Can an unproven company with an untested product compete against the world’s largest bus manufacturers?
Quebec has wagered $400 million that the answer to that question is yes. The provincial government has put up loans, subsidies and quietly modified legislation to help Lion Electric outperform its international competitors.
The electric bus company has no experience mass-producing buses or lithium batteries, but Premier François Legault seems confident it can go from making about two buses a week to 20,000 per year by 2023. His government is even setting up Lion Electric to become the main supplier of school buses across Quebec.
In theory, it’s part of an ambitious plan to reduce greenhouse gases, create hundreds of local jobs and invest in one of the fastest-growing sectors of the economy. In practice, the deal raises ethical concerns about ties between a Lion Electric executive and the Quebec government as well as a series of questions about the viability of the company’s business plan.
Government and shareholders
Quebec’s investment in Lion Electric has already paid dividends for a business associate of Economic Development Minister Pierre Fitzgibbon.
The associate, Michel Ringuet, owns 1.1 million shares in Lion Electric. He also happens to be the man who oversees millions in assets on behalf of Fitzgibbon. Ringuet worked with Fitzgibbon on the board of a company called Lumenpulse, and now he is in charge of the minister’s blind trust.
His shares in the company have gone from trading at $1.10, when it went public last October, to $4.69 as of Wednesday.
“The problem with Fitzgibbon is he still has one foot in the business world and one foot in politics,” said Vincent Marissal, an MNA for Québec solidaire.
“This deal, it looks like it’s within the limits of what’s legal. But the thing about Fitzgibbon is everything is always intertwined. He has so many connections in the business world that it’s hard to keep track of.”
To Marissal’s point, Minister Fitzgibbon tapped former business partner Guy Leblanc to head up the government’s investment fund, Investissements Québec, in 2019. Last March, the investment firm loaned $50 million in taxpayer-backed funds to Lion Electric.
A representative for the minister told Ricochet there’s no ethical issue in regards to Lion Electric.
“Mr. Ringuet never had access to any privileged information from the government,” said Mathieu St-Amand, a spokesperson for Fitzgibbon. “Mr. Ringuet and Mr. Fitzgibbon served on the same corporate board from 2014 to 2017. The blind trust was approved by (Quebec’s) ethics commissioner.”
Lion Electric did not respond to written questions about the relationship between Fitzgibbon and Ringuet.
Fitzgibbon has been investigated by the ethics commissioner four times in the past two years. Last winter, he was reprimanded for not divesting from White Star, a firm that does business with the provincial government. It was the latest in a series of conflict of interest scandals for the minister.
Quebec’s ethics commissioner said Fitzgibbon could have been sanctioned for multiple breaches of the National Assembly’s code of ethics. Instead, the government simply amended the code to be less stringent about conflicts of interest.
‘One company in mind’
One industry expert says there’s something to be admired in the boldness of Quebec’s investment in Lion Electric.
“It’s all well and good to have climate targets but to put that kind of investment in a green industry sends a powerful message,” says Jacques Roy, a professor in transportation logistics at HEC, the Université de Montréal’s business school. “Are there risks? Of course. But it makes sense to encourage the conversion towards electric buses and it makes sense to encourage local manufacturers.
“Of course, there is quite a bit of competition in that field. I suppose I’ll have to wish them good luck with that.”
Representatives from Quebec’s three largest school bus suppliers — Girardin Autobus, Leeds Transit and Autobus Thomas — say the government is enacting measures to quietly tilt the scales toward Lion Electric.
In a memo circulated within Premier Legault’s cabinet last month, Transport Minister François Bonnardel introduced a $350-million plan to shift the province’s school buses away from heavy diesel engines.
Under the plan, schools will only be allowed to buy battery-powered buses as of 2023. The government will subsidize the purchase of electric buses to the tune of over $100,000 per unit as long as the vehicle was built in Quebec.
This would effectively give Lion a monopoly on subsidies for full-sized buses as it is the only supplier to meet the subsidy’s requirements. Girardin Autobus sells a battery-powered minibus assembled at its plant in Drummondville, but that only represents a fraction of the market’s demands.
