The EV race – positioning Canada for success

Lisa Raitt: Thank you for tuning in to The Raitt Stuff. I’m your host, Lisa Raitt. And in this podcast, I’m going to share insights on current hot topics in the areas of public policy, politics and business with some guests along the way. Welcome back to The Raitt Stuff. Today, I have the great pleasure of being able to interview who I consider an old friend. Not that we’re old, but I consider it to be a friend that I’ve had for a very long time in my career, Rocco Rossi, who is the President and CEO of the Ontario Chamber of Commerce. Welcome, Rocco.

Rocco Rossi: Such a delight. Long time fanboy, first time caller.

Lisa Raitt: (Laughs) I appreciate that. What we’ve been discussing a lot on The Raitt Stuff is where we are in Canada as it pertains to the big shift we’re seeing in moving to a net zero world. And we’ve talked about critical minerals. We’ve had a great series on clean tech and female entrepreneurs in it. But in Ontario, we’ve been seeing some major, major policy and funding announcements in the EV space. And I know that you’ve been very vocal about your support of it and your member support of it. So we’re going to, just to give a preview to our listeners today, that’s what we’re going to talk about. But I want to back it up a step, Rocco, and ask you at the Ontario Chamber of Commerce, and I know you’ve been doing this for a while, do you find that your members are more engaged now than ever on what’s happening in the energy transition area?

Rocco Rossi: Absolutely. I mean, they are living and breathing it on a daily basis, and there are both opportunities and challenges. And what we’re trying to do is focus on those areas where Ontario can become a global leader and therefore underpin future economic growth.

Lisa Raitt: Yeah, that makes a lot of sense. What do you and your members think about the US’s incredible, I would say, focus on transitioning supply chains, transitioning decarbonizing through the Inflation Reduction Act. I always go to investment because it’s all about spending $369 billion. But give me your 30,000 foot analysis of what’s going on and how it impacts Ontario specifically.

Rocco Rossi: Yeah, look, as business people, as small C economic conservatives, you know, everyone can agree that you’d prefer not to be in the subsidies business. Adam Smith talked about the invisible hand of the market. The problem is, as you pointed out, the Americans have put a $369 billion US visible hand on the table, and that is half $1 trillion of Canadian dollars. So yeah, you can have an academic debate, but then you’re going to be left in the dust. And so we’re not going to be able, as all levels of government have said, compete dollar for dollar with the US. So one, we got to pick our spots and then two, we have to do things that don’t necessarily cost money but are crucial to giving you competitive advantage. Governments have often been told, you know, you can’t pick winners, but let’s be clear, EV battery is not cucumber greenhouses in Newfoundland. This is something that is being competed for on a global basis and that has real world consequences for jobs and economic growth.

Lisa Raitt: Yeah, it’s true. It’s funny you say cucumber greenhouses in Newfoundland reminds me of the fact I grew up in Cape Breton, where we thought, as I guess some government thought, it would be a great idea to import these Scottish highland sheep into Cape Breton and we would all have these sheep farms. And our family was one of them. And Ed, for Sean’s family had sheep as well. Yeah, it didn’t work out. The sheep died. So you can see that picking winners doesn’t always work out. And you think it’s going to work. Aside from my own story about sheep, the reality is, though, is that this announcement that’s been made by Premier Ford, Prime Minister Trudeau, you were involved in it, St. Thomas was involved in it, Volkswagen was involved in it. It has been greeted with lots of praise. But there’s also been some criticism around it. Can you tell us a little bit about what you think the criticism is coming from?

Rocco Rossi: Well, it starts with the eye watering number of $13 billion, right? Like that is massive and it needs to be unpacked in order to take the temperature down and focus on the facts. First off, there’s no $13 billion check that gets signed if batteries are not actually built and sold. We don’t have all of the details of the deal clearly for competitive reasons. But we take a look at that aforementioned Inflation Reduction Act and Section 45X, which is the demon that we’re competing against, has a formula whereby when a battery is built and sold but built in the United States, a certain tax subsidy gets attached to it. So you have to actually build and sell these things to trigger the money. And it’s roughly a couple grand per battery, roughly 10% of the value of the battery. So 13 billion, there’s going to be a minimum of $130 billion of battery value created in order to trigger that. That’s an important piece. The other thing that’s causing the issues clearly is there was a pre-existing deal with Stellantis in the Windsor area, also for another battery plant smaller than the proposed VW one, which running at max capacity is going to be producing a million batteries a year. So will be the single largest manufacturing plant in Canada, one of the largest in the world, the Stellantis plant, the Stellantis LG’s looking about 400,000 and it was cut before the IRA. And so there may have been construction subsidies, but clearly there wasn’t the additional production subsidies and Stellantis, not being idiotic, has said, hey, you know, you’re throwing around a $13 billion number. The US is throwing around their big numbers and quite frankly, I can move a few miles to the other side of the river and produce my batteries in the United States and collect that money. So you need to make me whole or close to whole.

