The Parliamentary Budget Officer (PBO) says the federal government’s estimate of five years for it to break even on subsidies to auto giants Volkswagen and Stellantis was “wildly optimistic,” citing the PBO’s recent report that found it would take more than 20 years.
The federal government relied on a report by the non-profit group The Trillium Network for their claim, but Yves Giroux told MPs on the Standing Committee on Industry and Technology Thursday that the Trillium report contained “a lot of assumptions.”
“There are a lot of assumptions that are made in that report that suggests that the statements that the government made to the effect that this would be paid back in less than five years are, to say the least, wildly optimistic,” he said.
The federal and Ontario governments recently announced they would provide billions in subsidies to Stellantis, which is building an electric vehicle (EV) plant in Windsor, and Volkswagon, which is building one in St. Thomas. Stellantis, the parent company of Jeep and Chrysler, will receive $15 billion, while Volkswagon will be given $13.2 billion.
PBO Questions Feds’ Assumptions
Mr. Giroux told the committee that the federal government’s estimate “significantly” overstated the economic and fiscal impacts of the production subsidies, resulting in an “optimistic” breakeven timeline. He said there was uncertainty around the future location of new investments and production related to other nodes of the EV supply chain.
“Given the highly integrated nature of the North American auto industry and the global nature of the automotive industry, it’s not reasonable to assume that all new investments in the other nodes of the supply chain will automatically take place in Canada,” he said.
The PBO also said the modelling used by the Trillium Network was based on an input-output framework that did not take into account supply constraints. This meant it did not consider scarcity or reallocation of labour, instead assuming that “every new job is a net gain to the economy,” despite resources from other industries needing to shift to meet increased demand across the EV supply chain.
Mr. Giroux said the PBO’s analysis included several assumptions that would have decreased the break-even time for the plants, such as both plants continuing at full production beyond 2032 when the subsidies would be eliminated, and that government revenue related to cell and module manufacturing would increase significantly after 2030.
Liberal MP Questions ‘Pessimistic’ View of Report
Conservative MP Rick Perkins asked Mr. Giroux if there was any guarantee that the facilities would continue to create batteries at the projected level until the subsidies ran out. He responded that he had not seen any such guarantees, adding that ministers had been “clear that [they are] conditional subsidies that are tied to production.”“So I don’t think that there are any guarantees that the plants will have to operate at full capacity, even while the subsidies are being paid,” Mr. Giroux said.
Liberal MP Ryan Turnbull asked why the PBO report excluded various “nodes” of the EV supply chain in its calculations—such as mineral exploration, mining, assembly, and battery material production—and only included revenues generated by cell and module manufacturing that the production subsidies are based on.
Mr. Giroux replied that they chose not to include the other nodes because they would require additional government subsidies that had not yet happened and were not guaranteed to occur.
“The level of these subsidies are not known, the level of these investments are not known. That’s why it’s difficult to include, for example, an EV assembly plant that we don’t know whether it will be built and we don’t know whether it will be built in Canada,” he added. “So it’s very difficult to take into account. [There are] lots of unknowns that may never materialize.”
When Mr. Turnbull asked why the PBO had chosen a “pessimistic” view of how the future of the plants might turn out, Mr. Giroux replied that he had been “quite optimistic to a certain degree” when crafting the report. But he said when looking at studies provided to parliamentarians, they had to be taken “with a grain of salt.”
“In my case, I work for parliamentarians, I work for the benefit of the taxpayers and Canadians, so I don’t have a vested interest in being overly optimistic or overly pessimistic,” he said.
