Federal, Ontario governments will break even in 20 years on $28.2B EV plant subsidies: report

It will take 20 years for the federal and Ontario governments to break even on the pledge to give $28.2 billion in production subsidies to automotive plants in St. Thomas and Windsor, according to a report released Tuesday by the Parliamentary Budget Officer (PBO).

The report says it will be 2043 before the Stellantis-LGES EV battery plant in Windsor and the Volkswagen plant in St. Thomas generate enough federal and provincial tax revenue to total the subsidies.

PBO Yves Giroux said this shows Ottawa likely drastically underestimated in the spring when it said it would earn back the VW subsidy in under five years. 

Such estimates, he said, assume widespread economic growth in Canada’s automotive sector as a result of the new plants. His report makes more conservative estimates.

“Our report is less wildly optimistic and more reasonable,” he told reporters Tuesday.

“If we end up being wrong, so much better for the country. But I don’t think we’ll be that far off.”

Ottawa committed in the spring to give Volkswagen up to $13 billion in subsidies over the next 10 years to secure the battery plant in St. Thomas. That plant will be the size of 391 football fields and bring auto jobs to the region. 

Stellantis-LG halted construction on a Windsor plant this summer, saying the provincial and federal governments would need to come through with more than the initial investment of $500 million. Construction resumed after the governments announced up to $15 billion in subsidies.

That plant is expected to open in 2024 and employ about 2,500 people. 

Ottawa will cover two-thirds of the subsidies, or $18.8 billion combined, for Stellantis-LGES and Volkswagen, and Ontario will provide $9.4 billion. 

Why the estimates are so different

Ontario hasn’t announced a break-even timeline for the plants, the PBO report says. But Giroux said it will likely be the same as Ottawa’s — about 20 years. 

The PBO report explains the difference between its break-even analysis, and the federal government’s take on things.

When the government estimated a shorter break-even timeline, the report says, it relied on modelling from the Trillium Network for Advanced Manufacturing and Clean Energy Canada, which included investments and assumed production increases in other areas of the EV supply chain.

The PBO report, meanwhile, only looked at cell and module manufacturing.

Ian Lee, an associate professor of management at Carleton University’s Sprott School of Business, said the PBO method gives a more accurate picture.

Following the puck

Lee said the government, with its more generous break-even estimate, was considering gross economic benefit, not net. 

He sees the report as further proof that Ottawa should invest strategically in areas other than automotive manufacturing, where it can’t compete internationally.

“We need to go where the puck is going to be, not where the puck is,” he said. 

Jay Goldberg, a spokesperson for the Canadian Taxpayers Federation, agreed Giroux was right to make conservative estimates about the boon these projects would bring to the Canadian auto industry.

He said the way to handle such cases is to improve the Ontario economic climate for investment, rather than offer massive subsidies.

“It’s important for governments to come out and say, ‘We’re done. No more corporate welfare. No more handouts.'”

Provincial and federal politicians say the PBO report falls short by not considering the spinoff benefits. 

‘Secondary investments’ missing, MP says

Vic Fedeli, Ontario’s minister of economic development, job creation and trade, said in an email that the PBO report “reinforces the significant long-term benefits the Stellantis-LG Energy Solutions and Volkswagen investments will bring to the province.”

“It also acknowledges that it only analyzed a fraction of the benefits gained from the investments,” he wrote. “These projects will create tens of thousands of good-paying direct and indirect jobs and community infrastructure benefits, like improvements to roads, highways, and police and fire services, as we establish an end-to-end electric vehicle supply chain right here in Ontario.”

Brian Masse, NDP MP for Windsor West, said the report “stresses the importance of these battery plants having good-paying union jobs and ensuring workers benefit, not ultra-rich CEOs.”

“The support for these new investments must have iron-clad guarantees of union jobs, and ensure the contracts have accountability and transparency unlike in the past.”

Irek Kusmierczyk, Liberal MP for Windsor-Tecumseh, also said the report doesn’t look at the whole picture.

“Where it falls short is it doesn’t capture those secondary investments,” he said.

If Canada doesn’t keep growing in the industry, he said, that industry here will shrink. He said investment in the Windsor Stellantis-LG plant was strategic — a “generational opportunity.”

“I would make this decision a hundred times over without blinking an eye.”