Automotive
U.S. politics looms large over Trudeau/Ford EV gamble
From the Fraser Institute
Political developments in the U.S. over the past few years have substantially increased the risk of any investment that relies on unrestricted access to the U.S. market
Last week, the Trudeau government and the Ford government announced a new multi-billion dollar taxpayer-funded subsidy for Honda to expand its Alliston, Ontario plant to manufacture electric vehicles (EV) and host a large EV battery plant. Eventually, the direct and indirect subsidies could total $10 billion from the two governments.
The Honda announcement follows earlier deals with Northvolt, Stellantis and Volkswagen to build and operate EV battery and auto assembly plants in Ontario. According to the Parliamentary Budget Officer, these three deals may total $50.7 billion after accounting for the cost of government borrowing to finance the subsidies and foregone corporate tax revenue from tax abatements tied to production.
Clearly, if future taxpayers across the country (not just in Ontario) are to avoid a huge additional tax burden or suffer reductions in government services, a lot needs to go right for Canada’s EV industry.
In particular, there must emerge sufficient market demand for EVs so these “investments” in the EV auto sector will be fully paid for by future tax revenues from corporate and personal income taxes levied on companies and workers in the EV sector. During their joint announcement of the Honda deal, both Prime Minister Trudeau and Premier Ford ignored this elephant in the room while claiming that the Honda deal will mean 240,000 vehicles a year manufactured at the site and 4,200 jobs preserved, while adding another 1,000 jobs.
By way of perspective, in 2023 around 185,000 EV vehicles were sold in Canada—about 11 per cent of all new cars sold in Canada that year. This is considerably less than the target capacity of the Honda complex and the total expected production capacity of Canada’s EV sector once all the various announced subsidized production facilities are in operation. In contrast, 1.2 million EVs were sold in the United States.
The demand for EVs in Canada will likely grow over time, especially given the increased incentive the federal government now has to ensure, through legislation or regulation, that Canadians retire their gas-powered vehicles and replace them with EVs. However, the long-run financial health of Canada’s EV sector requires continued access to the much larger U.S. market. Indeed, Honda’s CEO said his company chose Canada as the site for their first EV assembly plant in part because of Canada’s access to the U.S. market.
But political developments in the U.S. over the past few years have substantially increased the risk of any investment that relies on unrestricted access to the U.S. market. The trade protectionist bent of Donald Trump, the Republican nominee in the upcoming presidential election, is well known and he reportedly plans to impose a broad 10 per cent tariff on all manufactured imports to the U.S. if elected.
While the Canada-U.S.-Mexico Free Trade Agreement ostensibly gives Canadian-based EV producers tariff-free access to the U.S. market, Trump could terminate the treaty or at least insist on major changes in specific Canadian trade policies that he criticized during his first term, including supply management programs for dairy products. The trade agreement is up for trilateral review in 2025, which would allow a new Trump administration to demand political concessions such as increased Canadian spending on defence, in addition to trade concessions.
Nor would the re-election of President Joe Biden immunize Canada from protectionist risks. Biden has been a full-throated supporter of unionized U.S. auto workers and has staked his administration’s legacy on the successful electrification of the U.S. transportation sector through domestic production. Given his government’s financial commitment to growing a domestic EV sector, Biden might well impose trade restrictions on Canada if Canadian exports start to displace domestic production in the U.S.
In short, Canadian politicians, most notably Justin Trudeau and Doug Ford, have staked the future of Canada’s heavily subsidized domestic EV sector on the vagaries of the U.S. political process, which is increasingly embracing “America First” industrial policies. This may turn out to be a very costly gamble for Canadian taxpayers.
Author:
From the Daily Caller News Foundation
The future direction of federal energy policy related to the transportation sector is a key question that will be determined in one way or another by the outcome of the presidential election. What remains unclear is the extent of change that a Trump presidency would bring.
Given that Tesla founder and CEO Elon Musk is a major supporter of former President Donald Trump, it seems unlikely a Trump White House would move to try to end the EV subsidies and tax breaks included in the Inflation Reduction Act (IRA). Those provisions, of course, constitute the “carrot” end of the Biden-Harris carrot-and-stick suite of policies designed to promote the expansion of EVs in the U.S. market.
The “stick” side of that approach comes in the form of stricter tailpipe emissions rules and higher fleet auto-mileage requirements imposed on domestic carmakers. While a Harris administration would likely seek to impose even more federal pressure through such command-and-control regulatory measures, a Trump administration would likely be more inclined to ease them.
But doing that is difficult and time-consuming and much would depend on the political will of those Trump appoints to lead the relevant agencies and departments.
Those and other coercive EV-related policies imposed during the Biden-Harris years have been designed to move the U.S. auto industry directionally to meet the administration’s stated goal of having EVs make up a third of the U.S. light duty fleet by 2030. The suite of policies does not constitute a hard mandate per se but is designed to produce a similar pre-conceived outcome.
It is the sort of heavy-handed federal effort to control markets that Trump has spoken out against throughout his first term in office and his pursuit of a second term.
A new report released this week by big energy data and analytics firm Enverus seems likely to influence prospective Trump officials to take a more favorable view of the potential for EVs to grow as a part of the domestic transportation fleet. Perhaps the most surprising bit of news in the study, conducted by Enverus subsidiary Enverus Intelligence Research (EIR), is a projection that EVs are poised to be lower-priced than their equivalent gas-powered models as soon as next year, due to falling battery costs.
