$16.3 Billion Saint Thomas Volkswagen EV Battery Plant Is A Bad Idea

Government, Volkswagen, and Stellantis: Do the Jobs Justify the Cost?

Two battery plants, Volkswagen and Stellantis, are vying for electric vehicle (EV) battery manufacturing dominance. The federal and provincial governments are promising large contributions to help build these plants.

Volkswagen is building a new plant in St. Thomas, which is set to begin producing in 2027. The plant, Volkswagen’s largest to date, will create up to 3,000 direct jobs, and up to 30,000 indirect jobs. Once complete, the plant will produce batteries for up to one million EVs per year, bolstering Canada’s domestic battery manufacturing capacity to meet the demand for electric vehicles now and into the future.

Meanwhile in Windsor, Stellantis stopped construction last month at a CAD $5 billion (USD $3.8 billion) electric-vehicle battery plant, which is being built in partnership with South Korea’s LG Energy Solution (LGES) alleging that Canada has not fulfilled promises.

Tensions emerged in August, when the United States passed the Inflation Reduction Act (IRA), a massive package of clean-tech incentives for companies. The IRA is offering automakers up to US$45 per kilowatt-hour of battery built in the USA.

Volkswagen’s ID.4 SUV has 82 kilowatt-hours onboard, which means Volkswagen could be missing out on as much as US$3,690 cash per battery. Most governmental plant-assembly handouts are one-and-done. In this case, however, subsidies will take place annually, from when the battery plant comes online in 2027, until 2032. 

That means that, if St. Thomas were to build enough batteries for a modest 100,000 ID.4s starting in 2027, Volkswagen would be turning down incentives worth US$370 million a year until 2032, by making its cells on the Canadian side of the border.

Both Canada and the United States seem to be trying to “one-up” the other on their offers to the battery manufacturers. This is detrimental to Canadian taxpayers, because the politicians seem to be more focused on how they are perceived, rather than whether the decision to build these plants is in the best interest of Canadians. 

Political Pressure for EVs: Help or Harm?

In order to attract the Volkswagen EV battery plant to St. Thomas, Ottawa matched the IRA subsidies, guaranteeing the German-based automaker between $8 billion and $13.2 billion in federal tax credits, depending upon the number of batteries it makes.

Parliamentary budget officer Yves Giroux released a report which stated that the federal government’s financial commitment to the Volkswagen plant will total at least $16.3 billion. This figure is $2.8 billion more than the federal government originally announced. The report admits that the economic benefits of building the new facility are marginal. By 2027, the plant will increase real GDP in Canada by just 0.01 per cent above its baseline projection, and will only add around 1,400 jobs.

While this report led some to suggest that taxpayer investment in the future Volkswagen EV battery cell plant in St. Thomas may not pay off, local politicians defended the large subsidies. St. Thomas Mayor Joe Preston remained unfazed by the backlash. “I take the positive side and say yes is the answer, this is the right thing to do for our region of southern Ontario, and certainly for the city of St. Thomas,” said Preston.

Labour Minister Monte McNaughton told CTV News that manufacturing is coming back strong. “When the Talbotville Ford plant closed, I remember growing up in Glencoe playing minor hockey, half of my hockey team’s parents worked at that plant,” he recalled. “It was a devastating day when those jobs were lost, thousands of jobs. So the manufacturing comeback is on here in southwestern Ontario, and I’m excited about what Volkswagen’s going to offer.”

Fanshawe College politics professor Matt Farrell said politicians are less concerned about the accounting liability than they are about the political liability: “Do you want to be the one that lets those jobs go somewhere else? This is especially salient in communities in southwestern Ontario where they’ve seen those jobs go south, they’ve seen them go overseas. Do you want to be that politician that’s seen as not standing up for jobs in those communities?”.

Economic Impact on Canadians: $16.3 Billion is Too Much!!!

The economic impact of a $16.3 Billion dollar subsidy could seriously hurt Canadian taxpayers. 

The federal government estimates that total budgetary revenues will be $409 billion for the fiscal year, and total budgetary expenses will be $462 billion. Thus, total budgetary expenses will need to be financed by a $53-billion deficit. This deficit represents ~11% of the total budget.

The federal government will spend $34.7 billion on debt servicing charges in 2022/23, which is more than what the government expects to spend on child care benefits ($29.4 billion) and employment insurance benefits ($24.8 billion).

