Flavio Volpe is the President of the Auto Parts Manufacturers Association of Canada and has been at all of the big announcements that have been made with Prime Minister Justin Trudeau and Ontario Premier Doug Ford regarding investment in the EV sector in this country.
00:05:12.600In our business, we call them the one-shot molds, you know.
00:05:16.880They got really good at making the molds to make the plastic goods or the tools to make the metallic goods.
00:05:25.280But, you know, they invested quite heavily in electronics, complex sub-assemblies like electric motors.
00:05:37.660You know, all those toys and those ceiling fans that you bought all have motors in them.
00:05:42.820And electric motors are a rather simple device.
00:05:44.500You know, you've got reverse polarity and an electromagnet and a rod in the middle and a casting.
00:05:53.600You know, it's not too different, the motor that is running in your electric vehicle than it is running in, you know, the toys you played with when you were growing up.
00:06:04.380They positioned themselves well for the West to outsource as much of the manufacturing that we could to drive costs down in an uber-competitive, market-driven global economy.
00:09:16.340I think, like, you know, I don't want to moralize and fault them for wanting to have a preeminent position.
00:09:22.840I'm certainly not naive to the fact that that's what they're looking for.
00:09:25.880You know, when we, let's say, for example, as everything digitizes around the planet, goods, the way they interact, security, everything else,
00:09:36.240one of the core products is semiconductors.
00:09:39.080And we've had a semiconductor crisis over the last couple of years brought on by the global pandemic.
00:09:44.580But we all rely, both in China and in the West, on an incredible cluster of semiconductor manufacturer in Taiwan,
00:09:55.160which is a highly contested subject in Beijing.
00:09:58.780Is Taiwan a Chinese province or is Taiwan, as the West says, its own country?
00:10:05.540We are all vulnerable, both sides of the equation, to if we lost access to Taiwanese semiconductors before we build up our own capacity,
00:11:39.880And we know that we'll get into that in a minute.
00:11:42.020But let's just look at it from a geopolitical point of view still.
00:11:47.800And, you know, over the weekend, a piece moved on the wires from Associated Press that was just glowing about the $12,000 U.S.
00:11:59.900or about $16,000 Canadian Seagull by BYD.
00:12:03.940That's the $15,000 odd vehicle that you mentioned earlier.
00:12:07.380And they've got a cheaper one for shorter range that costs under $10,000 U.S.
00:12:12.800And they're talking about how beautifully it's made and it's wonderful.
00:12:17.640These are vehicles that China is literally making to flood the world market.
00:12:23.180There was a story in Le Monde out of Paris last week about how Antwerp, the port in Antwerp in Belgium, is just flooded with these vehicles.
00:12:37.280And some of them will sit there for a year.
00:13:17.060How does a vehicle that has the same dimensions and presumably meets the same crash and safety standards and standards on the chemistry and the metallurgy cost less than the bill of materials for the competition?
00:13:35.100People don't ask themselves what they're getting in return in exchange for this deal.
00:13:43.560And, you know, that's a typical consumer.
00:14:00.540These aren't, you know, I keep listening to people.
00:14:03.960I've done a bunch of interviews the last few days where they say, well, the environmental lobby says this is really good for the environment.
00:14:10.600And you're just an automotive lobbyist who is trying to help the fat cats keep eating.
00:14:18.060And that's, well, you know, I represent a business where the profit margins are in low to mid single digits and who are beholden for electronics, for raw materials to the Chinese already.
00:14:30.020And we have a very healthy regulatory environment here in Canada and the U.S.
00:14:36.720The rules are very straightforward and you can't break them without major penalty.
00:14:45.300These are state-owned enterprises who are saying, hey, by the way, what, you guys are being naive?
00:14:49.760I just sold your family and friends a vehicle that's going to put you out of business.
00:14:56.520So you have been, I mentioned off the top that you've been under all the big EV announcements with Prime Minister Trudeau, with Ontario Premier Doug Ford.
00:15:08.140You've lobbied for the EV sector in this country.
00:15:12.540I'm not calling you a fat cat lobbyist like those critics, Flavio, but.
00:15:21.560But you've been at these events and you've been supportive.
00:15:24.520But now you've been critical of the Trudeau government's policy on how fast we have to go to electric vehicles because you've said that it's going too fast.
00:15:37.680Is your worry that we're all going to run out and buy the, buy these BYD or other Chinese vehicles that are cheap and cheerful and we'll get the job done.
00:15:51.780But then you're kind of locked into it.
