Stellantis, the automaker known for its Jeep brand, announced this week that it will shift production of the Jeep Compass from its Brampton, Ontario, plant to Illinois. This decision raises concerns about the future of the Brampton facility and highlights the challenges Canada faces in competing with U.S. policies.

On Tuesday, Stellantis revealed a $13 billion (C$18 billion) plan to boost production in the United States by 50% over the next four years. This move appears to be aimed at gaining favor with the U.S. government and mitigating the impact of a 25% tariff on foreign automobiles. As part of this strategy, the company will relocate Jeep production, putting the Brampton plant's future in jeopardy.

In response to Stellantis' announcement, Canadian Industry Minister Mélanie Joly sent a letter to the company. She emphasized that the $15 billion in incentives provided by the Canadian and Ontario governments for the NextStar EV battery plant—a joint venture between Stellantis and LG Energy Solutions—was contingent on the company maintaining its operations in Canada, including the Brampton facility. Joly warned that the government might pursue legal action if Stellantis does not uphold its commitments.

Ontario Premier Doug Ford's administration has expressed concerns that taking legal action against a major automaker could deter investors. However, this situation also presents an opportunity for the federal and provincial governments to reconsider the billions in taxpayer funding promised to the NextStar plant. Ford has indicated that he is unwilling to provide any funding if Stellantis does not keep the Brampton plant operational.

The NextStar subsidies were announced in July 2023 as a direct response to U.S. incentives under the Inflation Reduction Act (IRA), which includes a $369 billion fund aimed at promoting green energy and electric vehicle adoption. The Canadian government stated that if U.S. incentives were reduced or eliminated, so too would the performance incentives for the NextStar agreement.

The political landscape surrounding these incentives is unpredictable. When former President Donald Trump took office, he initiated significant changes to the IRA, including the passage of the One Big Beautiful Bill Act (OBBBA), which phases out many green subsidies, including those for electric vehicle batteries.

Stellantis has indicated it has "plans for Brampton," but specific details have not been disclosed. The combination of Stellantis' potential withdrawal from its commitment to the Brampton plant and the OBBBA's impact on the IRA's Advanced Manufacturing Production Credit could provide the Canadian government with the justification needed to withdraw the NextStar production incentives, potentially saving taxpayers billions.

As the situation unfolds, it remains to be seen how Canadian policymakers will respond. Some experts suggest that instead of competing with the U.S. for industry subsidies, Canada should focus on areas where it has a competitive advantage, potentially leading to more sustainable economic growth in the long term.