Costing Support for EV Battery Manufacturing

Summary

This report estimates the total cost of federal and provincial government support for electric vehicles (EV) battery manufacturing announced to date that will be provided to Northvolt, Volkswagen and Stellantis-LGES over the period 2022-23 to 2032-33. The report also provides estimates of the break-even timelines for the announced production subsidies.

To date, the governments of Canada, Ontario and Quebec have made several major announcements of financial support for EV battery manufacturing. These announcements have largely been made in isolation and an estimate of the total cost of support has not been publicly provided.

To increase transparency around these announcements, PBO is providing an estimate of the total cost of government support for EV battery manufacturing—including both announced and non-announced costs—over the period 2022-23 to 2032-33.

Total cost of support for EV battery manufacturing

Based on government estimates, the governments of Canada, Ontario and Quebec have announced a combined $37.7 billion to support EV battery manufacturing by Northvolt, Volkswagen and Stellantis-LGES through 2032-33.

• Announced support to date includes production subsidies of $32.8 billion and construction support of $4.9 billion.

There are additional costs associated with the announced support for EV battery manufacturing.

• Maintaining equivalency with the U.S. Advanced Manufacturing Production Credit (AMPC) will result in foregone corporate income tax revenues of $5.8 billion over the period of 2022-23 to 2032-33.

When announced and non-announced costs are combined, we estimate the total cost of government support for EV battery manufacturing by Northvolt, Volkswagen and Stellantis-LGES to be $43.6 billion over 2022‑23 to 2032‑33—$5.8 billion higher than announced costs of $37.7 billion.

Of the $43.6 billion in total cost, we estimate that $26.9 billion (62 per cent) in costs will be incurred by the federal government and $16.7 billion (38 per cent) will fall on the provincial governments of Ontario and Quebec.

Assuming that the support for EV battery manufacturing is deficit financed, we estimate that public debt charges for federal and provincial governments would further increase the total cost by $6.6 billion over 2022-23 to 2032-33.

Our estimate of the total cost is conditional on the U.S. AMPC remaining in place (until the end of 2032) and on the EV battery production schedules provided by Northvolt, Volkswagen and Stellantis-LGES being realized.

Break-even timelines for production subsidies

Based on Northvolt’s projected annual production schedule, we estimate a break-even timeline of 11 years for the $4.6 billion production subsidy. Using PBO’s methodology and assuming full production, the federal government estimated a 9‑year break-even timeline for Northvolt’s production subsidy.

We estimate a break-even timeline of 15 years for the $13.2 billion Volkswagen production subsidy, and a break-even timeline of 23 years for the $15.0 billion in production subsidies for Stellantis-LGES—consistent with PBO’s previous estimate (of 20 years) based on their combined production schedules.

Our estimates of the break-even timelines for the production subsidies are based on several optimistic assumptions. It is certainly possible that the break-even timelines for the production subsidies exceed our estimates. In addition, our break-even analysis only considers the cost of the production subsidies. Including other costs (that is, construction support, foregone revenues and debt servicing) would further extend the break-even timelines.

Background

In June, PBO released a report that examined the cost of the federal government’s support for Volkswagen’s[^1] electric vehicle (EV) battery manufacturing plant. In September, PBO released a break-even analysis of the combined production subsidies for Stellantis-LG Energy Solutions[^2] (LGES) and Volkswagen announced by the governments of Canada and Ontario.

Since PBO’s September report, an additional EV battery manufacturing plant has been announced in Canada. On September 28, the federal government and the government of Quebec committed to providing support to Northvolt for EV battery manufacturing in Quebec.[^3]

Government support for Northvolt includes the same production subsidy for battery cells provided to Volkswagen and Stellantis-LGES to match the Advanced Manufacturing Production Credit (AMPC) included in the U.S. Inflation Reduction Act (IRA).

The production subsidy announced for Northvolt is subject to an overall cap of $4.6 billion. The federal government will cover two-thirds of the production subsidy ($3.1 billion), while the government of Quebec will provide one‑third ($1.5 billion).

The announced support for Northvolt also includes up to $2.7 billion in capital commitments, or construction support (up to $1.3 billion from the federal government and $1.4 billion from the government of Quebec).[^4]

This report first details the estimated total cost of federal and provincial government support for EV battery manufacturing announced to date that will be provided to Northvolt, Volkswagen and Stellantis-LGES. Next, we provide estimates of the break-even timelines for the announced production subsidies.

Total cost of support for EV battery manufacturing

To date, the governments of Canada, Ontario and Quebec have made several major announcements of financial support for EV battery manufacturing. These announcements have largely been made in isolation and an estimate of the total cost of support has not been publicly provided.