The parable of the broken window was introduced by French economist Frédéric Bastiat, in his 1850 essay That Which We See and That Which We Do Not See, to illustrate why destruction, and the money spent to recover from destruction, is not actually a net benefit to society. The broken window fallacy suggests that an event can have unforeseen negative ripple effects if money is redirected to repairing broken items rather than towards new goods and services. 

Spending taxpayers dollars on EV plants is worse than the broken window fallacy because the government is spending other people’s money on a bad product. Producing electric vehicle batteries could be seen as similar to breaking windows to spur economic activity because these companies and the government fail to take into account the real value that the production of these batteries provide, and the problems that EV batteries pose for consumers. 

EV Battery Issues: Pollution, Waste, Production Emissions, and Charging.

EVs present many issues which make them a bad choice for government investment. First, Lithium-ion EV car batteries present a chemical waste issue. In addition to using a great deal of water, lithium mining causes water, soil, and air pollution. Toxic chemicals like hydrochloric acid used in the mining process can leak from evaporation pools and contaminate the surrounding area.

Lifetime assumptions for EVs range from 150,000–300,000 km. Industry analysts predict that at least 145 million EVs will be on the road by 2030, up from 11 million in 2020. The short lifetime of the batteries means that there will be a mountain of battery waste, since these batteries are not easily recyclable or disposable. 250,000 metric tons, or half a million cubic meters, of unprocessed battery pack waste will be produced when these vehicles reach the end of their lives in 15 to 20 years. 

A study from Harvard suggests that current EVs subsidies fail to reduce overall emissions. Two main sources of carbon emissions for EVs are power plant and battery manufacturing emissions. Carbon can be emitted during the generation of the electricity that EVs draw from the electrical grid and store in their batteries. For every tonne of mined lithium, 15 tonnes of CO2 are emitted into the air. To synthesize the materials needed for production, a temperature between 800 to 1,000 degrees Celsius is needed, a temperature that can only be reached cost-effectively by burning fossil fuels, which again adds to CO2 emissions. 

Additionally, EVs there are serious issues with recharging. Consumer research firm J.D. Power recently surveyed over 11,500 EV and plug-in hybrid vehicle owners. They discovered that those in areas with a high number of other EV owners found charging facilities to be “inadequate and plagued with non-functioning stations.” Owner satisfaction levels have dropped in the 12 months between studies.

The impact that charging has had on people’s lives has been significant, with one Tesla owner saying: “I didn’t realize my life would revolve around charging.” There have also been issues with the charging plugs getting stuck. After multiple failed attempts by bystanders, one EV owner called an electrician, who took 20 minutes to release it. The owner was unhappy: “the whole process took two hours, from 5 p.m. to 7 p.m. It was a cold day.” 

There are also issues with the amount, location and speed of charging stations. Canada currently has more than 16,000 public EV chargers, with about three-quarters of those categorized as Level 2, meaning that they charge more slowly than Level 3 fast chargers. A report from Natural Resources Canada suggests that the country will need about 200,000 public EV chargers by 2030, and about 440,000 by 2035 to accommodate all the new EVs on the road. While some cars can charge to 80 per cent from about 10 per cent at a Level 3 charger in about 20 minutes, it takes about 5 hours to charge at a Level 2 charger connected to a 240-volt outlet.

Smart Economics: The Conservative Solution

Conservative ideology suggests that governments should only spend tax money on the most necessary items. Excessive government spending can lead to inefficiency, wastefulness, and increased burdens on taxpayers. Fiscal conservatives agree that minimal government intervention in the economy and a narrow scope of government spending, prioritizing essential services and functions, such as defense, infrastructure, and public safety, allows governments to fulfill their core responsibilities without excessive taxation or interference in the private sector. More economic freedom for individuals often drives better results. 

There are too many criticisms to raise concerning the decision to subsidize EV battery plants: economic, technological, and environmental, to name a few. Battery manufacturing, when considered holistically, is perhaps not as green and good for the environment as Volkswagen would have you believe. Canadians should explore the technological, ethical and environmental issues more closely, as the federal government continues to consider subsidizing EVs. I am somewhat outraged that the Canadian government is using my tax money to subsidize companies, like Volkswagen in St. Thomas and Stellantis LGES in Windsor, when we could be using this money on better projects for Canadians.