The Decibel - The biggest EV investment in Canada yet

Episode Date: April 29, 2024

By 2030, the federal government is hoping 60 per cent of new car sales will be zero-emission. By 2035, they want that number to be 100 per cent. To help with that goal, Canada and a number of provinces have been courting auto manufacturers to set up shop here. And just last week, Honda announced a $15-billion investment in EV production in Ontario – the biggest deal Canada has ever landed.Adam Radwanski, The Globe’s climate policy columnist, is on the show to talk about a few of these Canadian deals and the future of the EV industry – both the prospect and obstacles ahead.Questions? Comments? Ideas? Email us at [e-mail]

To further accelerate our electrification efforts in Canada, Honda will take another major step forward. I am pleased to announce that Honda intends to establish a vertically integrated and comprehensive EV value chain in Canada. That's Toshihiro Mibe, the global CEO of Honda. He's announcing last week's $15 billion investment in electric vehicle production in Ontario. This is the fourth major deal

Canada has landed in the past year. Today we can announce that Northvolt will build a new giant electric vehicle battery manufacturing facility here in the province of Quebec. Today is the day that we have announced our conclusion of a deal supported by Canada in Ontario with Stellantis. The Volkswagen EV battery plant is a generational investment in St. Thomas and in all of Ontario and Canada.

And it's the biggest one yet. The federal government wants 60% of all new car sales to be zero emission by 2030, and 100% by 2035. But sales of these vehicles haven't been growing like they used to. So what should we make of the billions of dollars governments are investing in this sector? Adam Radwanski is The Globe's climate policy columnist. He's here to explain these big Canadian deals and the challenges ahead for the EV industry. I'm Maina Karaman-Wilms, and this is The Decibel from The Globe and Mail.

Adam, great to have you back in studio. Thanks for having me again. So let's dig into this big Honda deal. What exactly is Honda proposing to build in Ontario? So Honda has announced a $15 billion total investment planned with four different components. Two of them are at the company's existing manufacturing site in Ontario, in Alliston. One of those is building electric vehicles there, starting in 2028. And the other there is making electric vehicle batteries.

And then there's two other components, which are both partnerships with other companies, in which they'll be making battery components. That'll be elsewhere in Ontario. And we haven't gotten all the details on those yet. Okay. But essentially, it sounds like a kind of a comprehensive electric vehicle supply chain, right? We've got battery components, the batteries, and then the vehicles. Yeah.

It's not the full supply chain because you can go further back and talk about minerals and so on. But it is far more comprehensive than any other investment we've seen to date, and unusually so for this industry. And this is one of a few different EV-related investments we've seen in the last year or so, right? So can you just remind us, how many have we seen in total? Well, there's been a few big ones. And the biggest investments we've seen have typically been in new battery plants. And the largest of those would be the Volkswagen plant that is planned for St. Thomas, Ontario,

which is about a $7 billion project. And a partnership between Stellantis, which is a global auto company, and LG, which is a Korean electronics company, that's in Windsor. That's about a $5 billion project. There's also a third battery factory being built by Northvolt, which is a Swedish electronics company. That's in Windsor. That's about a $5 billion project. There's also a third battery factory being built by Northvolt, which is a Swedish company in Quebec. And then we've seen others, I mean, in terms of retooling existing auto plants in Ontario to make EVs.

But the biggest ones and by far the most talked about ones have been the battery plants. So as you said, Adam, this deal is a $15 billion investment. How does it work in terms of then like Honda putting up the money and then the federal and the provincial government also have something to do here too? So how does that part break down? The combined federal and provincial government support for this, per the announcement, is about $5 billion, about $2.5 billion each. The federal component is through investment tax credits. The provincial one is more kind of direct subsidies and some investment infrastructure

around it. But it's basically all supporting the capital costs of building it. Okay. So essentially, it sounds like Honda's putting up the $15 billion to build these things, but then they're getting kind of tax credits and money back from both those levels of government to the tune of about $5 billion. Yes. Effectively, Honda's investment here seems to be about $10 billion. Okay. And how does this amount compare to the other EV deals that we've heard about in the last

year? You just mentioned a bunch there, Adam. How do those compare? This is a dramatically different deal from the other agreements that we've seen around battery factories in particular. Those were much more heavily subsidized. This is comparatively a relatively small subsidy. It's an unusual thing where this is actually a much bigger investment total,