“It’s fairly obvious, if you look at the policy, that one company benefits from it ... and it could force competitors to close up shop,” said Michel Daneault, the vice president of Girardin Autobus, which employs 3,000 people. “It’s good policy to shift to electric. I’m in the transportation industry, and I believe we need to do our part to reduce greenhouse gases.
“But when you read the fine print, you get the impression it was made with one company in mind.”
Girardin imports most of its vehicles from Blue Bird, a U.S. company. The other two leading suppliers also produce electric buses, but they’re made in Oklahoma in the case of Leeds Transit, and North Carolina in the case of Autobus Thomas. Further complicating matters, the three companies had already signed contracts with Quebec’s schools to supply hundreds of gas-powered buses for 2023.
“We’ve had to adjust our orders and get the buses out earlier,” said Jean-François Audet, a sales representative at Leeds Transit. “It’s made us have to pivot rather quickly. There’s nothing preventing Quebec schools from buying our electric buses but if they do they won’t get a subsidy. So we’re in a foot race with Lion but we’ve got a 50-pound weight tied to our ankle and they don’t.”
This wouldn’t necessarily be a problem if Lion’s production capacity was ready before the 2023 school year. That’s far from guaranteed.
The company is building a plant in Chicago and expanding its St-Jérôme factory to dramatically increase capacity. Thanks to the $50-million loan from Quebec and another $50 million from the federal government, Lion Electric announced that it should be able to manufacture 14,000 ion-cell batteries per year by 2023.
The fact that the battery processing plant is close to lithium mines in Quebec will also cut transportation costs and minimize Lion’s carbon footprint.
But there’s another catch.
In its filings to the Securities and Exchange Commission last December, Lion Electric conceded it has “no experience to date in high volume manufacturing” and that many of its models haven’t made it out of the testing phase yet.
Also noteworthy, it has limited research to show its buses can last through Quebec winters, no experience servicing its vehicles once they’ve come off the factory floor and no infrastructure for customer service.
Furthermore, none of the company’s 465 workers are unionized and, with hundreds more employees yet to be hired, it’s possible that employees could organize and delay production targets.
As the company wrote in its SEC filings: “The maintenance of a productive and efficient labour environment and, in the event of unionization of employees, a successful negotiation of a collective bargaining agreement cannot be assured.”
The filing goes on to explain the risk of “work disruptions” if employees unionize.
Professor Roy says unionization isn’t a bad thing.
“Southwest Airlines is one of the most successful transportation companies in the world and 80 per cent of their workers are unionized,” Roy said. “Competition from other companies is probably their biggest risk.”
This, too, was a concern raised in Lion’s application to the SEC. Once the company launches its new line of buses and trucks, it will be competing against Volvo, Daimler, Toyota, Tesla, Nikola and other more established firms.
To date, Lion has produced fewer than 200 buses in total, whereas companies like Navistar sell tens of thousands of units a year.
It isn’t an insurmountable problem but it’s certainly a challenge, Roy says.
A web of business connections
Though Marissal is a fierce critic of Fitzgibbon and the Coalition Avenir Québec government, he is rooting for Lion to pull this off.
“Their president has been fighting to get this off the ground for years,” Marissal told Ricochet. “I have a lot of respect for the product, for his work ethic and for the shift towards green transportation.”
The company has raised hundreds of millions from investors and it’s not as though all or even most of them have ties to Fitzgibbon’s government.
Investors like Alexandre Taillefer and Power Corp have a history of supporting the provincial Liberal party, and of course Justin Trudeau’s Liberals have a $50-million stake in the business as well.
Still, there’s concern over how little debate there was surrounding the $350-million program of subsidies that will largely benefit Lion. Since it’s being presented as a modification to existing policy, it doesn’t have to be debated in the National Assembly.
All that’s needed for the plan to go forward is for a majority of Legault’s cabinet to sign off on it behind closed doors.
And there are still questions about the connection between Fitzgibbon and Ringuet.
“Fitzgibbon never really left the business world,” Marissal said. “He spent a career spinning a web of connections in the province’s business sector. There’s no proof of wrongdoing here, but we’ve been burned before. So my job is to keep an eye on that web and make sure it doesn’t get us all tangled.”