Canada will be spending $5.8 billion more than expected on electric vehicle battery plants, according to a report from the Parliamentary Budget Office (PBO).
The federal government announced $13.2 billion in subsidies for Volkswagen’s plant project in April. In July, a joint announcement between the federal government and Ontario said Stellantis-LG Energy Solution will receive $15 billion in subsidies to build an EV battery plant. A recent announcement by the federal government and Quebec said that Northvolt could receive a subsidy of up to $4.6 billion to build an EV battery plant in that province.
The PBO report took a comprehensive look at the subsidies and found it will cost Canadians more than expected to fund the projects.
“We estimate the total cost of government support for EV battery manufacturing by Northvolt, Volkswagen, and Stellantis-LGES to be $43.6 billion over 2022-23 to 2032-33, which is $5.8 billion higher than the $37.7 billion in announced costs,” Parliamentary Budget Officer Yves Giroux said in a media release.
The release notes that the government has not publicized a total cost for the subsidies, but rather released individual details of the subsidies. Therefore, for the analysis, the PBO combined the subsidy details together and also included non-announced costs such as public debt charges, as the money will be “deficit financed,” the report said.
Federal and provincial government debt charges equal $6.6 billion, in addition to the $5.8 billion, the report authors said.
Governments will also face a loss of corporate income tax as Minister of Finance Chrystia Freeland told media that the subsidy to Volkswagen will not be subject to taxation, according to the report.
Ms. Freeland said the subsidies needed to be competitive with similar ones in the United States, which are offered tax-free.
“We assume that the production subsidies provided to StellantisLGES and Northvolt will also not be subject to taxation,” the report stated.
“We estimate the foregone federal and provincial corporate income tax (CIT) revenues from the tax adjustment for the production subsidies to be $5.8 billion over 2022-23 to 2032-33.”
PBO’s report estimates that 62 percent or $26.9 billion in costs will be incurred by the federal government while 38 percent or $16.7 billion will be paid by the provincial governments of Ontario and Quebec.
The report also indicates a timeline for the government to break even on the cost of providing the subsidies, which also contradicts the government’s announced timeline.
The federal government has estimated it will take nine years to break even on the Northvolt subsidy if there is full production every year, something the PBO report says is not likely.
“Based on Northvolt’s projected annual production schedule, we estimate a break-even timeline of 11 years for the $4.6 billion production subsidy,” says Mr. Giroux.
The other subsidies will take longer to pay off, Mr. Giroux said.
“We estimate a break-even timeline of 15 years for the $13.2 billion production subsidy announced for Volkswagen, and 23 years for the $15.0 billion in production subsidies announced for Stellantis-LGES—consistent with our previous estimate of 20 years based on their combined production schedules.”
100 Percent EV Sales Goal
The subsidies are part of the federal government’s plan to promote EVs to Canadians. The goal is to have all new car sales be electric vehicles by 2035.
However, a recent report has cast doubt on the benefits of promoting EVs in Canada.
“A Review of Electric Vehicle Consumer Subsidies in Canada,” released on Oct. 31 by the Fraser Institute, notes that for every tonne of greenhouse gas (GHG) emission reduced by drivers in EVs, it costs taxpayers $355 to $857 in subsidies, depending on the provincial rate.
Ottawa offers up to $5,000 in subsidies for EV purchases, and some provinces also offer subsidies to encourage drivers to buy EVs in an effort to reduce GHG emissions. According to the report, Alberta, Saskatchewan, Manitoba, and Ontario do not offer subsidies for EV purchases.
Yet, even with subsidies in place, fewer Canadians say they are considering getting an EV.
A survey done in June by J.D. Power found that 66 percent of Canadians do not want to buy an EV.
The report noted that “EV consideration in Canada has declined 13 percentage points” from 2022.