as in $15 billion versus, say, $7 billion, so more than double, but with actually a smaller subsidy. I mean, the subsidy in this case combined between Ottawa and the provincial government, as I said, is about $5 billion. In the other cases, the subsidy may be more than double that. So it seems like a pretty good deal compared to the other ones we've seen. But these are serious investments that we're talking about, serious financial help from Ottawa and provincial governments to get these deals done. Let's talk about, I guess, the motivation behind this, Adam. Why is the federal government

specifically so committed to building out this sector of the Canadian economy? I think it's sometimes helpful to look back a few years. It was probably only about five years ago when I think there was a real question as to whether the auto sector in Canada would survive at all. It had been in decline for decades before that, and there was no particular reason to believe that EVs would be made here. We've seen, obviously, a real change in that narrative in the last few years, and that's been very much a strategic approach by the federal and Ontario, and to some extent, Quebec government. And I think that just rests on the premise that this is an industry of the future and it can be a significant pillar of Canada's economy during a long period of decarbonization. And that without it, a traditional industry would be

basically completely gone and nothing would replace it. So I think that was the premise initially. I would say that it's now gotten to a point where I think there's some degree of optimism, probably justified based on what we're seeing, that this will actually put our auto sector in Canada far ahead of where it's been for a long time, if ever. There does seem to be a genuine hub developing, particularly in Ontario. So I think what we're seeing here is sort of a pillar of Canada's clean economy kind of taking shape. Yeah. Yeah. So because there's, of course, the auto sector component that you touched on. So, I think what we're seeing here is sort of a pillar of Canada's clean economy kind of taking shape.

Yeah, yeah. So, because there's, of course, the auto sector component that you touched on. But, of course, you know, the EVs are kind of critical to the liberal government's climate plans as well. So, this seems to help bolster that. It does help bolster the country's climate plans. Although, of course, most of the vehicles that are produced here actually might not get exported to the United States. Some will be consumed domestically. But certainly they tie together. And we've heard from pretty much almost a day that the current federal government took office, but more so even in recent years, this line that the environment and the economy go hand in hand, that they're not at odds with each other. And the growth of the sector certainly

helps bolster that case for people who might say, wait, isn't this shift going to be bad for us? Or is this going to challenge our existing economy? If you can say, actually, we're going to have a more robust manufacturing sector than we've ever had before, or at least had in a very long time, that does help make the case for how addressing climate change can be an economic benefit rather than economic harm to the country. We should also talk about jobs, right? Because this is another aspect of a sizable corporate investment like this. And during the Honda announcement last week, Prime Minister Justin Trudeau promised there

would be 1,000 new jobs from this Honda investment. What kind of timeline are we talking about here, Adam? Like, when would we actually see these jobs? So the thousand jobs, I think, refers to jobs on an ongoing basis in the battery manufacturing plant specifically, because that's new. I should say it's hard to be exactly certain of this because there weren't all the specifics provided at the time of the announcement, but that seems to be the case. And I think we're talking about later this decade for those jobs to take place.

Now, of course, there will be some construction jobs and so on, although there is the question that's popped up elsewhere as well as to how many of those are going to be Canadian jobs versus how many people coming from elsewhere to help build the factory and so on. And then the idea is it preserves other vehicle assembly jobs that might have been lost as they stopped making vehicles and internal combustion engines there. And then there should be some further jobs, I think, in the other two facilities that are going to be built, which we haven't gotten as many details for, but the ones making battery components. Okay. So if we kind of take the broad view here, Adam, we total up the amount of government

support that we've seen here, be it in the form of tax credits, loans, other subsidies for these deals. It's over $30 billion. It's a lot of money, right? From what you're hearing, is that kind of investment worth it? There's certainly mixed opinions on the total investment that we've seen made, not just for this deal specifically, and whether it is justified. I think certainly you can't look at it just through the lens of how many jobs does this create, which sometimes gets brought up. And in fact, during the announcement last week, you saw both Prime Minister Trudeau and Premier Ford practically charged the microphone when they were challenged

a bit on this by a reporter. The argument is, look, this is not just about immediate jobs being created. This is a multi-decade investment. It's going to have tons of spinoff jobs. It's going to bring stability. It's an anchor to build around and all of that. I think all of that is true. The question there, I guess, is how broad do those go? And if we wind up only with a few battery plants that we've heavily subsidized and a few assembly plants, but not a ton of other economic activity battery assembly, and other parts assembly, and vehicle assembly, and battery recycling, and all of that, then I think you can say, okay, then these were extremely worthwhile anchors. And 20 years from now, the cost for them is not going to look that exorbitant. We'll be right back.

