It will take about 20 years for the federal and provincial governments subsidizing two new electric vehicle battery plants in Ontario to break even, a new analysis has found.
The report, which was was released Tuesday by the Parliamentary Budget Officer (PBO), suggests that revenue from the Stellantis and Volkswagen manufacturing plants will equal the amount of the subsidies by 2043.
“That is, the break-even timeline for the $28.2 billion in production subsidies announced for Stellantis-LGES and Volkswagen is estimated to be 20 years, significantly longer than the government’s estimate of a payback within five years for Volkswagen,” PBO Yves Giroux said in a statement.
The federal and provincial governments came to a deal with Stellantis and LG Enery Solutions in July for additional funding to support a new plant in Windsor, Ont. The companies had been asking for subsidies that matched those provided in the United States under its new Inflation Reduction Act.
As part of the deal, the federal government upped the subsidy cap to $15 billion. A separate deal with Volkswagen for a plant in St. Thomas, Ont. for about $14 billion.
A cost-sharing agreement will offload a third of the total costs onto the Ontario government, about $9.4 billion.
At the time the Volkswagen deal was made, Canada’s prime minister said they would break even in less than five years. No timeline was provided following the deal with Stellantis.
The PBO analysis notes there is “uncertainty surrounding the future geographic location of investments and production” within the EV supply chain. This could impact the timeline further, Giroux noted.
Speaking to reporters Tuesday afternoon, Federal Minister of Innovation, Science, and Industry Francois-Philippe Champagne said he welcomed the report, adding that its findings “confirmed that the deals that we've made are good deals for Canadians, that they're going to pay dividends for decades to come.”
When asked about the gap in timeline estimates, Champagne said the PBO failed to account for the full economic impact.
“So clearly, if you look at the rest of it, which is the vast majority, you come to a different number, a much shorter payback,” the minister said.
An earlier analysis by the PBO also found that the deal with Volkswagen could end up costing the federal government closer to $16 billion due to upfront capital investments.
The battery plants were highly sought by all level of governments, as they are expected to bring thousands of jobs to the province as well as support auto manufacturing supply chains and related sectors.
In a statement issued Tuesday, the federal minister of innovation, science and economic development said the analysis “demonstrates that the Stellantis-LGES and Volkswagen investments are good deals for Canadians, the auto sector and our workers.”
“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 contributions,” Francois-Philippe Champagne said.
However Ontario interim Liberal Leader John Fraser called the timeline “concerning,” noting that a lot can happen in 20 years.
“When you look at what the PBO is, has laid out, and what governments are saying, they don't connect. That's a problem,” Fraser said. “They're making a massive investment on behalf of the people. People should have transparency. It would have been good to know that it's going to take 10 years, 15 years, 20 years, and what the risks are.”
Fraser added that in 20 years a lot can change both in terms of how a company operates and in the global economy.