EV Battery Plant Deals Will Take 20 Years to Break Even: PBO

Plans to build a Volkswagen electric vehicle battery plant in St. Thomas, Ont., were announced at the Elgin County Railway Museum in St. Thomas on April 21, 2023. (The Canadian Press/Tara Walton)

Canada’s parliamentary budget officer (PBO) says it will take 20 years for the federal and Ontario governments to just break even on the billions in subsidies given to the Volkswagen and Stellantis-LGES battery plants.

In April, the federal government announced $13.2 billion in subsidies for Volkswagen to build a battery plant for electric vehicles. Then in July, the federal and Ontario governments announced up to $15 billion in subsidies for Stellantis-LG Energy Solution to build a battery plant for electric vehicles (EVs).

On Sept. 12, the office of the PBO issued its analysis, projecting it will take the two levels of government 20 years just to break even on the $28.2 billion in subsidies earmarked for the two companies.

“The break-even timeline for the $28.2 billion in production subsidies announced for Stellantis-LGES and Volkswagen is estimated to be twenty years, significantly longer than the Government’s estimate of a payback within five years for Volkswagen,” said PBO Yves Giroux in a news release.

Yet, the federal government still maintains it is a good deal.

Francois-Phillipe Champagne, minister of innovation, science and industry, posted a statement on X saying that the PBO analysis is positive. “These transformational investments will create thousands of jobs across the entire EV supply chain,” Mr. Champagne said on Sept. 12.

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“While the Parliamentary Budget Officer’s Report does not capture many of the broader economic impacts on the supply chain, it does highlight, once again, that these investments will generate economic benefits far greater than our government’s contribution,” he added.

The difference between the PBO analysis and the federal government’s version hinges on how you slice and dice the numbers. In the PBO report, the office said it confined its analysis to government revenue from sales of batteries from the Volkswagen and Stellantis-LGES plants.

“Given the uncertainty surrounding the future geographic location of investments and production related to other nodes of the EV supply chain, such as EV assembly and battery material production, PBO’s estimate represents only the government revenues generated by cell and module manufacturing, upon which the production subsidies are based,” the PBO report said.

“This contrasts with the federal government’s break-even analysis for Volkswagen, which included investments and assumed production increases in other nodes of the EV supply chain.”

In other words, the PBO analysis looks at how much tax revenue the two governments will get as the two companies sell EV batteries and components, from 2024 to 2043. However, the federal government’s analysis is much broader and includes revenue from other parts of the EV supply chain that may not exist yet.

The PBO report shows that the estimates used by the federal government include expansions in mineral exploration, mining, and various stages in manufacturing, such as battery materials, battery components, vehicle assembly, and recycling—all of which are expected to produce more revenue for governments. These are the “broader impacts on the supply chain” referred to by Mr. Champagne.

‘Corporate Welfare’

The Canadian Taxpayers Federation (CTF) jumped on the PBO report, calling the EV subsidies “EV battery corporate welfare.”

“Politicians said they’d get the money back in five years, but the PBO report is clear: It’ll be 20 years before we see if these deals even break even,” said Franco Terrazzano, CTF’s federal director, in a Sept. 12 news release.

“But the government has a terrible track record on corporate welfare, so taxpayers should be worried about whether they’ll ever see a real return on investment.”

Jay Goldberg, CTF’s Ontario director, added, “In reality, governments will get this money back somewhere between 20 years from now and never.”

“The PBO report is proof taxpayers shouldn’t trust politicians when they promise the moon with their corporate welfare deals,” Mr. Goldberg said.

The federal government has argued that the subsidies should be viewed as securing anchors for an EV industry that will create thousands of other jobs.

In a joint statement issued July 6, when the Stellantis deal was announced, the federal and Ontario governments said the deal will help to “establish an end-to-end electric vehicle supply chain to strengthen the clean economy.”

“This step will spur further growth across Canada and Ontario’s auto manufacturing supply chains, and related sectors, benefitting workers and unions throughout the country,” the statement added.