Adam, let's stick with the money here. Let's actually dig into some of the specifics now. The announcement by Honda to invest $15 billion is called the biggest investment that Canada has seen so far for this. But we're also hearing that Stellantis and Volkswagen are getting up to $15 billion each in subsidies. So I guess just help me understand this. Why is the Honda deal seen as the bigger investment? I couldn't blame anybody for being confused about this because the numbers are kind of counterintuitive. This is a very large investment, much larger than any of the other ones that we've seen announced by our companies. At $15 billion, it is more than double the size of the others that we've seen

in the last couple of years. But the other ones got a much higher subsidy total. So if you look at something like the Volkswagen deal, it's about a $7 billion investment by the company, it's getting subsidies of up to $13 billion, or $13.2 billion, I believe, over the next decade or so. So the subsidies could actually outweigh the capital cost of building the thing. But if we look at the $7 billion versus the $15 billion for Honda, the company's putting up more with Honda. Yes. In the Honda case, the governments are only subsidizing roughly a third of the capital costs. So basically, Honda is much bigger investment, much smaller subsidies. Okay. And let's dig into this a little further then. So how exactly do the government supports

for the Honda deal then differ from the Stellantis and the Volkswagen deals? For Stellantis and for Volkswagen, as well as for Northvolt in Quebec, what the government did is essentially match subsidies that are available in the United States. Those subsidies in the US, which are via the Inflation Reduction Act, are production tax credits in the US. What that means essentially is that in the early years of the company's operations, you are providing a subsidy per unit produced there on an ongoing basis. So when you see numbers like $13 billion for Volkswagen or $15 billion for Stellantis, what you're talking about is essentially the maximum subsidy they could earn up until about the early 2030s from the time that the plant opens if they produced the maximum number of cars possible. Okay. So it all depends on how much

they produce. Yes. They probably will not, in fact, wind up getting $13 billion or $15 billion, but it'll be quite large. In Honda's case, the governments are not matching what they would get in the US. What they're doing instead in the federal case is just giving them access to investment tax credits that basically cover a share of their capital costs. I have a few more, I guess, why questions about how this all shakes out here, Adam. Why do our governments agree to give more subsidies and capital costs then to Stellantis and Volkswagen? What is the reason for that? There are many why questions about this. In the case of the first two or three battery plants that Canada landed, I think the view from governments was that they needed anchors for this EV ecosystem they want to build.

And if they did not match the US, they simply would not be able to get any. But if they did so, then ultimately it would be a little bit easier to get subsequent investments without spending that much money. And in fairness, that is what appears to have happened. So because of the Inflation Reduction Act in the states and the subsidies that companies were getting south of the border, we basically kind of had to match that if we wanted to play the game. Yes. So in the case of Volkswagen, the US subsidies were already in place. And it was basically just a matter of, if you want this here, you have to match them. You don't have to exceed them, but it basically needs to be a level playing field from the company's perspective.

In the case of Stellantis, the agreement with Stellantis had actually been negotiated before the inflation reduction that came in. And they were initially only getting maybe a billion dollars or so in subsidies. And you may recall that there was then a, I believe I may have been on here talking about it. We talked to you about this when it happened. Yes, that's right. There was then a big blowup where Stellantis basically said, okay, well, now that we get this in the U.S., we need it here, especially after Volkswagen got their deal. And there was a big standoff where it appeared briefly that investment was in jeopardy until the government proved willing to basically just match the U.S.

Okay. So my other why question then is the motivation with Honda. Because if these other companies are getting so many subsidies from the government, why would Honda settle for less money from the government? This to me is the biggest why question. Broadly, based on the conversations that I've had since January, I think there are three different factors here. One of those is changing economic and investment climate. There's a lot of uncertainty in the United States, where, of course, these production subsidies are from, and we're trying to match them. There's an election later this year.