00:15:53.560It's like when you, when you choose your phone, is it Apple or is it Android?
00:15:57.260And then you're locked into that system.
00:15:59.140And then when you go to replace it, well, you're going to replace it with what already exists.
00:16:04.300And so, you know, the Trudeau government has spent a lot of money, time and capital trying to attract investment here.
00:16:11.660And yet they're turning around and bringing in regulations that will, if it goes through, forces all to buy a Chinese product before the Canadian product's ready.
00:17:32.200We built a, a, a 100% Canadian car set for the screens.
00:17:36.980I couldn't get screens from anywhere but China.
00:17:38.860Um, bumper to bumper, working prototype to, to highlight, you know, um, you know, the, the, the entire landscape of Canadian technology that can serve the world's EV, um, uh, supply chain.
00:17:52.780But, um, um, the government's been very good in supporting, you know, on, and all these announcements that you talk about industry, Canada and finance have really said, okay, fine.
00:18:02.940Uh, we would like the people who are making cars here now and supplying cars and assembling them and doing the, the raw materials, those Canadians to be the Canadians that make, um, uh, EVs.
00:18:15.220Let's just help those companies transition.
00:18:17.080But the environment department has said, oh, well, let's force the market to, let's say a hundred percent of the sales in Canada by 2035 must be electric.
00:18:28.000And if you, if you're a car company that doesn't meet the 20% goal by 2026 or 60% goal by 2030, every vehicle that doesn't meet the threshold, you, you're going to pay a $20,000 fine, whether you make cars in Canada or not.
00:18:42.080Um, if you sell cars into Canada, like VinFast from Vietnam or Tesla from Shanghai, not Texas, um, and they're electric, but you have no Canadian content on it and you have no investment in Canada, uh, but you meet that threshold or exceed it, we'll give you a $20,000 credit.
00:19:17.260And, and so if they don't meet that threshold for every car sold in Canada, so maybe they sell a hundred thousand cars above the threshold, that's going to be 20 grand a car.
00:19:30.920Look, the numbers for a company like that, or a company like a Toyota, they make, they make 300,000 cars or four or 500,000 cars a year here.
00:19:40.840So let's say you, let's say the target is 20% by 2026 and you've sold 300,000 cars here, but you only sold, um, 45,000 electric vehicles because Canadian consumers didn't buy them.
00:19:54.640Um, you're short 15,000, well, 15,000 times 20,000 is a $300 million fine for a company that also makes cars here.
00:20:05.020Now, if you make those electric cars here and Canadians don't buy them, but you sell them to Americans.
00:20:10.040So 80% of the cars that we make in Canada are sold to Americans.
00:20:13.440You don't get a credit for the battery electric vehicle you made in Windsor that got sold a kilometer away in Detroit, but Vinfast that makes cars in, um, Vietnam who sold a modest 2000 here last year.
00:20:27.180Well, we're going to give them 2000 times 20,000, uh, in credits.
00:20:32.540Here's $40 million, uh, that, uh, uh, that you got for being green, I guess, uh, uh, BYD.
00:20:41.480If they sold 50,000 of these, uh, $12,000 cars or $15,000 cars, we would give them a billion dollars in credits so that they can sell it.
00:21:56.080$130 million of, of dollars generated by Canadian citizens and companies in the tax base paid out to cars made in China.
00:22:06.940And you'll have people who say, I've been arguing with them for the last two days now, since Biden made his news here, people on the environmental side, we need those electric cars, devil be damned.
00:22:18.520And well, okay, so we're going to give cash to China and we're going to ignore the fact that China makes these cars in the dirtiest industrial environment on the planet.
00:22:26.360So that, so that you can virtue signal in your neighborhood.
00:22:29.620By the way, um, you know, they said, you know, the argument has been, you know, otherwise electric vehicles are just luxury goods.
00:22:38.980And, you know, this is a discretionary purchase.
00:22:42.420Every vehicle is a discretionary purchase.
00:22:45.560Uh, if you're naive enough to, to think that we should all lay down for Chinese manufacturing, I really don't know where to start the argument.
00:22:55.800If you tell me that you have lower disposable income and you need a cheaper option, I really understand that.
00:23:02.440I truly do, but it's not up to the consumer to decide.
00:23:42.120Food on my table was a result of selling steel to auto manufacturers.
00:23:47.700And so I never understood why the previous wind government in Ontario, what, you know, in an Ontario is the big manufacturing hub.
