Canada’s deal with Volkswagen to construct an electric vehicle (EV) battery plant in southwestern Ontario has come under scrutiny following a report by the parliamentary budget officer (PBO). The analysis reveals that the deal will cost the federal government significantly more than initially stated.
According to the PBO report published on Wednesday, the estimated expenses over the next decade amount to $16.3 billion, far surpassing the government’s projected cost of a $700 million upfront capital investment and production subsidies of up to $13.2 billion. However, the PBO report only covers the construction phase of the facility, excluding the operation phase.
The PBO estimate considers the $700-million contribution for plant construction and $12.8 billion in production support. Additionally, it accounts for anticipated tax adjustments of $2.8 billion to align with the benefits provided by the U.S. Inflation Reduction Act. The report indicates the financial burden on Canadian taxpayers is more substantial than initially indicated by the government.
Yves Giroux, the parliamentary budget officer, explained that his office is unable to thoroughly assess the costs and benefits associated with the plant’s operation. This limitation arises from the confidential information contained within the agreement, including undisclosed minimum production levels. Giroux stressed that further analysis and the release of confidentiality provisions are necessary to provide a comprehensive evaluation of the production schedule and associated economic impacts. (via Automotive News)
Despite the concerns surrounding costs, the construction phase analysis predicts a peak of 3,100 jobs at the beginning of 2026. However, this figure is expected to decline to 1,400 jobs by the end of 2027. The federal government had previously announced that the Volkswagen deal would generate up to 3,000 direct jobs and an additional 30,000 indirect jobs, promising significant employment opportunities in the region.
The Volkswagen deal has also led to the halt of construction of another EV battery factory in Canada. Stellantis and partner LG Energy Solutions have said their $5-billion deal for a facility in Windsor, Ontario was reached in March 2022 prior to the Volkswagen announcement, and that the federal government has not delivered what it agreed to.