Nobody knows for certain whether these incentives will still be in place by then, and therefore whether Canada would even have to match them. A second factor is the structure of the deal and the nature of the investment. So the other plans were just for battery plants. And that's where the US subsidies come in most strongly. On the other aspects, like vehicle assembly or the components of batteries, Canada is a little more competitive just with the existing things it has. So as a whole, because the deal is broader, the battery subsidy was a little less important than it might have

been. And the third factor here seems to be corporate culture. Honda seems to operate a little differently from a company like, say, Stellantis. What I've heard from people who've engaged with it is it just has a somewhat, I suppose, more conservative corporate culture. I mean, notably, they've been a little slower to go into the EV space than some of the other companies, but also tending to take more of a long view and being a little less concerned with immediate subsidies and a little more concerned with immediate subsidies and a little more concerned with whether the investment makes sense in a 20, 30, 40 year frame.

And they do have lots of a history of kind of holding governments hostage for money during tough times and so on. So I think it was just a company with a different calculus. Okay. Let's talk about the EV market more broadly too, Adam. It's kind of in a weird place right now, right? Like after a few years of increasing growth, demand for EVs is dipping a little bit these days. So both Tesla and Chinese EV maker BYD show that their earnings and sales have been down in recent quarters. So I guess with that in the background, why are we seeing

such a ramping up of investment around producing more electric vehicles right now? That question of why now is something that I put to Honda's president, Toshihiro Mibe, after the announcement last week. They are confident that by 2028, which is when they will start rolling these EVs off the factory floor, that demand by then should be more robust again, that they're expecting the market to be growing again in a really strong way. But the other factor is, and I think what you really have to take from this decision, is that they're aware, and he said as much, that there are going to be bumps along the way. There are in any kind of transition.

But if you take the long view of 10, 15, 20 years from now, this is where we're going. Exactly how quickly we get there and exactly how difficult it is this decade is hard to predict. But if you're making investments where you're planning to do it for three, four, five decades, then you're really taking more of a view of what does this industry look like come 2040. And there seems to be strong confidence, including even from this rather cautious company, that this is just the way the world is going.

Okay. So we've talked a lot about what governments are doing to kind of spur the supply of EVs to actually make these cars. But what are we doing to make sure that EVs don't just sit in a lot after they're made, right, Adam? What's happening to make buying an EV actually worth it for more people? To date, governments have leaned fairly heavily on purchase subsidies, basically just giving you a few thousand dollars to help break down the cost. And that certainly has some importance. That's becoming less important now because the cost of EVs is falling. The bigger challenge and the one that governments have not done as well at

so far, nor I should say the private sector, is charging infrastructure. And if you speak to people in the automotive sector about some recent challenges for EVs and why they're having trouble past the first adopters, people who are really keen to buy these and why they're having trouble past the first adopters, people who are really keen to buy these, why they're having trouble with the next wave right now of potential consumers for them. What they'll typically say is it's concern about the range anxiety thing we've all heard, but basically just how do I charge this thing? And is there reliable infrastructure? Speaking anecdotally here, personally, you would assume as somebody who writes about climate policy that I might have an EV by now, but I live in downtown Toronto more or less, and I don't have a driveway, and it's just not an option right now. And I'd be a relatively early adopter. So

clearly there is a need to address that. And I think there's going to be a lot of pressure on governments to build out charging infrastructure. Just very lastly here, Adam, I wonder what you're hearing. After this Honda deal, should we expect more deals similar to this one in the future? I think now that this has been established, I think there is a fair amount of confidence out there about landing some more. The most obvious next one potentially would be Toyota, which is the one company that has a presence making vehicles in Ontario that has not yet made a major EV commitment here. They've had some preliminary talks with

governments. They don't seem to have gotten that great initially, but I think there's still some ongoing discussion there. So I think there is a decent chance of that. There are other European companies as well, like BMW and so on that come up. So I think there is a good chance of one or two more of these. I would say that if that happens, it'll be fairly soon. Where you have to look is which companies have not yet fully laid out their North American, particularly battery making plans and what's their history in Canada and so on. And are they willing to take this kind of deal? But I think once Honda has, it may be a lot easier to get other companies to also come here without spending,

you know, more than their capital costs and subsidies. Adam, always great to talk to you. Thank you so much for being here. Thank you. That's it for today. I'm Maina Karaman-Wilms. Our intern is Raisa Alibi. Our producers are Madeline White, Cheryl Sutherland, and Rachel

Levy-McLaughlin. David Crosby edits the show. Adrian Chung is our senior producer, and Angela Pachenza is our executive editor. Thanks so much for listening, and I'll talk to you tomorrow.