“Battery costs have fallen rapidly, with 2024 cell costs dipping below $100/kWh. We predict from [2025] forward EVs will be more affordable than their traditional, internal combustible engine counterparts,” Carson Kearl, analyst at EIR, says in the release. Kearl further says that EIR expects the number of EVs on the road in the US to “exceed 40 million (20%) by 2035 and 80 million (40%) by 2040.”
The falling battery costs have been driven by a collapse in lithium prices. Somewhat ironically, that price collapse has in turn been driven by the failure of EV expansion to meet the unrealistic goal-setting mainly by western governments, including the United States. Those same cause-and-effect dynamics would most likely mean that prices for lithium, batteries and EVs would rise again if the rapid market penetration projected by EIR were to come to fruition.
In the U.S. market, the one and only certainty of all of this is that something is going to have to change, and soon. On Monday, Ford Motor Company reported it lost another $1.2 billion in its Ford Model e EV division in the 3rd quarter, bringing its accumulated loss for the first 9 months of 2024 to $3.7 billion.
Energy analyst and writer Robert Bryce points out in his Substack newsletter that that Model e loss is equivalent to the $3.7 billion profit Ford has reported this year in its Ford Blue division, which makes the company’s light duty internal combustion cars and trucks.
While Tesla is doing fine, with recovering profits and a rising stock price amid the successful launch of its CyberTruck and other new products, other pure-play EV makers in the United States are struggling to survive. Ford’s integrated peers GM and Stellantis have also struggled with the transition to more EV model-heavy fleets.
None of this is sustainable, and a recalibration of policy is in order. Next Tuesday’s election will determine which path the redirection of policy takes.
David Blackmon is an energy writer and consultant based in Texas. He spent 40 years in the oil and gas business, where he specialized in public policy and communications.
From the Canadian Taxpayers Federation
Author: Kris Sims
The Trudeau government’s ban on new gas and diesel vehicles is a nonstarter for three powerful reasons.
First, Canadians want to drive gas-powered minivans and diesel pickups.
Second, Canada does not have the electrical power to fuel these battery-powered cars.
Third, Canadians do not have the money to build the power-generating stations that would be needed to power these government-mandated vehicles.
Let’s start on the showroom floor.
The Trudeau government is banning the sale of new gasoline and diesel-powered vehicles by 2035.
In about 10 years’ time, Canadians will not be allowed to buy a new vehicle powered by an internal combustion engine because the government will forbid it.
Canadians disagree with this.
The Canadian Taxpayers Federation released Leger polling showing 59 per cent of Canadians oppose the federal government’s ban on new gas and diesel vehicles.
Among those who are decided on the issue, 67 per cent of Canadians, and majorities in every demographic, oppose the Trudeau government’s ban.
Now let’s look under the hood.
Canada does not have the electricity to charge these battery-powered cars. The government hasn’t presented any plan to pay for the power plants, transmission lines and charging stations for these government-mandated vehicles.
That leaves a big question: How much will this cost taxpayers?
Canada’s vehicle transition could cost up to $300 billion by 2040 to expand the electrical grid, according to a report for Natural Resources Canada.
Let’s look at why this will cost so much.
The average Canadian household uses about 10,861 kWh in electricity per year. The average electric car uses about 4,500 kWh of energy per year.
The average household’s electricity use would jump by about 40 per cent if they bought one EV and charged it at home.
Canada is home to 24 million cars and light trucks that run on gasoline and diesel, according to Statistics Canada.
If all those vehicles were powered by electricity and batteries, that fleet would use about 108 million mWh of power every year.
For context, one large CANDU nuclear reactor at the Darlington nuclear plant in Ontario generates about 7,750,000 mWh of power per year.
Canada would require about 14 of these reactors to power all of those electric cars.
Building a large nuclear reactor costs about $12.5 billion.
That’s a price tag of about $175 billion just for all the power plants. The Natural Resources report estimates the transition to electric vehicles could cost up to $300 billion in total, when new charging stations and power lines are included.
Who would be paying that tab? Normal Canadians through higher taxes and power bills.
Canadians cannot afford the cost of these mandatory electric vehicles because they’re broke.
Canadians are broke largely because of high taxes and high inflation, both driven by the Trudeau government’s wasteful spending.
About half of Canadians say they are within $200 of not being able to make the minimum payments on their bills each month. That’s also known as barely scraping by.
Food banks are facing record demand, with a sharp increase in working families needing help. That means parents who are holding down jobs are still depending on donated jars of peanut butter to feed their kids.
Rubbing salt into the wound, the federal government also put taxpayers on the hook for about $30 billion to multinational corporations like Honda, Volkswagen, Stellantis and Northvolt to build EV battery factories.
The roadside sobriety test is complete, and the Trudeau government is blowing a fail on this policy.
Canadians are opposed to the Trudeau government banning the sale of new gasoline and diesel-powered vehicles.
Canada does not have the electricity to charge these battery-powered cars.
Canadians don’t have the money to build the new power plants, transmission lines and charging stations these vehicles would demand.
It’s time to tow this ban on new gas and diesel vehicles to the scrapyard.
Franco Terrazzano is the Federal Director and Kris Sims is the Alberta Director of the Canadian Taxpayers Federation
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