Governments’ $28.2-billion for EV plants will take 20 years to break even, not five as Ottawa suggested, PBO says

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Federal and Ontario government subsidies that total $28.2-billion for two electric vehicle battery plants will take 20 years to break even, not five as the federal government has suggested, according to a new report by Parliamentary Budget Officer Yves Giroux.

Tuesday’s PBO report takes a closer look at two major announcements earlier this year aimed at securing Ontario manufacturing jobs in the EV sector. At an April news conference in St. Thomas, Ont., Prime Minister Justin Trudeau announced $13.2-billion in federal production subsidies for a new EV battery plant to be built by Volkswagen.

The Prime Minister’s Office and Innovation Minister François-Philippe Champagne said at the time that the full economic impact of the project will equal the value of the government subsidies in less than five years, stating that Ottawa would quickly break even on the deal.

Then in July, Ottawa and Ontario announced subsidies for a Stellantis-LG Energy Solutions EV battery manufacturing plant in Windsor worth up to $15-billion. The July announcement also updated the details of the Volkswagen deal, stating that the subsidies for both plants will be split in a way that will see Ottawa cover two-thirds of the cost, with Ontario paying the remaining third.

The July announcement did not include a break-even estimate for the Stellantis portion of the subsidies.

As part of its research, the PBO obtained the federal government’s methodology for its break-even estimates related to the Volkswagen funding. The PBO said the Innovation, Science and Economic Development department relied on modelling done in a 2022 report by the Trillium Network for Advanced Manufacturing and Clean Energy Canada, a non-profit think tank. That report presented four scenarios for Canada’s EV battery supply chain based on various degrees of government support.

The PBO said that the modelling relied upon by Ottawa shows a break-even timeline of 3.3 years for the Volkswagen support when considering all aspects of the supply chain such as mineral exploration, mining, vehicle assembly and recycling.

However, the PBO numbers differ from the government’s because Mr. Giroux takes issue with including all aspects of the supply chain. The PBO estimate only includes government revenues generated by the cell and module manufacturing that are the focus of the two subsidies.

“The government was very optimistic in assuming that all this ecosystem surrounding electric vehicles would be developed as a result of these two plants and the subsidies that the government provided,” Mr. Giroux told The Globe and Mail Tuesday. “So, a very optimistic assumption, considering that it’s a highly integrated auto sector in North America, and the investments could very well take place without these subsidies.”

Mr. Giroux said the PBO analysis allows Canadians to consider the relative merit of this spending compared to other priorities.

“What else could they do with that money that could also generate wealth in this country?” he said. “There’s other things that could be done with such a significant amount.”

Mr. Champagne, the Innovation Minister, defended the government spending Tuesday. He said the PBO report only measures a small fraction of the benefits that will be created.

“We’re looking at the full economic value because that’s what matters to Canadians,” he told reporters on the sidelines of a Liberal caucus retreat in London, Ont.

He also said Canada must compete with the large corporate subsidies that are being offered south of the border through the Inflation Reduction Act.

“There’s a cost of inaction. Would we be more happy if these plants went to the United States? I think that we’re building the infrastructure and the economy of the future,” he said.

The minister described the government support as “deeply conditional,” in that it is tied to production targets and will only be in place while the U.S. subsidy program is in place.

Brendan Sweeney, managing director of the Trillium Network for Advanced Manufacturing, said in an interview Tuesday that he takes issue with the PBO’s approach.

He said the point of supporting the manufacturing plants is that it will lead to spinoff supply chain benefits and position Canada as a place for further investment. As a result, he questions why the PBO opted not to include broader economic considerations.

“The great thing about these plants is the benefits go far beyond just the battery plants,” he said. “And to exclude them from the analysis of the economic impact of the battery plants is methodologically unsound.”

Ontario Progressive Conservative Minister of Economic Development, Job Creation and Trade Vic Fedeli defended the spending along similar lines as his federal counterpart, saying in a statement that the PBO report only analyzed “a fraction of the benefits gained from the investments.” He said the report does reinforce the view that the plants will bring long-term benefits to the province.

The federal Conservatives, however, said in a statement that the PBO report shows the Liberals have not been transparent.

“The report today reveals that the Liberal minister lied to taxpayers and to Parliament abut the deals that have been struck with Volkswagen and Stellantis,” said the party’s innovation critic, Rick Perkins.

Brian Masse, the NDP MP for Windsor West, said in a statement that the PBO report “raises a lot of important questions about where the Liberals’ priorities are.” He said public funding should always include accountability, transparency and clear ways to measure results.

“Instead of the piecemeal approach that the Liberals have taken – which often favours corporate profits over Canadian jobs – New Democrats have been calling for a national auto strategy to give security and predictability to workers,” he said.

With a report from Laura Stone in Toronto