Business
Canada’s risky and misguided bet on EV battery manufacturing

From the Macdonald Laurier Institute
By Tom McCaffrey and Denaige McDonnell for Inside Policy
By investing $52.5 billion in a handful of foreign-controlled companies, the government has failed to create a sustainable, long-term economic advantage. Instead of fostering innovation and building a robust, homegrown supply chain, Canada has committed itself to an outdated model of industrial policy that relies on foreign entities and low-value manufacturing jobs.
Two years ago, Canada’s minister of natural resources urged Canadians “to fully seize” the economic opportunity presented by the country’s abundant critical minerals.
“We must ensure that value is added to the entire supply chain, including exploration, extraction, intermediate processing, advanced manufacturing, and recycling,” Jonathan Wilkinson stated. “We must create the necessary conditions for Canadian companies to grow, scale-up, and expand globally in markets that depend on critical minerals.”
Two years later, the Canadian government has gone all-in with a $52.5 billion dollar bet on EV battery manufacturing in Ontario and Quebec. The decision goes against the recommendations of industry specialists and the government’s own departments responsible for strategic development who advised officials to go slow, steady, and think full supply chain development when targeting incentives.
Why didn’t the politicians listen?
Ottawa’s risky bet on EV battery manufacturing
By 2033, the Parliamentary Budget Officer (PBO) estimates three recent Canadian Government EV battery manufacturing subsidies will cost the country a total $37.7 billion dollars. The Northvolt, Volkswagen, Stellantis-LGES manufacturing facilities are estimated to take 15 years to pay back Canadian taxpayers.
The repayment estimate is 6 years longer than the government originally estimated because the PBO has now used the manufacturers’ production rate estimations, a more conservative number, than the originally used full production rates. In total, the national investment across the full value chain of EV battery manufacturing equates to $52.5 billion into just 13 companies.
The Canadian government is betting big on EVs, but not by investing in innovation, intellectual property, or Canadian technology. It is betting the farm on foreign entities delivering 8,500 manufacturing jobs. Capital investment for the purpose of growth in labour productivity isn’t a new strategy and it can be effective, but at $4 million per job the likelihood of return on investment is low.
Could the Bet Pay Off?
The global EV battery market is expected to surge over the next 10 years from US$132.6 billion in 2023 to US$508.8 by 2033. So far, growth has been slower than expected, and some major players, like Tesla, will be challenged to meet their sales volumes from last year according to analysts – but basing an opinion on a single year of car sales is not wise.
The truth is car manufacturing in Canada is important to our GDP ($14.6 billion) and to jobs (125,000). It is also true that Canada has lost 50 per cent of its market share in manufacturing of cars ($8 billion in 2000 to $4 billion in 2022), but it has maintained it market share in motor vehicle parts ($9 billion).
Canada appears to be betting that it can maintain it’s position in the car automotive industry rather than cementing its place in the battery metals and manufacturing value chain. But is this wager wise?
Sustainable policy development
Governments can encourage economic and industrial development in several ways. Policy-makers can set efficient regulations and approval mechanisms; create frameworks that build a bridge between government and the private sector; support the development of skilled labour and innovation ecosystems; enable direct collaboration and procurement mechanisms between industry, academia, innovation ecosystems, and government; and share a clear vision and pathway for industrial growth.
Governments can also use subsidies and tax credits to create market share, but there is growing concern that using these methods to create or protect markets will cause more harm than opportunity in developing countries. These kinds of investments risk triggering international protectionism and geopolitical trade-offs as nations turn inward rather than collaborating for development.
What’s needed is a sustainable policy approach – one that influences and benefits the largest subset of market outcomes, including start-up development, foreign direct investment, technology development, technology adoption, investment attraction, the creation of circular economy value chains, and more.
Ottawa’s misguided approach to economic investment
In the EV world, a fully integrated supply chain that includes mining, chemical processing, battery production, and recycling is critical. The battery value chain road map published by Innovation, Science and Economic Development (ISED) Canada, and the Canadian Critical Minerals Strategy published by Natural Resources Canada (NRC) both call for government to develop the full supply chain.
In 2021, a standing committee advised how best to develop the full supply chain. That same year Clean Energy Canada wrote a report on how Canada could build the domestic battery industry across the country, and in 2022 another full suite of associations including the Battery Metals Association, Energy Futures Lab, Transition Accelerator, and Accelerate ZEV developed a roadmap to develop Canada’s battery value chain.
The Canadian industrial policies being used to create the EV supply chain are a mix of production subsidies, investment tax credits, foregone corporate income tax revenue, construction capital expenses, and other monetary supports. Though large, the $52.5 billion investment ignores key aspects of the upstream supply chain (mining, refining, etc.) that would allow us to reap full value from EV battery production. Worse, it comes at a time when automakers are pulling back from EV investments due to lower than expected demands, making the investment increasingly risky given changing market conditions.
