The World Forum - May17th, 2024

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ANALYSIS: EV Projects Promise Thousands of Jobs, but Governments Are Spending Tens of Billions to Get Them

The Honda electric vehicle (EV) project announced on April 25 is the largest automotive investment in Canadian history, according to Prime Minister Justin Trudeau. Meanwhile, concerns have arisen over government subsidies for EV production totalling billions along with the involvement of foreign workers and a declining demand for EVs.
Since 2020, the federal government along with the provinces particularly Ontario and Quebec have provided tens of billions of dollars in subsidies for EV and EV battery manufacturing plants. Ottawa’s goal is to have all new light-duty vehicles sold in Canada, namely passenger cars, SUVs, and light trucks, be zero-emission by 2035.
So far, governments in Canada have worked with companies on four major projects to build EVs and EV parts, including large investments in battery technologies.

Government Aid

The first project involves the federal and Ontario governments in May 2022 initially giving Stellantis up to $529 million and $513 million respectively to modernize the automaker’s assembly plants in Windsor and Brampton, Ontario, and to step up EV production. The aid followed a March 2022 announcement by Stellantis and battery maker LG Energy Solution to jointly invest $5 billion to build a large-scale EV battery manufacturing facility in Windsor, adding that the plant will create an estimated 2,500 new jobs in the city and surrounding areas.
In comments to media about a year later, it was further clarified that the federal and Ontario government were providing $15 billion in tax incentives to the manufacturer.

The second project involves German automaker Volkswagen, which announced in March 2023 that its subsidiary PowerCo SE will establish an EV battery manufacturing plant in St. Thomas, Ontario—its first such plant overseas. The manufacturer says the plant will create up to 3,000 new jobs and tens of thousands more indirect jobs in the area.
The following month, the Ontario government said the province and Ottawa have approved between $8 billion and $13.2 billion in subsidies for the project, depending on production levels, noting that the project’s full economic impact is expected to match the government investment within five years. The province said it is also providing an additional $500 million in direct incentives to Volkswagen for the project.
Then in September 2023, the federal and Quebec governments promised Sweden-based Northvolt Batteries billions of dollars as part of welcoming the company’s decision to build a new EV battery manufacturing facility at a site in Saint-Basile-le-Grand and McMasterville, two towns just outside of Montreal. The first phase of the project, valued at $7 billion, will created up to 3,000 jobs in the region at full capacity, and “support tens of thousands of jobs across the country,” the Prime Minister’s Office said.

The funding included up to $4.6 billion in battery production incentives, with one-third paid by Quebec and the rest by the feds, along with up to around $2.7 billion in capital commitments toward the project, with just over half paid by Quebec and the rest by the feds.

The most recent EV project, announced on April 25, sees Honda building four new manufacturing plants in Ontario to boost the EV supply chain. These include an EV assembly plant, a battery manufacturing plant, and two plants focused on the production of cathode active material, a key raw material in battery production. The former two plants will create over 1,000 jobs, while the latter two will help to create thousands more direct and indirect jobs in Ontario and across Canada, the announcement said.

As part of the deal, the federal government has offered Honda an estimated $2.5 billion in support through the proposed EV Supply Chain investment tax credit and the proposed Clean Technology Manufacturing investment tax credit. In addition, Ontario will provide up to $2.5 billion through various direct and indirect incentives.

The true figures for all of the EV subsidies could be even higher, as a Parliamentary Budget Officer (PBO) report last November said the federal and provincial governments will be spending $5.8 billion more than expected on EV battery plants.
“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,” PBO Yves Giroux said in a November 2023 news release.

The Companies’ Contributions

The companies involved in the EV projects are investing billions of dollars of their own money in those projects. In their respective projects in Ontario, Honda says it is investing approximately $15 billion, while Volkswagen is committing $7 billion.
Northvolt will be putting around $4 billion into its $7 billion project in Quebec, while Stellantis and LG Energy Solution stated in 2022 that they would be spending over $5 billion on their Windsor project.
Conflicts between Stellantis and Ottawa led to the automaker briefly halting the construction of the Windsor EV battery plant in May 2023. The company, which makes Chrysler, Ram, and Fiat vehicles, among others, argued that the federal government was not keeping up its end of the deal regarding financial support.
Stellantis and South Korea-based LG Energy announced less than two months later that they had reached a deal with the federal and Ontario governments and resumed work on the project.
Ontario Economic Development Minister Vic Fedeli said at the time that Stellantis and LG expected to receive at least $15 billion in tax breaks in Canada over a period of around 10 years, which is equivalent to what the companies could receive if they had built their battery plant in the United States.

Foreign Workers and Government Funding

The construction of the Stellantis and LG Energy project also met with controversy after it was revealed that hundreds of the workers employed in building the plant were South Korean nationals on temporary work visas in Canada, rather than Canadian workers.

While Ottawa says the various projects will create thousands of new jobs and generate billions of dollars annually in revenues, none of them have yet been built, and the Stellantis project is not expected to be operational until at least 2025.

The issue of foreign temporary workers has been raised as a concern by Canada’s Building Trades Union (CBTU), which was critical of Canadian tax dollars being spent to subsidize foreign workers.

“Bringing approximately 900 South Korean workers to handle the installation of this equipment is not only an insult to Canadian taxpayers who funded this project with the understanding that jobs were going to Canadians, but it is a slap in the face to our workers and contractors, including those in Windsor, who are the most highly-skilled tradespeople in the world,” the CBTU said.

In an April 26 press release, following Ottawa’s announcement of the Honda deal, the Conservatives cited the CBTU’s concerns regarding foreign workers, saying they would introduce a motion on April 29 to force the federal government to reveal information on Canadian tax dollars being used to hire foreign workers instead of Canadians.
The Canadian Taxpayers Federation has also been critical of government funds going toward funding and subsidies for these companies.
“The feds need to draw the line somewhere because taxpayers can’t afford to bankroll everyone and their dog who wants to make batteries,” Franco Terrazzano, federal director of the CTF, said in a news release in July 2023.

Declining Interest

Another potential issue for the government and the companies investing billions in EV production could be promoting interest in the purchase of EVs.
Figures on new motor vehicle registrations from Statistics Canada show that between the third and fourth quarters of 2023, registrations of EVs, hybrid EVs, and plug-in hybrid EVs all declined in Canada.
In the United States, a Gallup poll published on April 8 said that while more Americans own EVs now than in 2023—7 percent, up from 4 percent—interest in purchasing an EV has declined among those who do not own one. Nearly half (48 percent) of those surveyed said they had no interest in purchasing an EV in the future, an increase of 7 percentage points from last year’s poll.

Ford announced last week that its losses from its EV and software division were at US$1.3 billion. Other major American manufacturers in the auto sector, including General Motors, also say they have yet to turn a profit from the manufacturing of EVs.

Reuters contributed to this report.