00:23:58.920Why were we giving out subsidies to cars made in China and elsewhere before we ever had, she never put anything into trying to attract the, uh, EV manufacturing just said, we'll subsidize you to buy a Chinese car.
00:24:14.580And I thought, this is the craziest thing we're undermining our own industry.
00:24:19.340And I guess that's kind of the, the theme of the whole discussion that we're having today.
00:24:25.500Um, when, uh, when, uh, when Doug Ford, uh, uh, formed government here, uh, you know, in our first meetings, I said, you know, the purchase incentives, I know they're really popular with enthusiasts.
00:24:36.840And let's put enthusiasts aside and I represent the, the people who make parts for cars or assemble these cars in Canada.
00:24:48.000Why don't you take the money that you're spending on?
00:24:49.800And that was at that time up to $14,000 for, you know, if you wanted to buy a Porsche 19, 918 Spyder for 975,000, we'll give you 14,000 off.
00:24:59.280We said, take that money, invest it in the manufacturing footprint, uh, for those vehicles, uh, in Hamilton, um, uh, ArcelorMittal DeFasco sells $5 billion worth of steel to the local, um, automotive sector here in Canada.
00:25:20.840Uh, and, uh, in, uh, in, uh, in the Great Lakes region, you know, ask them about, uh, the practices of Chinese steel, uh, steel dumping, uh, uh, steel, uh, that comes, uh, through other countries, uh, the predatory pricing on it, you know, uh, the Chinese sell finished goods out of steel for, uh, their, their, their, their selling prices less than the spot price of the raw material here.
00:25:47.740How, you know, it's not, it didn't come in from outer space.
00:25:51.840It means somebody else paid the bill and that's really corporate, corporate China.
00:25:56.240You know, I remember when Donald Trump was in the White House and he had an issue with Chinese steel coming in through Canada.
00:26:18.600He put tariffs and as guys, of course, he's going to do that.
00:26:23.420Like, why, why are you protecting Chinese steel coming in, uh, to the point where it hurts our, our, our homegrown industry.
00:26:31.320But as we, you've mentioned the issue of manufacturing and, uh, and the supports from the Trudeau and the Ford governments, that's been controversial.
00:26:41.560Uh, you know that I've supported it, but I'm going to play devil's advocate.
00:26:47.700So Flavio, um, the idea that the federal and provincial governments of Ontario are going to back the EV manufacturing sector in this country has been incredibly controversial.
00:27:03.480First off, let's deal with the opening part.
00:27:06.960The number of times I hear from people, EVs won't work.
00:27:27.600I mean, uh, in, uh, in the nine, in the 1910s, the New York city cab company ran electric vehicles, their batteries, uh, lead acid batteries that they had, uh, that they bought from Japan.
00:27:39.540It's, it's, it's, it's an, it's a story as old as the industry.
00:27:43.520Um, the cars are a superior experience.
00:27:48.040I think what people are upset about is a, is a, is, uh, is a few pieces.
00:27:53.420Number one, this is a country whose economy relies heavily on a healthy oil and gas sector.
00:27:59.520Um, we, we, I think we lose sight of that in central and Eastern Canada, but a lot of the bills get paid by what happens, um, in, uh, in, uh, in, uh,
00:28:09.540uh, in Alberta specifically, but also, uh, you know, in, uh, Saskatchewan and, uh, when you power a vehicle with electricity, uh, you're not powering it with the products that are currently helping to pay the bills and employ people in good paying jobs and careers.
00:28:29.320Um, and so they, they look at EVs as a threat and, and, you know, it's certainly understandable.
00:28:35.440Uh, you know, I won't, I won't moralize over that.
00:28:38.200I've always said maybe the best partners we should have are the balance sheets of the oil and gas companies to help pay some of these bills so they don't go through Ottawa and then back out.
00:28:47.200Um, everybody's going to have to transition.
00:28:50.620And then the other thing is, um, you know, people get really sanctimonious about EVs, uh, and they're, they say, well, you've got to, you've got to do your part for the environment.
00:28:59.900Um, and then they are the same people who the last couple of days are really upset that Joe Biden might say, look, let's even the playing field.
00:29:06.380If you want cheap Chinese cars, then you're going to have to pay a little bit more for it.
00:29:11.240And then they lose their minds, uh, and ignore the fact that the Chinese are the top polluters in the world.
00:29:16.020And so they listen to that sanctimony.
00:29:18.980Uh, it's easier to, we're still in, we're still exporting coal to China.