Lisa Raitt: Yeah, makes sense. So what we’ve covered so far is the fact that the United States has put the, it’s not an invisible hand, there’s a visible hand. So we have to compete. There’s no question about it. We’ve covered the fact that the subsidies that are being talked about in this very large number are only going to be payable if there’s production. And that makes a lot of sense. But I think the last part of it that has a government influence is the fact that not only is it going to be regulatorily mandated that we move to EVs, therefore you’re going to need the supply. There is also this incentive in the United States to buy an EV as well to the tune of about $7,500, which is a significant subsidy. So the market is going to be there. I mean, that’s my top line analysis. I think that’s right.

Rocco Rossi: It’s absolutely right. And I would add one additional thing, because we now, as we’ve seen, you know, in the words of the Indo-Pacific strategy here in Canada and also the national strategic documents in the US, that China is now being seen as more than just a competitor. And when you look at the EV space specifically, China dominates in the production and processing of most of the critical minerals that go into the chain. So if there is not a non China option, then we run the very real geopolitical risk that if there are issues between us, they can turn off the tap. And that is something we simply cannot accept. So over and above, this is where the market is going. We also have a geopolitical imperative to have an option in the non autarkic world to compete in the EV space.

Lisa Raitt: So can I back you up behind the supply chain, since you mentioned it a little further. Obviously one of the benefits we have in Ontario is that we possess critical minerals. We possess green steel because of our very carbon, non carbon emitting grid. Any concerns about whether or not we’re going to be actually able to feed into the plant?

Rocco Rossi: Huge concerns. The average time it takes today to permit a mine in Ontario and Canada more generally is about 15 years. Clearly, this transition is not going to wait 15 years. So over and above these announcements of the money. And that’s why I said it’s not just about the money. If we’re going to actually leverage this investment, encourage these companies to stay beyond simply cutting a check, we have to show that we can vertically integrate back to the mines and mineral processing. And that’s another reason why we’re deciding out of all of the things in the green transition that you could invest in and where we can’t go dollar for dollar in every area with the Americans, this is an area where we do want to compete because we do have the potential competitive advantage of having the critical minerals here in Ontario and in Canada more broadly. So in order to fulfil that promise, we actually have to deliver on the mines and on the processing of the minerals.

Lisa Raitt: I agree. One last question for me on the topic of EVs. Rocco, if I could, and it’s more of a general question for those folks out there who are not from Ontario who still listen to The Raitt Stuff, can you explain the importance of the auto sector to the Ontario economy and why there’s such focus from a conservative or progressive conservative premier in providing these very large subsidies?

Rocco Rossi: The auto industry is worth over $50 billion a year in GDP contribution to the Ontario economy. It’s one of the largest industries in Canada, period, and it’s hundreds of thousands of jobs. And the other thing to remember in the transition and why it’s so existential for the Ontario economy and we would argue the Canadian economy is that internal combustion engine cars have a couple thousand parts, many of which are produced in Ontario and particularly southwestern Ontario. An EV has a couple hundred parts. When you go to EV, you no longer need catalytic converters, you no longer need exhaust manifolds. And so you’re talking about hundreds of thousands of jobs at risk in that transition if you don’t take that incredible manufacturing experience and knowhow and move there. And that was one of the reasons in my hat’s off to the Auto Parts Manufacturing Association for their Project Arrow, which demonstrates that Ontario manufactures can build with the best of the best. And here we had this electric vehicle concept car to show that all of those pieces, all of those parts can be produced right here in Ontario.

Lisa Raitt: Absolutely. And we’ve had we’ve had Flavio Volpe on in the past actually two years ago talking about it and his Project Arrow, which is also exciting. Any advice that you would give to either level of government? Not saying that they listen to this show, but any advice that you would give to any level of government or any order of government with respect to specifically addressing the EV supply chain?

Rocco Rossi: Yeah, we have to accelerate what we’re doing around critical minerals, both the mining of them and the processing of them. We need clear rules. We can’t have duplicate processes where you go through provincial and then there’s a layer of federal. We have to do right by our first nation’s brothers and sisters whose lands are crucial parts of all of this. So it can’t be these drawn out negotiations where you’re messing around with them and saying, oh, don’t worry, trust us. You’ll get 2 or 3 points at the back end. Like, be bold up front. I look at the example of one of our members, Hydro One, that understands that in order to electrify, we’re going to have to have far more transmission. And they’ve announced that all future transmission projects are going to be done on a 5050 basis with the affected First Nations. They’re still going to have to finance their end of the 50%. But you have predictable cash flows. You can finance that every day of the week and twice on Fridays. So it can be done. But the boldness of it is to say, you’re real partners, you’re not afterthoughts. We’re doing it at the front end, not the back end. And we need your help to move this quickly, because I never want to move as quickly as an autocratic government. The Chinese, I’m not saying we want to protect our environment, but we cannot afford to wait 15 years and save the environment and our economy at the same time.

Lisa Raitt: Well said, and I’ll leave it at that. Thanks so much, Rocco, for joining us today. Rocco Rossi, President and CEO of the Ontario Chamber of Commerce.

Rocco Rossi: Great pleasure. Thanks, Lisa.

Lisa Raitt: Thanks so much for tuning in. Now, if you have any questions or comments or even requests on topics to discuss, drop me a line at lisa.raitt@cibc.com. Your interactions actually will make this better. I’m your host, Lisa Raitt, and this has been The Raitt Stuff.

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