry, but it is only the end of the 1st Quarter, we can celebrate the touchdown, but we are about to kick off again.