00:29:23.240You know, we're, we're, we're part of the problem and they're building a cold fired plant a week.
00:29:31.260Look, I think that, I think that Canada is in a position and the reason why I like the transition to EVs, I don't like the schedule that we have on it.
00:30:10.280It's going to be 10 years before it's ready.
00:30:12.560But if that's the biggest expense in an EV, a battery might be a $25,000, uh, product.
00:30:20.180Um, and we have it and the Americans don't and the Germans don't and the Japanese don't, uh, we may be able to on a mid to long-term play become, uh, outsized player in the most lucrative and strategically important consumer good in the world.
00:30:37.660Um, but, uh, but these are complicated, uh, these are complicated objectives and it, it, the Chinese have taken 30 years to get there with essentially.
00:30:50.680It's going to take us a lot longer to get there.
00:30:52.880And I think, I think we all have to start listening to each other a little bit more and stop being sanctimonious on both ends of the debate.
00:30:58.620I, we are going to move from fossil fuels, but we're going to move in the next 40, 50 years.
00:31:02.600And we are going to go to zero emission transportation and we may lead it.
00:31:06.120But if we rush the market there before it's ready, it's going to buy from the Chinese that are, are 10 times, a hundred times the, uh, the, uh, the risk on, uh, uh, CO2s than, uh, anything that we're doing in Western Canada.
00:31:39.880And I said, well, I think you have to, you have to develop a product that is zero emissions.
00:31:44.680I mean, you're a responsible company that's publicly traded.
00:31:47.200I said, but, um, by the time we get to 2028, 2029, uh, and all of these, uh, countries fail against their, their targets, they're going to recalibrate what the, what the actual target is.
00:31:59.400It's going to be CO2 emissions, uh, on your entire company footprint, not just your cars.
00:32:05.660And so buy your steel in Quebec or your aluminum in Quebec, because it's driven by hydroelectric, get your lithium in, in Northern Ontario.
00:32:15.460Um, and, um, you know, try to put yourself in a good position.
00:32:18.720And his reflection to me is this feels a little bit like let's sweep the dirt off the floors in our house and put it outside and say, it's all clean.
00:33:13.520And, uh, the answer is a, is a really simple one.
00:33:16.380Um, the, unlike in 2010, when we bailed out, um, uh, general motors and Chrysler, then at the time where we wrote a check, Canada wrote a check for $13.7 billion.
00:33:31.660I think it was the right decision, by the way.
00:33:33.180I think we don't give enough credit to Stephen Harper and Dalton McGinty for that, but we saved the, the, the industry and, and, uh, you know, tens of thousands of jobs.
00:33:42.380Now, what we've done is we made a commitment to companies like Volkswagen Stellantis and said, if you make these goods, um, at this volume in these years and you demonstrate to us that you did.
00:33:54.140So, uh, 400,000 batteries for one and, uh, a, a million batteries for the other one, uh, that's generating, you know, $10 billion in activity and probably $2 billion in taxes, new taxes generated every year.
00:34:11.080We'll let you keep some up to $13 billion.
00:34:17.200But, but hold on, you said $2 billion in taxes, but they get to keep 13 per year, per year.
00:34:22.660So what their commitment is $13 billion over a long period of time that goes to 2032, but they're going to start generating $2 billion in, in, uh, revenue in, in, uh, 2025.
00:34:33.100And so it is a, it's a, it's a, it's a performance based incentive.
00:34:39.220It's based on new taxes, uh, that we will just forego, but, but, but, but they're still going to be paying taxes.
00:34:49.580So if you do 400,000 batteries a year, we'll take Stellantis, for example, in Windsor, they said they're going to do 400,000 batteries a year.
00:34:56.080We know those batteries are $25,000 each.
00:34:58.800Those batteries will go into vehicles in, uh, Windsor and in Brampton.
00:35:02.500So they'll generate an HST of 13 a percent.
00:35:06.820So $10 billion of activity generating $1.3 billion worth of HST.
00:35:12.360Then there's the corporate taxes that the company will pay and the personal income taxes of all the employees and the employer's contributions.
00:35:20.500We think that totals $2 billion a year.
00:35:23.640If they, uh, produce the batteries, they get the subsidy.
00:35:28.380That subsidy will come out of that extra $2 billion worth of taxes.
00:35:33.080Now the problem and the reason we're having a very public debate, Brian, is that we've gone out and, and struck these deals and then we crow about the deals, but we don't explain the second part.