By flying in the face of the very industries it supports and specialists it employs, it raises the question: why is Canadian government failing to follow its own strategy? Why choose to support an undeveloped strategy that banks on foreign investment and manufacturing jobs when experts across Canada’s supply chain, and two government departments, had a fulsome and balanced approach to supply chain development? Why shun a balanced approach to government investment focused on building out the entire supply chain?
Where Canada continues to go astray
Canada’s investment strategies have long been plagued by short-term thinking, favouring politically motivated quick wins over sustainable, long-term value creation. The government’s $52.5 billion bet on EV battery manufacturing is a prime example—subsidizing foreign companies while neglecting the development of critical upstream supply chains and domestic innovation. This approach leaves Canada reliant on international markets for critical materials, with little to show in terms of intellectual property or R&D growth.
By ignoring expert advice and focusing on politically strategic regions, Canada misses opportunities to build fully integrated industries across the country, ultimately failing to support homegrown solutions that could foster long-term economic resilience. Instead, Canada continues to prioritize high-risk, low-return investments, with little consideration for the foundational elements needed for a competitive, innovative economy.
Research on industrial policy shows countries are better served when governments focus on delivering well-designed policies aimed at improving general business environments than attempting to artificially create new markets. This is why industrial policies went out of vogue more than two decades ago.
It raises the question – are there examples of successful government interventions that seeded new sectors?
How the Asia-Pacific region cornered the semiconductor market
In the 1980s both the South Korea and Taiwanese governments made strategic early investments in companies that were well positioned to accelerate growth of the semiconductor sector. Today, the Asia-Pacific region is dominating the global market share of what has become a US$620 billion industry. Both South Korea and Taiwan were investing in the semiconductor industry in the 1960s. From a policy perspective, the two countries took similar approaches and focused their state-directed capital allocations to companies like Samsung LG and the Taiwan Semiconductor Manufacturing Company (TSMC). Through strong government support, both countries created technology institutes, centres for research and development, infrastructure and tax incentives, tax holidays, and interest-free loans.
Those investments helped to seed highly successful sectors in each country. Both countries continue to invest tax dollars back into the sector to help maintain the competitive advantages they helped to foster. South Korea’s semiconductor industry received a $US19 billion show of support from its government earlier this year to create a comprehensive support program spanning financial, research and development, and infrastructure support. The investment is part of a decades long commitment to the semiconductor industry which now accounts for nearly 20 per cent of total exports and plays a leading role in the South Korean economy. In Taiwan, the semiconductor sector is a powerhouse that accounts for 15 per cent of the national GDP and ranks number one globally for wafer foundry and packaging and testing, and number two for integrated circuit (IC) design.
These successes were largely enabled by government-controlled economies and early, and ongoing support to industry. This support did not waiver for decades. It is unlikely that Canada will be able to maintain this level of stability and government focus.
Other factors like access to cheap labour, willingness to specialize, commitment to product quality, and streamlined manufacturing played an important role.
Policy Challenges: Economic and Political Complexities
The challenge of creating successful industrial policy is that it is complex, long-term, has uncertain benefits, and requires government departments to have deep industry expertise. Experts worry that the current federal government simply isn’t up to the task.
In 2023, more than 2,500 new industrial policies were introduced globally, and more than 70 per cent were subsidies, tariffs, or import/export restrictions. These policies create trade distortion more often than they lead to market creation. Trade distortion can unfairly tilt the playing field in favour of domestic industries, often at the expense of foreign competitors.
With Canada’s recent industrial policy on EV battery manufacturing, we are choosing to distort our own economy.
Industrial policies strain global trade and economic relations. Such policies can have wide-ranging effects on both the implementing country and the global economy. They also appear protectionist even to allied nations.
How can Canada get it right?
Many of Canada’s mature sectors have enjoyed government support or protection at some point in our nation’s history. Past Canadian governments have protected the industries of their time, be it agriculture, steel manufacturing, pulp and paper, aerospace, and even defence.
There are recent examples of small sums of government dollars creating big wins for Canada’s homegrown innovation and sustainability economy.
At the provincial level, one organization that stands out is Emissions Reduction Alberta (ERA), an arms-length provincial organization that has weather several changes in government in its 15 years. ERA uses Technology Innovation and Emissions Reduction dollars to invest in late-stage sustainable technology. To date, the organization has invested almost $1 billion dollars into 277 technologies at a ratio of 8 industry dollars to 1 ERA dollar.
Federally, Prairies Economic Development Canada (PrairiesCan) is an example of a highly innovative approach to economic development. It has invested millions of dollars in repayable interest-free loans and regional innovation ecosystem supports. Ecosystem supports include accelerators and incubators that have exponentially increased the success of start ups and mature firms alike.
