Canada wants to attract EV supply chain producers so its manufacturing sector can pivot to a low-carbon economy.

Canada and Volkswagen on Friday outlined financing of more than 20 billion Canadian dollars ($14.8bn) for a battery gigafactory in St Thomas, Ontario, the country’s biggest single investment yet in the electric-vehicle supply chain.

Europe’s largest carmaker is investing up to 7 billion Canadian dollars ($5.1bn) to build the plant, which aims to have 90 gigawatt-hours of capacity, a statement said.

The federal government will provide up to 13.2 billion Canadian dollars ($9.7bn) in manufacturing tax credits through 2032, matching the $35 per kWh in production subsidies offered by the United States Inflation Reduction Act (IRA), another statement said.

Ontario’s provincial government has also committed to providing 500 million Canadian dollars ($371m) in direct investment to the German carmaker as well as hundreds of millions of dollars to upgrade local infrastructure.

The battery plant is expected to be Volkswagen’s largest in the world and will create up to 3,000 direct jobs.

“It’ll be worth over 200 billion Canadian dollars to the Canadian economy over the coming decades,” Prime Minister Justin Trudeau told reporters in St Thomas.

“It will provide millions upon millions of batteries to power Canada’s auto industry … and the economic impact of this project will be equal to the value of government investment in less than five years,” Trudeau said.

The decision to build the plant in Ontario was announced last month. Groundbreaking is planned for 2024 and production is projected to begin by 2027, VW said.

Luring the VW plant to Canada has been a priority for Industry Minister Francois-Philippe Champagne, who wants to attract EV supply chain producers so the country’s manufacturing sector can survive the pivot to a low-carbon economy.

The plant will be based in St Thomas, located about 195km (120 miles) northeast of the US city of Detroit, Michigan.

It will be the largest factory in Canada when completed, Trudeau said, and will provide most of the battery capacity VW needs in North America.

VW joins a Stellantis NV and LG Energy Solutions joint venture in building a battery gigafactory in Canada, as European carmakers seek to benefit from a US climate law that requires 50 percent of EV battery components be made in North America for vehicles to qualify for generous consumer tax credits.