Ontario is in advanced talks with South Korean electronics giant LG Corporation to build a battery-manufacturing facility in the province, according to two sources familiar with the negotiations, part of the government’s efforts to rapidly expand its electric-vehicle capacity.

LG has exchanged term sheets with both the Ontario and federal governments that lay out the conditions for a potential $2.1-billion investment, one source said. The person said that discussions entered an advanced stage in early November, but stressed that negotiations are still ongoing.

The talks come as Ontario seeks to position itself as a hub for the growing electric-vehicle industry, including efforts to establish new supply chains that connect everything from the production of raw materials to the manufacturing of batteries. 

The provincial Progressive Conservative government has fielded bids from a range of companies in an effort to establish battery manufacturing capabilities, including LG, Japan’s Hitachi, and China’s Contemporary Amperex Technology Co. Limited (CATL), among others, the source said. The federal government has also recently met with major automakers and parts suppliers in Europe across the electric-vehicle supply chain. 

If LG decides to proceed with a battery investment, it would receive funding from both levels of government, with Ottawa likely tapping its new Net Zero Accelerator Fund, the person said. Those contributions had at one point been pegged around $100 million each, accounting for roughly 10 per cent of the total cost of the facility.

The people who spoke to The Logic were granted anonymity because they were not authorized to speak on the matter. Neither the Ontario government nor officials in the office of Innovation Minister François-Philippe Champagne would confirm they were in negotiations with LG. A spokesperson for LG did not respond to a request for comment. 

In an interview with The Logic last week, Champagne said the federal government was “getting closer and closer to land some very significant investment” in the electric-vehicle battery ecosystem, and that Ottawa was in “very advanced” talks with several companies. His office declined to provide further details. 

Champagne’s comments come as international companies outline major spending plans to grow their battery-making capacities. LG, in a US$2.3-billion joint venture with General Motors earlier this year, announced plans to produce batteries at a plant in Tennessee, which is expected to come online 2023. In September, Ford teamed up with SK Innovation to build twin battery plants in Kentucky and a “mega campus” in Tennessee for an estimated US$11.4 billion. 

LG Energy Solution, a subsidiary of LG Corporation, recently announced a memorandum of understanding with automaker Stellantis to expand its lithium-ion battery-production capacity in North America. The two companies have worked together in the past, when LG supplied battery pack systems and controls for the Chrysler Pacifica Hybrid, a vehicle currently manufactured in Windsor, Ont.

A successful deal would mark the first major battery-manufacturing facility in Canada, since much of the existing EV battery market is dominated by a few key multinational players—including LG. Quebec-based Lion Electric is spending about $185 million on the construction of a plant and other local companies are working on smaller plants of their own.  Toronto-based consulting firm Adamas Intelligence estimates that just seven cell suppliers globally, including Samsung, CATL and Panasonic, supplied more than 90 per cent of passenger EV battery cells in the first half of this year, making their plants major hubs for auto suppliers like Magna.

Ottawa and several provincial governments have aggressively sought to attract investment from multinational firms in the EV space, framing Canada as a safe investment destination with a long history in automotives. U.K.-based BritishVolt says it is close to building a battery cell factory in Quebec. Tesla has also been meeting with officials in the province in an effort to bolster its supply chain and has plans to build battery-making equipment in Markham, Ont.

Invest Windsor Essex, an economic-development group in southern Ontario, has for months been openly courting a multinational company on a $2-billion battery facility in the region, but has not yet publicly identified it. Several employees at Invest Windsor Essex declined to confirm whether LG was the frontrunner for an investment, saying multiple bids were in play. 

A string of major battery investments in Ontario or Quebec would go a long way in developing Canada’s EV industry, which faces fierce competition in an environment where electric vehicles are viewed as the future of automotives. Government officials and industry players are concerned that the Canadian auto industry could be hurt by a proposed U.S. policy that would award tax credits to car buyers whose vehicles contain domestically made batteries. Canada is meanwhile up against deep-pocketed nations like the U.S. and India, who have shown a willingness to fork out sizeable subsidies in an effort to secure future EV supply. 

Ottawa, for its part, has proven its appetite to spend public dollars to carve out a place in the EV market. In late 2020, the federal government and Ontario each gave Ford $295 million to help the company shift toward EV production at its Oakville plant. 

Meanwhile, GM is planning to build a $1-billion EV plant in Ingersoll, Ont. Stellantis, which makes the Chrysler Pacifica and other minivans in Windsor, has announced loose plans to invest $1.5 billion to recalibrate its facility toward EV production. The federal government has not yet reached deals similar to its Ford investment with Stellantis and GM.

Premier Doug Ford has floated Windsor as a site for a battery plant in the past, emphasizing at a recent meeting with Stellantis executives that Ontario remains a leader in auto manufacturing, including electric vehicles and battery technology, as the community reels from the automaker’s recent decision to cut its third shift at the assembly plant. His government has previously declined to tell The Logic how much it is willing to spend to attract such a plant amid the province’s “fiscal challenges.”

Prime Minister Justin Trudeau, in a press conference earlier this year, said his government would “absolutely” make additional expenditures in the area of battery manufacturing, whether in southern Ontario or elsewhere. 

With files from Anita Balakrishnan