PrairiesCan and ERA operate on annual budgets of $300 million and $50–200 million, respectively. These dollars employ various types of expertise and invest across large swaths of the mature and new economy. They look across hundreds of organizations, understand the regional context, varying business dynamics and make strategic investments.
If government persists in committing tax dollars to the growth of the economy, then it should draw inspiration from these kinds of organizations.
Do Governments Make Effective Market Makers?
Canadians are rightly skeptical about Ottawa’s $52.5 billion bet on EV battery manufacturing.
Ottawa is rolling the dice that it will make Canada a leader in battery supply chains. It’s one of the largest industrial policy bets we have seen in our lifetimes. However, industrial policy analysts are warning about the risk of misallocation of funds.
Expert critics say Canada’s economy is too reliant on government-driven innovation policies. These researchers believe that competition creates markets, and that the government should commit to focusing on reducing policy and regulatory barriers. Many still believe in the capitalist ethos – that fostering a cultural and economic environment that naturally supports risk-taking and competition is the best route to success. The same people would note that the natural process of business turnover is essential for innovation and growth.
Conclusion
Canada’s current strategy of picking winners through massive, targeted subsidies is not just risky – it’s short-sighted. By investing $52.5 billion in a handful of foreign-controlled companies, the government has failed to create a sustainable, long-term economic advantage. Instead of fostering innovation and building a robust, homegrown supply chain, Canada has committed itself to an outdated model of industrial policy that relies on foreign entities and low-value manufacturing jobs. This approach ignores the foundational elements that drive true competitiveness – innovation, R&D, and full value chain development.
What Canada needs is a fundamental shift in its investment strategy. Instead of betting the farm on politically motivated, high-risk subsidies, the government should focus on strengthening ecosystems that support innovation, entrepreneurship, and domestic industry. Investments should be directed at building a fully integrated supply chain that includes mining, refining, and manufacturing, while supporting Canadian companies that will keep intellectual property and jobs at home.
If Canada continues down the current path, it risks becoming a player in someone else’s game, perpetually reliant on foreign companies and global markets. The country should seize this moment to redefine its complete industrial strategy, making bold investments in innovation and infrastructure that can secure economic resilience for generations to come. Without this shift, Canada’s $52.5 billion bet may very well be remembered as one of the biggest missed opportunities in modern economic history.
Tom McCaffery, M.B.A., is the CEO and managing director of Two River Advisory and former executive director of policy and engagement for Emissions Reduction Alberta.
Denaige McDonnell, Ph.D., is an accomplished business management strategist and CEO of People Risk Management, specializing in organizational systems, culture, and psychological safety.
Business
Federal government’s accounting change reduces transparency and accountability

From the Fraser Institute
By Jake Fuss and Grady Munro
Carney’s deficit-spending plan over the next four years dwarfs the plan from Justin Trudeau, the biggest spender (per-person, inflation-adjusted) in Canadian history, and will add many more billions to Canada’s mountain of federal debt. Yet Prime Minister Carney has tried to sell his plan as more responsible than his predecessor’s.
All Canadians should care about government transparency. In Ottawa, the federal government must provide timely and comprehensible reporting on federal finances so Canadians know whether the government is staying true to its promises. And yet, the Carney government’s new spending framework—which increases complexity and ambiguity in the federal budget—will actually reduce transparency and make it harder for Canadians to hold the government accountable.
The government plans to separate federal spending into two budgets: the operating budget and the capital budget. Spending on government salaries, cash transfers to the provinces (for health care, for example) and to people (e.g. Old Age Security) will fall within the operating budget, while spending on “anything that builds an asset” will fall within the capital budget. Prime Minister Carney plans to balance the operating budget by 2028/29 while increasing spending within the capital budget (which will be funded by more borrowing).
According to the Liberal Party platform, this accounting change will “create a more transparent categorization of the expenditure that contributes to capital formation in Canada.” But in reality, it will muddy the waters and make it harder to evaluate the state of federal finances.
First off, the change will make it more difficult to recognize the actual size of the deficit. While the Carney government plans to balance the operating budget by 2028/29, this does not mean it plans to stop borrowing money. In fact, it will continue to borrow to finance increased capital spending, and as a result, after accounting for both operating and capital spending, will increase planned deficits over the next four years by a projected $93.4 billion compared to the Trudeau government’s last spending plan. You read that right—Carney’s deficit-spending plan over the next four years dwarfs the plan from Justin Trudeau, the biggest spender (per-person, inflation-adjusted) in Canadian history, and will add many more billions to Canada’s mountain of federal debt. Yet Prime Minister Carney has tried to sell his plan as more responsible than his predecessor’s.
