Lavish subsidies for EV manufacturing plants in Ontario won’t be recouped for at least two decades, according to a report from the Parliamentary Budget Officer (PBO) released Tuesday..In its break-even analysis of the incentives offered to Volkswagen and Stellantis, the PBO said the federal and Ontario governments won’t recover their combined $28.2 billion outlay until at least 2043, much longer than the five years initially promised..“We estimate that federal and provincial government tax revenues generated from the Stellantis and Volkswagen EV battery manufacturing plants over the period 2024 to 2043 will be equal to the total amount of production subsidies,” said PBO Yves Giroux..“That is, the break-even timeline for the $28.2 billion in production subsidies announced for Stellantis and Volkswagen is estimated to be 20 years, significantly longer than the government’s estimate of a payback within five years for Volkswagen.”.In June, the PBO released a report that examined Canada’s support for Volkswagen’s EV battery manufacturing plant in Ontario. Since its publication, the federal and Ontario governments announced new production subsidies for an additional Stellantis EV battery plant, also in Ontario, after it threatened to walk away if it didn’t get a similar deal. .Included is a cost-sharing agreement with the government of Ontario under which the federal government will cover two-thirds of the production subsidies, or $18.8 billion, while Ontario will now cover one-third or $9.4 billion..Based on the federal government’s own estimates, this brings federal and provincial production subsidies to $28.2 billion by the end of 2032, assuming they don’t go higher..According to the PBO, that’s a very real possibility, given it only examined the subsidies to the plants themselves and not all the expected spinoffs that may or may not materialize. The PBO stressed its ‘break-even’ analysis is not a ‘cost-benefit’ analysis. .It doesn’t include public debt charges that would be incurred to finance the production subsidies, nor does it discount future government revenue and expenditure amounts — that is, a present-value calculation — which it suggests is highly speculative..“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,” it said. .This contrasts with the federal government’s break-even analysis for Volkswagen, which included investments and assumed production increases in other facets of the EV supply chain. .Further, following the release of PBO’s June report, Finance Minister Christia Freeland clarified the production subsidies provided to Volkswagen will not be subject to taxation..The production subsidy provided to Stellantis is essentially the same as that offered to Volkswagen — equivalent to US$35 per kilowatt-hour (kWh). Stellantis will also receive a production subsidy for battery modules equivalent to US$10 per kWh. .Those match US President Biden’s Inflation Reduction Act (IRA) and are subject to an overall cap of $15 billion. Those specific subsidies were considered essential in convincing each company to locate in Canada rather than the US..When the federal Liberals announced the Volkswagen agreement in April, Prime Minister Justin Trudeau indicated that “projections show that the full economic impact of the project will be equal to the value of government investment in less than five years.” This timeline was echoed by the Industry Minister François-Philippe Champagne, stating the “payback” would occur within five years..At the time of the announcement, no underlying detail was provided on the break-even timeline. The PBO was forced to send an information request to the industry ministry which resulted in its conclusion, which will no doubt be disputed by the feds..Nonetheless, the Canadian Taxpayers Federation was outraged, and accused both federal and Ontario officials of misleading taxpayers. .“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 CTF Director Franco Terrazzano..“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.”