00:35:44.640And so people quite rightly say, we're in kind of tough times.
00:35:53.060And instead, if, if they took the time, if they found a way to consistently explain it, like I did, which is if they build it and they generate new taxes, we will forgive some of those new taxes.
00:36:22.320We did put a billion dollars of public money, uh, 500 from the feds, 500 from the province on that plant in Windsor.
00:36:29.400But, you know, you're in the big leagues.
00:36:31.680There's always going to be a franchise fee.
00:36:33.100There's always going to be a payroll fee, but, but, you know, you got to go out and win.
00:36:37.360And, um, we, we just do a, you know, in my opinion, and I say this with respect to my friends at Queen's Park and that in Ottawa, sometimes we spend more time announcing and crowing about a deal than doing the, the careful, thoughtful explanation to the people who pay the taxes on why there's going to be a return.
00:36:58.720And what we use that return for, those are communities with a healthy economic, uh, industrial basin who then pay for the things that base, that tax base pays for the things that are important in those communities, schools, hospitals, roads.
00:37:12.940Um, uh, a, a city like St. Thomas saw two major plants leave in 2008, uh, and 2010.
00:37:23.160If I owned a house in St. Thomas, what do you think the value of my house was then?
00:37:26.560And if I had a mortgage on a house that was 300,000 and then my mortgage was 250,000, but the cost of the house, the price of the house, the value dropped down at 200,000 on renewal, I lose the house.
00:37:39.600But your critics would say that at the end of all this, it works out to $4 million per job.
00:37:48.040The critics aren't in the business or, or even in business.
00:37:51.880You never do a four, you never do a per job calculation.
00:37:55.440You turn around and say, Oh, take the Honda one.
00:37:57.580For example, um, you, you put $5 billion, uh, of public money into a $15 billion investment by Honda.
00:38:06.800If that $15 billion investment produces an extra $2 billion a year in taxes and tax revenue, like we talked about, it's how long, uh, do we go before you get your $5 billion back?
00:38:20.800In that case, less than three years of full production.
00:38:24.320It's, it's not a, we never have the jobs argument in AI.
00:38:28.720We never have the job, like cost per jobs, uh, in healthcare.
00:38:32.520We just say, okay, what's your return on investment?
00:38:35.900Automotive is an easy target because we've had cycles, decade long cycles of boom and bust.
00:38:41.820Uh, and, uh, you know, the, the, the automakers are not, you know, not Canadian based.
00:38:47.100You don't have a Canadian CEO of, uh, Canada motors that you can take the task.
00:38:52.340Um, and I think people are a little bit jaded and rightfully so that they've seen government investments in automotive in the past.
00:39:00.240And then that company says, Oh, well, we've got tough times and we're out and chase us.
00:39:07.180And I was involved in some of those deals.
00:39:08.520As you know, I worked, uh, uh, in government, uh, in a earlier chapter in my life, we learned that we, we don't flow money, uh, uh, against a promise.
00:39:21.760We flow money against performance, uh, bringing me the receipts, show me, and then, then we'll give you the credit against it.
00:39:29.620When, when we get, so you're, you're giving them a tax break rather than giving them money up front.
00:39:37.180And if you give them money up front, what you do is you get first charge against the asset.
00:39:43.200I'll get first charge against the plant.
00:39:44.860I'll get first charge against your tooling.
00:39:46.780And yeah, I'm not going to be able to recover all of it.
00:39:48.940Um, but you're not going to be able to borrow against it.
00:39:52.340And it's a bigger bet that, uh, uh, a more sure bet, uh, by government.
00:39:58.220Uh, we, we, we're all learning, um, while the Chinese and others, not just the Chinese, but others are at full sprint.
00:40:10.080And, um, you know, uh, I'll take, for example, the, the Vietnamese have a car company now, you know, when we were negotiating the TPP in 2015 and 16, everybody said to me, cause I was saying, why are we letting the Vietnamese and the Malaysians into a deal terror free?
00:40:31.880They, they, they have a manufacturing culture.
00:40:35.780They are one of the world's, you know, supply chains in, in commoditized goods.
00:40:41.040Uh, these are earnest people who, who, uh, want to join the world stage.
00:40:45.680Well, the biggest noodle maker in Vietnam decided to put his fortune, uh, uh, with an equal bet from the federal government to build a company called VinFest.
00:40:55.080And now you can go to Yorkdale shopping center and buy a VinFest.
00:40:58.020Not one, one stitch in that car is, uh, Canadian.