The Liberal government’s harebrained subsidies to the electric vehicle (EV) sector may well prove to be the biggest financial scandal and abuse and misuse of taxpayer money since Justin Trudeau and his ideological acolytes were elected in 2015.
Trudeau government subsidies to the auto sector in support of the expansion of electric vehicles now greatly exceed the actual investment of the private sector companies making cars. This entire EV subsidy policy is based on the kooky, self-imposed goal the government set for Canada to ensure all new light-duty vehicles are zero-emission by 2035. This incoherent policy ignores economic facts, consumer choice, market demand and responsible financial planning. Instead, it is based on the ideological belief that electric vehicles (EVs) are the best way to cut fossil fuel use and fight climate change. It ignores practical, market-based solutions that are reasonable and achievable and would have a far greater and more immediate impact.
To call it voodoo economics would be a compliment. The more appropriate term would be Doo-Doo economics.
A federal subsidy or incentive is financial support provided by the government to businesses or individuals. All subsidies are taxpayer dollars. The purpose of subsidy support is usually to encourage certain economic activities or achieve social goals. Normally, companies that can’t compete effectively would be pushed out of the market by competition. However, when government subsidies are put into play it often allows less competitive businesses to stay in the market. Usually, these taxpayer subsidies go to large corporations with influence and can lobby for financial support. The problem with this is that bureaucrats and government officials start subjectively picking winners and losers in the marketplace and end up rewarding some companies while placing a financial burden on others who are not receiving these same benefits.
On April 25, Prime Minister Trudeau announced that Canada has attracted over $46 billion in investments into the electric vehicle (EV) supply chain since 2020. Data released by the Parliamentary Budget Officer (PBO) and other available public information confirm that from October 8, 2020, to April 25, 2024, $46.1 billion in investments across thirteen distinct project groupings within the EV supply chain were announced.
On the surface, Trudeau’s announcement seemed like a robust commitment to green technology and to combat climate change. However, upon closer inspection, it became clear that these investments are not aligned with market realities or economic sensibility and ignored the many glaring problems faced in the EV sector.
Nothing defined those troubles more than what Trudeau did not disclose that day—that the government has agreed to use taxpayer money to support these ‘investments,’ including both capital and operating expenses to the tune of $52.5 billion taxpayer dollars. This amount is $6.3 billion (14 percent) more than the total announced investments from the ‘private sector’ companies. Of the estimated $52.5 billion in government support, up to $31.4 billion (60 percent) is federal support, while the other $21.1 billion (40 percent) is provincial support. The government support for these investments includes production subsidies, construction aid, and investment tax credits (ITCs). The support varies across different projects and includes foregone corporate income tax revenues as part of the production subsidies.
The federal government expenditure on EVs includes $2.3 billion in consumer subsidies, $850 million for charging infrastructure, and a staggering $27 billion in production subsidies for foreign companies to manufacture EV batteries domestically. These deals were hastily put in place while bureaucrats and cabinet ignored the current state of the EV marketplace in Canada and across North America.
They ignored developments at Ford Canada, which decided to shift focus from EVs to gasoline-powered F-Series trucks due to poor sales and high losses in the EV sector. This pivot underscores the financial instability and unviability currently plaguing the EV market. Ford’s decision to abandon its EV retooling plans in Oakville, Ontario, after a reported $4.7 billion loss on EVs in 2023, reflects a broader trend of financial haemorrhage within the industry.
In Germany, EV sales have dropped by 37 percent in the past two years. This decline is directly connected to the German government ending a costly subsidy a year early that was created to encourage Germans to purchase an EV. In France, a social leasing subsidy scheme to provide cheap EVs to low-income households helped increase EV sales by 14.9 per cent in the first half of 2024 and in Italy, EV incentives pushed EV sales up by 7 per cent across the first six months of the year. The subsidy programs in France and Italy are now also under review because they are costly for taxpayers and have created a false economy where EVs are only affordable with taxpayer handouts. In short, subsidies alone cannot sustain the EV market; actual consumer interest and market demand must drive adoption, not government spending on the backs of taxpayers.