In addition to obscuring the amount of borrowing, splitting the budget allows the government to get creative with its accounting. Certain types of spending clearly fall into one category or another. For example, salaries for bureaucrats clearly represent day-to-day operations while funding for long-term infrastructure projects are clearly capital investments. But Carney’s definition of “capital spending” remains vague. Instead of limiting this spending category to direct investments in long-term assets such as roads, ports or military equipment, the government will also include in the capital budget new “incentives” that “support the formation of private sector capital (e.g. patents, plants, and technology) or which meaningfully raise private sector productivity.” In other words, corporate welfare.
Indeed, based on the government’s definition of capital spending, government subsidies to corporations—as long as they somehow relate to creating an asset—could potentially land in the same spending category as new infrastructure spending. Not only would this be inaccurate, but this broad definition means the government could potentially balance the operating budget simply by shifting spending over to the capital budget, as opposed to reducing spending. This would add to the debt but allow the government to maneuver under the guise of “responsible” budgeting.
Finally, rather than split federal spending into two budgets, to increase transparency the Carney government could give Canadians a better idea of how their tax dollars are spent by providing additional breakdowns of line items about operating and capital spending within the existing budget framework.
Clearly, Carney’s new spending framework, as laid out in the Liberal election platform, will only further complicate government finances and make it harder for Canadians to hold their government accountable.
Business
Carney poised to dethrone Trudeau as biggest spender in Canadian history

From the Fraser Institute
By Jake Fuss
The Liberals won the federal election partly due to the perception that Prime Minister Mark Carney will move his government back to the political centre and be more responsible with taxpayer dollars. But in fact, according to Carney’s fiscal plan, he doesn’t think Justin Trudeau was spending and borrowing enough.
To recap, the Trudeau government recorded 10 consecutive budget deficits, racked up $1.1 trillion in debt, recorded the six highest spending years (per person, adjusted for inflation) in Canadian history from 2018 to 2023, and last fall projected large deficits (and $400 billion in additional debt) over the next four years including a $42.2 billion deficit this fiscal year.
By contrast, under Carney’s plan, this year’s deficit will increase to a projected $62.4 billion while the combined deficits over the subsequent three years will be $67.7 billion higher than under Trudeau’s plan.
Consequently, the federal debt, and debt interest costs, will rise sharply. Under Trudeau’s plan, federal debt interest would have reached a projected $66.3 billion in 2028/29 compared to $68.7 billion under the new Carney plan. That’s roughly equivalent to what the government will spend on employment insurance (EI), the Canada Child Benefit and $10-a-day daycare combined. More taxpayer dollars will be diverted away from programs and services and towards servicing the debt.
Clearly, Carney plans to be a bigger spender than Justin Trudeau—who was the biggest spender in Canadian history.
On the campaign trail, Carney was creative in attempting to sell this as a responsible fiscal plan. For example, he split operating and capital spending into two separate budgets. According to his plan’s projections, the Carney government will balance the operating budget—which includes bureaucrat salaries, cash transfers (e.g. health-care funding) and benefits (e.g. Old Age Security)—by 2028/29, while borrowing huge sums to substantially increase capital spending, defined by Carney as anything that builds an asset. This is sleight-of-hand budgeting. Tell the audience to look somewhere—in this case, the operating budget—so it ignores what’s happening in the capital budget.
It’s also far from certain Carney will actually balance the operating budget. He’s banking on finding a mysterious $28.0 billion in savings from “increased government productivity.” His plan to use artificial intelligence and amalgamate service delivery will not magically deliver these savings. He’s already said no to cutting the bureaucracy or reducing any cash transfers to the provinces or individuals. With such a large chunk of spending exempt from review, it’s very difficult to see how meaningful cost savings will materialize.
And there’s no plan to pay for Carney’s spending explosion. Due to rising deficits and debt, the bill will come due later and younger generations of Canadians will bear this burden through higher taxes and/or fewer services.
Finally, there’s an obvious parallel between Carney and Trudeau on the inventive language used to justify more spending. According to Carney, his plan is not increasing spending but rather “investing” in the economy. Thus his campaign slogan “Spend less, invest more.” This wording is eerily similar to the 2015 and 2019 Trudeau election platforms, which claimed all new spending measures were merely “investments” that would increase economic growth. Regardless of the phrasing, Carney’s spending increases will produce the same results as under Trudeau—federal finances will continue to deteriorate without any improvement in economic growth. Canadian living standards (measured by per-person GDP) are lower today than they were seven years ago despite a massive increase in federal “investment” during the Trudeau years. Yet Carney, not content to double down on this failed approach, plans to accelerate it.
The numbers don’t lie; Carney’s fiscal plan includes more spending and borrowing than Trudeau’s plan. This will be a fiscal and economic disaster with Canadians paying the price.
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