Since I joined The Logic last year, I’ve been looking for an opportunity to use the German I learned as an exchange student in Berlin many moons ago, so I’ve been keeping an eye on the German business press to see how Volkswagen’s new $7-billion gigafactory in St. Thomas, Ont., is playing with folks in its home country.

Coverage in Munich’s Süddeutsche Zeitung and Frankfurt’s Frankfurter Allgemeine Zeitung indicates that German politicians and industrialists are less angry about Canada luring VW and more frustrated with the lack of government support from Germany and the EU to make domestic conditions more attractive.

High electricity prices: The war in Ukraine and Germany closing its last nuclear power plants earlier this month mean that German industrial electricity prices aren’t internationally competitive. Northvolt CEO Peter Carlsson—whose EV battery-company has also been eyeing Canada, Anita reported last week—previously said that high energy prices, at €0.15 per kWh, were a handicap for its planned battery factory in northern Germany. The existing Northvolt plant in Sweden, where hydroelectricity is plentiful, pays just €0.02 per kWh. “We are now at a point where we may initially prioritize expansion in the U.S. over Europe,” Carlsson told the Frankfurter Allgemeine Zeitung.

Canada’s grid, powered largely by renewables, knows this and gave VW an energy-price guarantee as part of the St. Thomas deal, CEO Oliver Blume told journalists in Ottawa Monday.

During a visit to VW’s headquarters earlier this week, Lars Klingbeil, co-head of the leading Social Democratic Party, said the country needs to offer discounted rates for industrial electricity to support the domestic auto industry and EV development. Meanwhile, after a party meeting in Berlin, General Secretary Kevin Kühnert said there was an urgent need to regulate energy prices, warning that billions of euros in investment could leave the continent for countries with high subsidies.

Lack of EU incentives: European politicians have heavily criticized U.S. industrial subsidies and believe the Inflation Reduction Act is irreconcilable with the World Trade Organization’s rules. Whether the Germans like it or not, the subsidies work—and the Canadian government’s controversial decision to match the U.S. subsidies helped land the VW deal. Another VW plant might soon be lured to North America; the company put a planned Eastern European battery factory on hold as it seeks as much as €10 billion from the U.S. and waits for a European counteroffer. VW board member Thomas Schmall said last month that Europe risked losing “billions in investments” if it doesn’t match Chinese and North American incentives.

VW isn’t the only one gazing longingly across the Atlantic. Audi CEO Markus Duesmann said the IRA subsidies are “highly attractive,” and the German auto-parts supplier Schaeffler also wants to expand to the U.S. With the IRA in place, EV battery production in the U.S. costs US$127/kWh, matching the production cost in China, compared to US$178/kWh in the EU.

Canada’s geography: Blume said VW is seeking access to the country’s vast supply of raw materials and sustainable energy, neither of which Germany has in abundance. It also wants a foothold in North America because free trade between Canada and the U.S. means VW’s cars can qualify for EV incentives south of the border. VW is still a relatively niche player in the U.S. car market, taking just four per cent of market share, but its new St. Thomas location and its Chattanooga, Tenn., factory will help it reach its goal of taking 10 per cent of the market by 2030.

If practical reasons brought Volkswagen to Canada—“The Canadian government has done an excellent job” and “acted very pragmatically,” said Blume—the deal has also acquired an air of the poetic.

In a comment that got wide attention in Germany’s press, after lunch with Prime Minister Justin Trudeau and Governor General Mary Simon on Monday, German President Frank-Walter Steinmeier said that for many Germans, Canada is a Sehnsuchtsort—a term that translates roughly to “a place of longing.”

We’ll soon see if others feel our pull.

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