EV battery subsidy deals to cost $5.8B more than government projections: PBO report

A new report from the Parliamentary Budget Officer says provincial and federal support for electric vehicle battery manufacturing in Canada will cost $5.8 billion more than previously announced government projections.

The report, released Friday, analyzes the costs to governments of recent deals struck with Northvolt, Volkswagen and Stellantis-LGES to locate EV battery manufacturing facilities in Canada.

So far, the governments of Canada, Ontario and Quebec have announced a combined $37.7 billion in production subsidies and construction support for the three companies.

But the budget watchdog's report said the total cost of government support between 2022 and 2033 will likely be closer to $43.6 billion, with the extra $5.8 billion representing foregone corporate income tax revenues for Ottawa and the two provinces.

This is because the Canadian subsidies are being designed to match the U.S. Advanced Manufacturing Tax Credit, which is part of that country's sweeping Inflation Reduction Act.

In a June report, the PBO noted that a tax adjustment would need to be provided to the three battery makers to ensure after-tax equivalency with the U.S. program.

Finance Minister Chrystia Freeland has since clarified that the production subsidies provided to Volkswagen will not be subject to taxation, and Friday's PBO report assumes the Stellantis and Northvolt subsidies won't be either.

"To increase transparency around these announcements, we are providing an estimate of the total cost of government support for EV battery manufacturing — including both announced and non-announced costs," said parliamentary budget officer Yves Giroux in a news release.

Of the total $43.6 billion in costs, 62 per cent will be borne by the federal government and 38 per cent will fall on the governments of Ontario and Quebec, the report said.

The report also estimates a break-even timeline for governments of 11 years for the Northvolt production subsidy, 15 years for the Volkswagen subsidy and 23 years for the Stellantis subsidy.

In a statement, federal Industry Minister François-Philippe Champagne said the EV battery investments are good deals for Canadians, the auto sector and workers.

He said the PBO report doesn't point out that two-thirds of the government support for the battery makers is conditional and payable over a decade.

Champagne added the battery plant investments are expected to create "thousands of jobs across the entire EV supply chain," with the economic benefits surpassing the government's contribution.

Volkswagen's battery plant will be built in St Thomas, Ont., and the Stellantis-LGES plant will be built in Windsor, Ont. The Northvolt facility will be built about 30 km east of Montreal.

This report by The Canadian Press was first published Nov. 17, 2023.

Amanda Stephenson, The Canadian Press