To increase transparency around these announcements, PBO is providing an estimate of the total cost of government support for EV battery manufacturing—including both announced and non-announced costs—over the period 2022-23 to 2032-33. Our estimate of the total cost is conditional on the U.S. AMPC remaining in place until the end of 2032 and on the EV battery production schedules provided by Northvolt, Volkswagen and Stellantis-LGES being realized.[^5]

Announced costs

Based on government estimates, the governments of Canada, Ontario and Quebec have now committed a combined $37.7 billion to support EV battery manufacturing by Northvolt, Volkswagen and Stellantis-LGES through 2032-33. The announced support consists of two parts (Table 1):

• $32.8 billion in production subsidies for cell and module manufacturing to match the U.S. AMPC; and

• $4.9 billion in construction support.

Non-announced costs

There are additional costs associated with the announced financial support. The corporate tax treatment of the production subsidies must be considered given that the subsidies are structured to match the U.S. AMPC (that is, US$35 per kilowatt-hour for cell manufacturing and US$10 per kilowatt-hour for module manufacturing).

Under the U.S. IRA, the AMPC is provided as a tax credit, hence there is no additional tax incurred. However, in Canada, the support is provided as a non-repayable contribution payment per kilowatt-hour for each battery cell (or battery module produced). Therefore, under existing law in Canada, these payments would be subject to applicable federal and provincial corporate income tax.[^6] Further, both the production support provided by the U.S. AMPC and the non-repayable contribution payments per kilowatt-hour in Canada meet the definition of a subsidy (Box 1).

According to the System of National Accounts (SNA):

“Subsidies are current unrequited payments that government units, including non-resident government units, make to enterprises on the basis of the levels of their production activities or the quantities or values of the goods or services that they produce, sell or import.”

The International Monetary Fund shares the same definition as the SNA and adds:

“Subsidies may be designed to influence levels of production, the prices at which outputs are sold, or the profits of the enterprises. Subsidies include payable tax credits receivable by enterprises for these purposes.”

United Nations, [System of National Accounts 2008](https://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf).

International Monetary Fund, [Government Finance Statistics Manual 2014](https://www.imf.org/external/pubs/ft/gfs/manual/2014/gfsfinal.pdf).

United Nations, [System of National Accounts 2008](https://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf).

International Monetary Fund, [Government Finance Statistics Manual 2014](https://www.imf.org/external/pubs/ft/gfs/manual/2014/gfsfinal.pdf).

In its June report, PBO noted that a tax adjustment would need to be provided to ensure after-tax equivalency with the U.S. AMPC. Following the release of our June report, the Minister of Finance clarified that the production subsidies provided to Volkswagen will not be subject to taxation.[^7] We assume that the production subsidies provided to Stellantis-LGES and Northvolt will also not be subject to taxation.

Consistent with the treatment of the EV battery production subsidies in the federal fiscal framework, we consider their revenue implications. We estimate the foregone federal and provincial corporate income tax (CIT) revenues from the tax adjustment for the production subsidies to be $5.8 billion over 2022-23 to 2032-33.[^8]

Accounting for both announced and non-announced costs, we estimate the total cost of support for EV battery manufacturing by Northvolt, Volkswagen and Stellantis-LGES to be $43.6 billion over 2022-23 to 2032‑33 (Figure 1).

Of the $43.6 billion in total cost, we estimate that $26.9 billion (62 per cent) in costs will be incurred by the federal government and $16.7 billion (38 per cent) will fall on the provincial governments of Ontario and Quebec.

Department of Finance Canada; Innovation, Science and Economic Development Canada;

Canadian Broadcasting Corporation;

Office of the Parliamentary Budget Officer.

Department of Finance Canada; Innovation, Science and Economic Development Canada;

Canadian Broadcasting Corporation;

Office of the Parliamentary Budget Officer.

\*Announced costs total $37.7 billion. Totals may not add due to rounding.

Our estimated total cost of $43.6 billion does not include public debt charges that would be incurred by the federal and provincial governments to finance the production subsidies (including foregone CIT revenues) and construction support. Assuming that the support for EV battery manufacturing is deficit financed, we estimate that public debt charges would increase the total cost by $6.6 billion over 2022-23 to 2032-33.[^9]

While this report focuses on support for EV battery manufacturing, both federal and provincial governments have announced support in other areas of the supply chain, notably recent announcements in EV battery materials production (Box 2).

• $644 million ($322 million each from the governments of Canada and Quebec) for the construction of Ford’s EV battery materials production plant.

• Up to $975.9 million (up to $551.3 million from the Government of Canada and up to $424.6 million from the Government of Ontario) for Umicore’s EV battery materials production plant.

Innovation, Science and Economic Development Canada, [Ford’s turn to choose Bécancour](https://www.canada.ca/en/innovation-science-economic-development/news/2023/08/fords-turn-to-choose-becancour.html);

Innovation, Science and Economic Development Canada, [Governments of Canada and Ontario finalize agreement with Umicore Rechargeable Battery Materials Canada Inc. for new plant in Loyalist Township](https://www.canada.ca/en/innovation-science-economic-development/news/2023/10/governments-of-canada-and-ontario-finalize-agreement-with-umicore-rechargeable-battery-materials-canada-inc-for-new-plant-in-loyalist-township.html).

