Thank you, Mr. Chair.
Good afternoon, members of the committee.
Thank you for the invitation to appear before you today to discuss our report, “Break-even Analysis of Production Subsidies for Stellantis-LGES and Volkswagen”.
With me today I have Chris Matier, director general, and Jill Giswold, lead analyst on the report.
Our report has two objectives. The first, which aligns with my mandate to promote greater budget transparency and accountability, is to detail the federal government's break-even analysis of the $13.2 billion production subsidy for Volkswagen announced in April. At that time, the Prime Minister and the Minister of Innovation, Science and Industry emphasized a break-even timeline of less than five years. However, the supporting analysis was not published. Our report bridges that information gap by explaining how the government estimated that timeline.
Furthermore, in July, the federal government and the Government of Ontario announced production subsidies for Stellantis-LGES of up to $15 billion, although neither government has announced a break-even timeline. This brings us to the report's second objective, which is to provide an independent break-even analysis of the $28.2 billion in combined production subsidies for Stellantis-LGES and Volkswagen.
We estimated that federal and provincial government revenues generated from the electric vehicle battery manufacturing plants over the period of 2024 to 2043 would be equal to the total amount of production subsidies. This implies a break-even timeline of 20 years, which is significantly longer than the government's estimated payback within five years for Volkswagen.
To arrive at this estimate, we used results from the same study—“Canada's New Economic Engine"—that Innovation, Science and Economic Development used to determine its break-even timeline. In preparing our analysis, we consulted with ISED and Finance Canada officials.
In addition, in June we reached out to the organizations that published the study—Clean Energy Canada and the Trillium Network for Advanced Manufacturing—and provided them with technical questions and data requests. Unfortunately, in August Trillium informed us that they were not in a position to answer our questions and indicated that they could potentially pick up the conversation in October if we were interested. Despite their response, we were confident in our understanding of their study and results in order to complete our analysis.
Contrary to what some have suggested, our estimated 20-year break-even timeline captures the direct, indirect and induced economic impacts that stem from the battery cell and module manufacturing nodes of the EV supply chain in the Trillium study. These are the supply chain nodes to which the Stellantis-LGES and Volkswagen production subsidies are tied.
In contrast to the federal government's break-even estimate, we did not include additional investments and the assumed production increases in other nodes of the EV supply chain of the Trillium study. In our view, the assumptions and modelling underlying the federal government's estimate significantly overstate the economic and fiscal impacts of the production subsidies, resulting in an optimistic break-even timeline.
First, there is uncertainty surrounding the future geographic location of new investments and production related to the 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.
Second, the modelling used by the Trillium Network was based on an input-output framework. As we noted in our report, a key limitation of this framework is that there are no supply constraints. For example, in such a framework there is no scarcity or reallocation of labour, so every new job is a net gain to the economy. However, since supply constraints do exist, resources from other sectors and industries would have to shift to meet increased demand across the EV supply chain.
Therefore, given the uncertainty related to the future location of the EV supply chain and to the incrementality of the economic and fiscal impacts, we incorporated the production and spinoffs related to the cell and module manufacturing nodes in the Trillium study, accounting for the production schedules provided by Stellantis-LGES and Volkswagen.
That said, even our analysis included several optimistic assumptions. For example, we assumed that both plants would continue to operate at full production beyond 2032, when the production subsidies will be eliminated. We also assumed that government revenue yields related to cell and module manufacturing would increase significantly beyond 2030.
All in all, it is certainly possible that the break-even timeline for the $28.2 billion in production subsidies for Stellantis-LGES and Volkswagen exceeds our estimate of 20 years.
We would be pleased to respond to your questions. Thank you.