Letter to the Parliamentary Budget Officer Re: Tallying Government Support for EV Investment in Canada report

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Parliamentary Budget Officer
900-99 Bank Street
Ottawa, Ontario
K1A 0A9

Dear Mr. Giroux,

Re: Tallying Government Support for EV Investment in Canada report

I am writing to express my concerns over the Office of the Parliamentary Budget Officer’s report “Tallying Government Support for EV Investment in Canada,” published on June 18, 2024. While I deeply respect the PBO’s role in informing important public policy debates in Canada through relevant, timely, and independent economic analysis, I do not believe this latest report fulfills that mandate.

First, the report presents an unrefined and incomplete picture of the state of EV supply chain investments in Canada since October 2020. The 13 publicly announced projects highlighted constitute “anchor” investments along critical nodes of the mid- and downstream portion of the value chain, including major electric vehicle assembly programs, battery cell manufacturing, and battery materials processing across Canada. This list does not represent the full extent of new and forthcoming private sector EV-related investments tethered to these projects through new commercial material contracts, local supplier investments, and indirect or induced economic benefits. Unifor has identified at least 40 EV-related manufacturing investments since 2020, which still greatly undershoots the total number of supply chain investments as well as the beneficial economic impact these anchor investments will have. The author of your report acknowledges this omission but fails to attach any material significance to it, ignoring a key reason for government investment in such critical supply chain nodes, to the detriment of your analysis.

This narrow approach to measuring the lifecycle economic benefits of major EV and battery sector investments raises the same concerns as I had articulated in my letter to you following the release of the PBO’s “Break-Even Analysis” report in September 2023. That study presumed the economic benefits of battery cell manufacturing were contained in the individual facility, without regard to the additional and proximal supply chain investments and spillover effects. Both studies demonstrate both an inattentiveness toward and misunderstanding of the Canadian auto industry.      

Secondly, the report provides a misleading portrayal of the public cost of government support. Table 1 in the report claims that government support for these 13 projects “totals” $52.55 billion. This claim is later qualified as an “estimate” of government support of “up to $52.5 billion,” citing an earlier study by the PBO itself. The concern is that the report presents this estimate as a definitive cost to the public through federal and provincial government disbursements of production subsidies, tax credits, and special funds, whereas it is, to our knowledge, merely a potential cost based on upper-bound battery production estimates.

Of the $52.5 billion in “total government support,” 83 percent ($43.6 billion) is tied to three extraordinary battery cell and module manufacturing investments in Canada. These investments will help incubate a burgeoning and future-facing battery supply chain, leveraging Canada’s strategic global advantage in proximity to critical minerals. They will foster new skills, technologies, R&D opportunities, and create thousands of direct jobs over time. Included in the $43.6 billion is $38 billion earmarked for production subsidies provided by government in response to the threat of investment outflow to the U.S. resulting from similar IRA subsidies – money that we understand to be entirely contingent on actual production volumes.

The global market for battery electric vehicles has slowed significantly since the PBO’s September and November 2023 reports, resulting in troubling delays in new EV and battery cell production. The start-up of promised battery facilities across Europe and North America has been indefinitely delayed. Why the PBO has not revised its initial estimates based on this rapidly changing market or, at least acknowledged this in its recent study is unclear and concerning.

Further, your office used this highly dubious “total cost” figure and measured it against the aggregated nominal value of capital investment for each facility, presenting a distorted value-for-money proposition. One of your report’s key findings is that government support is “14 percent higher than announced investments.” This presumes that three battery plants will reach upper-bound targets on cell and module production before subsidies expire in 2032-33. Moreover, measuring the “cost” of government funding for operating expenses against the value of initial capital expenditures, rather than each facilities’ lifecycle benefits from production, productivity, supply chain growth, job creation, and tax generation, is incredulous.

Unifor is a primary stakeholder in Canada’s automotive industry, representing approximately 40,000 members in vehicle and parts manufacturing, distribution, engineering, and transportation, along with thousands more in service, repair, and maintenance across Canada.

The auto industry plays a vital role in the Canadian economy, bolstering productivity and export performance. It employs roughly 125,000 workers directly across numerous facilities and hundreds of thousands more in vehicle sales and aftermarket services. The auto industry is the lifeblood of many local economies throughout the country, known for creating good-quality, high-wage, and high-productivity jobs with above-average rates of unionization.

This industry is undergoing a profound transformation, reshaping operations, global value chains, and the nature of work for thousands of autoworkers. Automaking jurisdictions around the world are employing industrial strategies to secure existing assembly plants with future-facing electric vehicle product programs and technologies and securing new ‘greenfield’ investments in a new, burgeoning global battery supply chain. The cost of not making these investments for Canada could lead to capital and technology outflow, the loss of ancillary supply chain investments as well as high-quality manufacturing jobs.

This industrial transformation is of vital importance to the Canadian economy. It will not only salvage and grow a critical and well-established domestic industry but also demonstrate how modern industrial economies can reorient themselves to meet international climate goals and net zero commitments. Canada’s auto sector is the litmus test for this national project, on a scale unlike anything in our country’s modern industrial history. There is much at stake, both politically and economically, to show the world—and ourselves—that such a transition project is possible.

Mr. Giroux, whether you agree or not, you and your team to operate within these political realities. I appreciate and fully support the independent role of your office. However, the analysis and findings presented in this June 18 report provide little, if any, substance to the debate on the merits of auto sector investment policy or industrial strategy. At worse, it presents a distorted picture of Canada’s investment strategy and its outcomes.

I hope you receive this note in the spirit of constructive dialogue in which it was intended. I look forward to your response.

Lana Payne 
National President