The Canadian government’s strategy is increasingly disconnected from market conditions and consumer demand. Despite heavy subsidies, EV adoption in Canada remains sluggish, with 46,744 new EVs currently on the road (light and medium-duty only) and registered across Canada in the first quarter of 2024 versus a projected need of 442,000 to 469,000 by 2035 to meet the new mandate. A 2024 survey conducted by AutoTrader showed consumer interest in zero emission vehicles among Canadians has declined each year over the last two years and is on track to do so again this year. This disparity highlights the misguided government policy with its oversupply of incentives when compared to actual consumer demand.
The environmental narrative around EVs is far from straightforward. While EVs offer zero tailpipe emissions, producing their batteries involves significant environmental costs. Extracting lithium, cobalt, and nickel for EV batteries is fraught with ecological damage, including habitat destruction, water pollution, and carbon emissions. For example, Cobalt mining in Congo has been criticized for its reliance on child labour and hazardous working conditions.
Then there is the problem of the lifecycle emissions of EVs, including those from manufacturing and battery production, which often exceed those of traditional gasoline vehicles. The additional weight of EV batteries also impacts overall energy efficiency and manufacturing emissions. These downstream environmental impacts have been completely ignored or overlooked by the Trudeau government because of their subjective enthusiasm for EVs. This issue alone should be enough to at least temporarily stop more EV funding until a program and plan is in place to adequately address this issue.
The government push for EVs has also encountered substantial infrastructure challenges. Canada will need to build hundreds of thousands of charging stations and upgrade the electrical grid to support a widespread transition to EVs. This massive infrastructure requirement presents a logistical and financial burden that the current plan does not address at all.
Another problem is that the technology for recycling and repurposing EV batteries is still in its growing stage. Without a comprehensive national policy for battery disposal and recycling, Canada risks creating another environmental problem: hazardous battery waste. However, this fact appears completely lost on the Trudeau government.
Another challenge is that there is too much capacity in the industry, with companies over-investing in too many factories and distribution centres. Part of this is driven by the easy money government subsidy part that legacy automakers coerce out from the government because they can’t do it on their own in the marketplace. And this is where things get very concerning. The Trudeau government has intervened in the auto market at a time when North and European American EVs—from the legacy OEMs—are NOT competitive.
Ford, GM, Rivian, and Lucid are all losing money on EVs and have turned to selling below-cost. VW is still recovering from its corruption trials from 2018-2022, in which it was found guilty of the greatest consumer fraud in automotive history and fined over 35 billion Euros. In May, Volkswagen announced they are pulling back on electric cars and will focus more on plug-in hybrids.
Tesla is profitable, which is not surprising given that it is the global leader in innovative EV technology and does not carry any of the legacy costs or baggage of older auto companies. Their entire production and assembly process is also a completely different business model.
Then there is the EV elephant in the room. China’s electric vehicle (EV) market is the largest in the world, with over 100 companies involved, including major players like BYD, NIO, and Xpeng. Their vast market has millions of EVs sold annually, driven by strong domestic demand from urban consumers seeking affordable, eco-friendly transportation. In recent years, production has ramped up at an incredible pace. This surge is driven by many factors, including the opportunity to capitalize on EV mandates enacted by Canada and other nations. Chinese EV manufacturers can outcompete Western producers largely because they dominate lithium battery production, giving them a significant cost advantage.
Like Tesla, the Chinese approach to building EVs is different. Unlike in North America, Chinese EVs are produced on fully robotic assembly lines, which keeps costs low. The EV industry in China starts with the battery and electronics and builds everything on top. They have been described as ’a big smartphone on wheels.’
China also leads the world when it comes to EV infrastructure. Domestically, China provides consumers with all kinds of incentives to drive EVs and has more dedicated EV recharge ports than Western countries. The Chinese government supports the industry with substantial subsidies, tax incentives, and investments in infrastructure, such as charging stations. State-owned enterprises and private companies benefit from these policies, which also includes research and development funding, preferential loans, and policies favouring domestic manufacturers. This support has enabled China to dominate the global EV market in production and sales.
