It will take 20 years for feds to break even on VW, Stellantis deals, report finds

It will take the Canadian and Ontario governments 20 years — not five as Prime Minister Justin Trudeau claimed — to break even on tens of billions of dollars in tax credits committed to Volkswagen and Stellantis battery plants in Ontario, according to an analysis from Ottawa’s budgetary watchdog.  

Production subsidies for the battery plants are expected to begin flowing next year and are projected to amount to $28.2 billion by 2032.  

But the two levels of government funding the tax breaks should not expect a positive return on their investments until 2043, when the tax revenue generated from the sites will exceed the initial subsidies, according to a Sept. 12 report from Parliamentary Budget Officer Yves Giroux.

Auto experts, however, warn the PBO analysis is “cursory,” taking only a small amount of the economic activity generated by the plants into account, while the initial federal outlook was based on the big picture.

“The idea that the economic impact of the battery plant stops at the battery plant is cursory,” said Brendan Sweeney, managing director of the Trillium Network for Advanced Manufacturing.

The five-year payback timeline initially pitched by the federal government regarding Volkswagen’s St. Thomas plant — which relied on modeling developed by Trillium and others — included all the knock-on activity the site would generate across the province, he said. For instance, everything from homebuilding and new fast-food employment in the southwestern Ontario city were baked into the original federal analysis, as was the impact of new mines and mineral processing plants in Northern Ontario.

With different factors being considered, the five- to 20-year pay-back timelines are an “apples and oranges comparison,” Sweeney added.

The PBO report acknowledges it is an assessment solely of the “government revenues generated by cell and module manufacturing upon which the production subsidies are based.”

Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, questioned the value of an isolated assessment of the two plants in an industry with a tight-knit supply chain.    

“No one’s buying a [battery] cell or a module, they’re buying an electric vehicle.”

Removing all the associated components, some of which will be built or their materials sourced in Canada, is an “insincere analysis of the commercial reality,” he added.

“In our industry, all of these things are integrated.”

François-Philippe Champagne also took issue with some of the report. But Canada’s Minister of Innovation, Science and Industry, who was one of the primary brokers of the two battery plant deals, said on the whole, the PBO analysis illustrates the investments are “good deals” for Canada and its auto sector.

“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 the government’s contribution,” Champagne said in a release.

Ontario Minister of Economic Development, Job Creation and Trade Vic Fedeli was quick to point to the limited scope of the report as well, noting it "only analyzed a fraction of the benefits gained from the investments."

"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," he said in a statement. 

Without the big-ticket tax breaks, which the federal and provincial governments will fund jointly, it is unlikely either battery plant would have landed in Ontario. Executives at both Volkswagen battery unit PowerCo and Stellantis have pointed to the government subsidies as instrumental in decisions to site the multibillion-dollar battery plants in the province.

The tax credits match those available in the United States under the Inflation Reduction Act, and amount to US$35 per kWh for cell production, plus US$10 per kWh for module production.