Canada is pouring billions of dollars into the electric vehicle industry. Will it pay off?

Standing before a backdrop that declared Quebec’s commitment to a clean economy, Prime Minister Justin Trudeau and Premier François Legault outlined the details of what they both described as a “historic” project.

The numbers are eye popping. A new manufacturing facility to be built by Northvolt, a Swedish battery giant, will occupy 170 hectares — an area the size of more than 300 football fields — on Montreal’s South Shore, in a parcel of land spanning two communities.

Eventually, it is projected to have an annual battery cell manufacturing capacity of up to 60 gigawatt-hours (GWh), which is enough to power roughly one million electric vehicles a year.

This first phase, set to be complete by the end of 2026, will also include facilities to produce cathode active materials (a component of the batteries used in electric vehicles) and recycle batteries.

The government says the project will create as many as 3,000 jobs.

Quebec, Canada bet billions on an EV battery plant east of Montreal

Northvolt, a Swedish battery manufacturing giant, says it will build a new multibillion-dollar electric vehicle battery plant east of Montreal. Quebec leaders are calling it the largest private investment in the province’s history — along with billions in public funding — but others say it carries no guarantees it will pay off for taxpayers.

It comes at a high cost: The federal and provincial governments are putting a combined $2.7 billion in taxpayer money toward the project.

There will also be government production incentives totalling up to $4.6 billion — one-third of which will come from Quebec — as long as similar incentives remain in place in the U.S.

‘We paid a big price’

The deal is the latest in a series of announcements supporting the burgeoning electric vehicle industry in Canada.

Such projects have faced questions, given the amount of public money involved, but experts say public financing is crucial to compete against cut-throat international competition.

Last month, Ottawa and Quebec announced an investment of more than $640 million for a new Ford EV plant in Bécancour, Que.

The federal government has also committed billions in Ontario to save the Stellantis-LG electric vehicle battery plant in Windsor and subsidize the Volkswagen battery plant in St. Thomas.

It will take 20 years for the federal and Ontario governments to break even on the pledge to give $28 billion in production subsidies for those two plants, the Parliamentary Budget Officer concluded.

The auto industry has a long history of being propped up by the government, said Greig Mordue, the chair of advanced manufacturing policy at McMaster University’s school of engineering, and a former Toyota executive.

“We’ll see where this shakes out, but we paid a big price,” Mordue said of this week’s Quebec announcement.

“Our industrial policy now consists of one tool and that is a chequebook, and that’s where we are today.”

Levelling the playing field

Trudeau and Legault pushed back on that idea. During Thursday’s news conference, Legault likened the investment to the billions spent on hydro-electric dams in northern Quebec 50 years ago under premier Robert Bourrassa.

People called Bourrassa crazy, too, he said.

“For the next 50 years, what’s going to be important is the green economy,” said Legault.

“So we’re building on what Bourassa and company did in Quebec.”

Paolo Cerruti, the CEO and co-founder of Northvolt, said the company was drawn to the cheap, clean hydro power on offer and the raw materials that could soon be available. A lithium mine is ramping up production in La Corne, Que., 550 kilometres north of Montreal.

The financial incentives played a big role, too.

“Canada put itself on a level playing field with what the United States has been doing,” he said.

The Inflation Reduction Act, viewed as the most ambitious climate action bill in U.S. history, was also an international “game changer,” spurring competition between countries to be part of the growing green economy, said Meena Bibra, a senior policy analyst at Clean Energy Canada, a think tank based at Simon Fraser University.

“We’re at a point where we either remain competitive in this race to electrification or we get left behind,” she said. “The rest of the world, the EU and the U.S. and other economies like China, are moving forward with strong industrial policy on electric vehicles.”

A 2022 report from Clean Energy Canada estimated the country has the potential to build a domestic EV battery supply chain that could support up to 250,000 jobs by 2030 and add $48 billion to the economy annually.

‘Biggest transition in 100 years’

Globally, a surge in demand for electric vehicles is already underway.

Since 2021, there has been a 240 per cent increase in electric car sales around the world, according to a report this week from the International Energy Agency that highlighted a sharp increase in clean energy.

A total of 14 per cent of all new cars sold in 2022 were electric, up from around nine per cent in 2021 and less than five per cent in 2020, according to the IEA.

Dozens of battery plants are already planned in the U.S. By 2030, North America’s manufacturing capacity for electric vehicle batteries is projected to be 20 times greater than a decade prior.

“This is the biggest transition in 100 years,” said Maria Kelleher, a Toronto-based consultant who specializes in clean energy projects.

“We are at a very pivotal point in history and the history of the auto sector, and you just have to put your hand deep in your pocket and take out a big whack of cash to get the thing off the ground.”