September 24, 2023

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GOLDSTEIN: Trudeau, Ford roll dice on electric vehicles with our cash

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With Prime Minister Justin Trudeau and Ontario Premier Doug Ford throwing our money at Volkswagen Group and Stellantis-LGES to build electric vehicle battery plants in Ontario, it’s probably a bad time to mention Volkswagen is cutting back on the production of EV vehicles in Germany, due to “strong customer reluctance in the electric vehicle sector.”

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“The Volkswagen brand, like other car manufacturers, is currently seeing softening demand for electric cars,” the company said. “Reasons for this include: reduced subsidies, higher inflation and recent longer delivery times due to the shortage of parts.”

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It’s also probably a bad time to mention Stellantis recently idled its Jeep Cherokee SUV plant in Belvidere, Illinois, laying off 1,350 workers, citing the high costs of converting to EV production, warning there could be more plant closures if the trend continues.

Engaged in a subsidy war with U.S. President Joe Biden to attract EV makers to Canada, because of the huge subsidies offered in Biden’s bizarrely named Inflation Reduction Act, the federal and Ontario governments on Thursday announced the new terms of their deal with Stellantis — which had threatened to bolt to the U.S.

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Deputy PM Chrystia Freeland said Stellantis will receive up to $15 billion in “performance incentives,” adding to the $13 billion previously announced for Volkswagen, with the feds financing two-thirds of the costs and Ontario one-third.

The governments will also contribute about $1 billion each to the capital costs of building Stellantis’ $5 billion plant in Windsor and Volkswagen’s $7 billion plant in St. Thomas.

Thus, potential taxpayer support for these two European manufacturers will total three times the value of the Stellantis plant and two times that of the Volkswagen plant, which both governments say is necessary due to the importance of the auto sector to the Canadian and Ontario economies.

Freeland stressed the performance incentives — tax breaks — “are contingent on, and proportionate to, the production and sale of batteries from each project and should incentives offered under the U.S. IRA be reduced or cancelled, so would the performance incentives under the agreement.”

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Both governments, and the companies, say the two projects combined will create about 6,000 direct jobs, while supporting tens of thousands indirectly, and they’re confident of the long-term success of the EV industry in Canada.

A recent Abacus Data poll found most Canadians support the deals although public awareness of them is relatively low.

That said, let’s not kid the troops.

This is a huge financial roll of the dice, that no one envisioned before Biden’s IRA, especially given that the U.S. has no national carbon tax, which we do and which the feds told us would help make us a global leader in clean technology.

What we are witnessing is the birth of a Canadian EV industry that will run on public subsidies (to EV buyers as well) with governments contributing not only to capital costs — which is nothing new — but to ongoing production costs.

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It’s success will be contingent not only on price reductions and improved range for EVs, but rebuilding Canada’s electricity grid to meet higher demand, the availability of public charging stations nationally, and the willingness of consumers to pay the added (subsidized) cost of home charging stations.

Another major hurdle is the creation of supply chains to provide the raw materials for manufacturing EV batteries from northern Ontario’s Ring of Fire, through new mining operations already opposed by some Indigenous groups.

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