Innovation, Science and Economic Development Canada, [Ford’s turn to choose Bécancour](https://www.canada.ca/en/innovation-science-economic-development/news/2023/08/fords-turn-to-choose-becancour.html);

Innovation, Science and Economic Development Canada, [Governments of Canada and Ontario finalize agreement with Umicore Rechargeable Battery Materials Canada Inc. for new plant in Loyalist Township](https://www.canada.ca/en/innovation-science-economic-development/news/2023/10/governments-of-canada-and-ontario-finalize-agreement-with-umicore-rechargeable-battery-materials-canada-inc-for-new-plant-in-loyalist-township.html).

Break-even analysis of production subsidies

Our cost estimate of government support for EV battery manufacturing is conditional on the U.S. AMPC remaining in place and on the production schedules provided by Northvolt, Volkswagen and Stellantis-LGES being realized. Moreover, our estimate represents a “gross” cost.

That said, both the federal government and PBO have provided estimates of break-even timelines that account for government revenues generated from EV battery manufacturing plants.[^10] These break-even estimates, however, only accounted for production subsidies and did not include construction support or non-announced costs (that is, foregone CIT revenue and debt servicing).

Consistent with previous analysis, we estimate the break-even timeline for production subsidies that will be provided to Northvolt and do not include any other costs.

When the federal government announced the support for Northvolt in September, the Prime Minister indicated that “[o]nce fully operational, the plant will generate economic benefits equal to the value of the production incentives provided, within five to nine years.”[^11]

Break-even methodologies

To understand the analysis supporting the government’s timeline, the PBO sent an information request to the Minister of Innovation, Science and Industry. In response to the PBO’s information request, Innovation, Science and Economic Development (ISED) indicated that they employed PBO’s methodology to estimate the break-even timeline of nine years for Northvolt’s production subsidy.[^12]

Recall that PBO’s methodology incorporated government revenues (direct, indirect and induced) generated by cell and module manufacturing[^13] to estimate the break-even timeline (of 20 years) for production subsidies for Stellantis-LGES and Volkswagen.[^14] This contrasted with the federal government’s approach[^15] to estimate the break-even timeline for Volkswagen (of 3.3 years, or less than five years) that additionally included revenues generated from yet-to-materialize investments and assumed production increases in other nodes of the EV supply chain from the Trillium Network study, most of which would likely require additional government subsidies.

However, given the uncertainty related to the future location of the EV supply chain[^16] and to the incrementality of the economic and fiscal impacts, we incorporated only the impacts related to the cell and module manufacturing nodes in the same Trillium Network study.

Estimates of the break-even timeline for Northvolt

To arrive at their estimate of a 9-year break-even timeline for Northvolt’s $4.6 billion production subsidy, ISED applied the annual revenue yield of $8.57 million per GWh in 2030 for cell manufacturing (from PBO’s September report), to the production level of the Northvolt plant at full capacity (60 GWh).[^17] By construction, this estimate excludes all nodes of the EV supply chain except for cell manufacturing.

Based on the methodology and assumptions from our September report, we estimate a break-even timeline for the $4.6 billion production subsidy announced for Northvolt to be 11 years.

Our break-even timeline begins the first year of planned cell production at the Northvolt facility in 2027. Production of battery cells from 2027 to 2032 are based on estimates provided by Northvolt. Beyond 2032, we assumed that full production would be maintained. This contrasts with ISED’s methodology, which estimates a break-even timeline at full production in every year.

Our slightly longer break-even timeline (11 versus 9 years) reflects the backloaded production profile used to estimate annual revenues. Recall that the production subsidy will be phased out beginning in 2030 (by 25 percentage points each year) and eliminated after 2032.

A comparison of estimates of break-even timelines

In our September report, we estimated a break-even timeline for the combined Stellantis-LGES and Volkswagen production subsidies.[^18] Given the additional Northvolt announcement, we have separated the break-even timelines for Stellantis-LGES and Volkswagen for comparison. The methodology and assumptions underlying our break-even estimates remain the same.[^19]

As shown in Table 2, we estimate a break-even timeline for the $13.2 billion production subsidy announced for Volkswagen to be 15 years, and the break-even timeline for the $15.0 billion in production subsidies for Stellantis-LGES to be 23 years—consistent with our previous estimate (of 20 years) based on their combined production schedules.

It is important to note that our estimates of the break-even timelines for the production subsidies are based on several optimistic assumptions. For example, we assume that manufacturing plants will continue to operate at full capacity beyond 2032 when the production subsidies will be eliminated. We also assume that government revenue yields related to cell and module manufacturing will increase significantly beyond 2030.

It is certainly possible that the break-even timelines for the production subsidies exceed our estimates shown in Table 2. Additionally, as mentioned, our break-even analysis only considers the production subsidies. Including other costs (that is, construction support, foregone CIT revenue and debt servicing) would further extend the break-even timelines.