Pierre Fitzgibbon was right. Unfortunately.
Two years ago, the Minister of Economy presented to the editorial team of The Press its strategy for the development of the battery industry in Quebec.
Its objective: to use our green and cheap electricity to create a fully integrated industry of the future, where Quebec would not only extract its mineral wealth, but could also transform it by creating added value and prosperity.
Faced with this exciting project, we asked the minister what the biggest challenge was. His answer? Execution.
Time proves him right. Alas.
Since the beginning of July, clouds have been gathering over our battery sector.
Forced into bankruptcy, Taiga has sought shelter from its creditors. Taxpayers may never see again the tens of millions injected by Quebec and Ottawa into the manufacturer of electric watercraft and snowmobiles, which is operating at a loss.
Lion Electric was also forced to ask for leniency from its creditors. We are far from the good days of 2021 when Prime Ministers Trudeau and Legault, all smiles, announced investments of 100 million to help the manufacturer of electric buses and trucks.
But above all, there is the Northvolt megaproject…
The two levels of government took a risky gamble by promising to invest up to 7 billion* in this young Swedish company that had not yet proven itself and that was putting a lot on its plate at the same time.
Now the company has admitted to being “a little too aggressive.” Northvolt is struggling to ramp up production at its very first plant in Sweden. So it has begun a strategic review that could slow down its plant project on Montreal’s South Shore.
But while Northvolt struggles to deliver its first batteries, industry leaders have their backs to the wall. South Korea’s SK On, the world’s fourth-largest battery maker, declared itself in a state of crisis in early July.
The problem is, it’s raining batteries.
Lured by the spectacular growth prospects, battery manufacturers have built so many factories that the market is flooded.
And because electric vehicles are not affordable enough in the West – unlike in China, where they are cheaper than gasoline models – demand is weaker than expected.
Tesla, Mercedes-Benz, GM and Ford all cut their forecasts.
The result? The global battery industry will be swimming in overcapacity for the next decade, according to a recent report from Bloomberg NEF.1The problem is particularly acute in China, where planned capacity in 2026 will be seven times higher than demand.
Faced with the risk of dumping, it is understandable that Western decision-makers are considering raising protectionist barriers to prevent their local industry from being stifled by foreign products, sold at artificially low prices.
The energy transition is too critical for Western countries to be dependent on China, which already manufactures 70% of battery components and cells.
Excessive concentration of production in a single country can allow that nation to manipulate production to achieve national strategic objectives or geopolitical ambitions, HEC Montréal professor Ari Van Assche points out in a study published by the CD Howe Institute on Tuesday.2.
In short, this poses a national security risk.
But we have to be careful, because protectionism has harmful side effects. By imposing customs duties, for example, we would increase prices. This would discourage consumers from going electric… which is the basic objective.
For Quebec and Ottawa, there are limits to pushing an industry whose business model is based on subsidies and protectionist barriers. This is not a recipe that makes strong children.
Eventually, governments may have to support them, again and again. Just look at how Ottawa and Quebec have been forced to provide millions more in recent days to help Taiga and Lion.
Over the past three years, Quebec has announced investments of more than $3.3 billion in the battery sector, which has enabled projects worth $16 billion to be launched.
Thus, the battery sector received almost a third of all the aid to businesses granted by Quebec, whose interventionism has increased since the reform of its financial arm Investissement Québec in 2020.
So the government has put a lot of eggs in one basket. And it’s not over yet. Minister Fitzgibbon had the ambition to increase investments in the battery sector from 16 billion to 30 billion… or even 50 billion.
With batteries raining down all over the world, it would be wise to ease off the pedal to avoid running out of fuel.
*The governments will pay 2.7 billion for the construction of the Northvolt plant on the South Shore of Montreal (half Quebec-Ottawa), then 4.6 billion for the manufacture of battery components (one third Quebec, two thirds Ottawa).
1. Check out the Bloomberg NEF report (in English)
2. See the study published by the CD Howe Institute (in English)