Chinese EVs are as good or superior to any Western cars on the market. Some Western analysts have suggested Chinese EVs are inferior, but nothing could be further from the truth. Chinese EVs are to the automobile sector what Huawei is to the mobile phone market-exceptional, innovative, affordable, and here to stay.
High demand plus cheaper assembly costs due to robotics have also made Chinese EVs popular outside China. In Australia, for example, about 80 percent of the EVs sold are made in China, offering lower prices for consumers.
The success of China’s EV industry in terms of production and quality has significantly impacted the global auto sector. In response, the United States, Canada, and Mexico have imposed a 100 percent tariff on Chinese electric vehicles, aiming to protect their domestic industries and reduce reliance on foreign technology. However, this approach may backfire. China’s dominance in EV manufacturing is disrupting global markets, fueling trade tensions as these countries attempt to shield their industries from being undercut by competitively priced Chinese cars.
Many European countries have opted against imposing steep tariffs on Chinese EVs or have chosen much lower tariffs due to their different trade strategies and economic interests. They prioritize maintaining open trade relations with China, recognizing the importance of Chinese markets for their own goods. Additionally, European automakers often have partnerships or manufacturing agreements with Chinese companies, which would suffer under harsh tariffs. This contrast highlights the differing approaches to trade and economic policy between North America and Europe.
The Trudeau government has miscalculated by heavily subsidizing Western automakers in a bid to protect jobs in an industry struggling to adapt to the changing market. Committing over $30 billion in taxpayer funds to companies facing declining demand, supply chain issues, and high infrastructure costs, seems increasingly unwise. Consumers are becoming wary of investing in EVs, concerned about the potential obsolescence of the technology, as well as unexpected insurance and maintenance costs.
At a time when Canada should be focusing on policies that stimulate economic growth and benefit more Canadians, the government’s confrontational stance with China, its second-largest trading partner, risks doing more harm than good to the economy.
Canada could benefit from following Germany’s example in managing its trade relationship with China. Germany, whose second-largest trade partner is China after the US, has successfully balanced its strong ties with China while maintaining solid relationships with the EU and the US. Major German companies like Siemens, Mercedes, and Volkswagen thrive in the Chinese market, with Germany making strategic decisions to preserve these valuable connections without causing friction.
Australia offers a similar lesson. After experiencing tensions with China, Australia’s new government has adopted a more business-friendly approach, recognizing the importance of trade in minerals, wine, and agriculture to its economy.
For Canada, which exports coal, oil, and agricultural products to China and has Canadian brands like Canada Goose, Lululemon, and Tim Hortons operating there, a more open relationship with China could be highly beneficial. While the US remains a crucial trading partner, Canada should also consider its own interests and the potential gains from a more balanced approach with China.
Economically, markets are better equipped than politicians to determine which technologies succeed. If there is genuine demand for a product, no subsidies are needed, as the potential profits should provide enough incentive for production.
Though well-intentioned, Canada’s commitment of over $53 billion in subsidies to OEMs for EV investments seems misguided and financially irresponsible. The disconnect between policy and market conditions and overlooked environmental consequences suggests that the Trudeau government’s push for electric vehicles will fail to deliver on its promises. A reevaluation of the strategy is needed—one that considers both economic realities and comprehensive environmental impacts.
It’s time for the Trudeau government, along with Ontario’s provincial government, to reconsider their approach to EVs, ensuring that future investments are economically sound, market-driven, and truly beneficial for both the environment and the country.
Additionally, Canada should weigh why the Chinese EV market has been so successful and what risks and benefits come with engaging in the auto sector with China rather than trying to contain it. The recent knee-jerk reaction of imposing tariffs on China will have consequences for Canada in other areas. Can you say Canola?
Photo: AniphaeS, iStock
