Billions in investment spark auto turnaround
The long-anticipated revolution in electric vehicles (EV) is finally underway, with frenzied EV activity this year in all quarters of the global auto industry.
The world’s automakers are committed to spending about $200 billion (U.S.) over the next four years to accelerate the transition to zero-emission vehicles.
It is expected that about 350 new EV models will be launched over the next few years. And thanks to recent breakthrough developments, it looks like the Southern Ontario auto industry, still Canada’s biggest manufacturing sector, will play a leading role in the EV transition. That’s a relief. Canada’s auto industry has been in decline for two decades, losing about 30 per cent of its vehicle production to lower-cost jurisdictions in Mexico and the U.S. South.
And, until recently, it also seemed likely that Canada would be left behind in the EV revolution. Canada has produced just 0.4 per cent of the approximately 2.2 million EVs on the road worldwide. The global fleet of EVs is expected to increase to as many as 300 million vehicles by 2030.
But the gloomy outlook for Canada has brightened in recent weeks with decisions by Ford Motor Co. and Fiat Chrysler Automobiles NV (FCA) to invest a total of $3.5 billion to retrofit their Oakville and Windsor plants, respectively, to EV production.
Canada was earlier passed over for EV production, notably with the 2018
decision by General Motors Co. to shutter its Oshawa plant, and instead retrofit a GM factory in Michigan for EV production.
But much has changed since then. And much more will have to change for Canada to reap the full economic bonanza that this once-in-a-lifetime opportunity presents. More on that later.
What changed since 2018 is that Ottawa and Queen’s Park are now determined to protect the Canadian auto sector.
With production of about 2 million vehicles a year, Canada is the world’s 12th-largest automaker.
The Canadian industry is also world-class in quality and innovation.
To secure its future, the two governments have invested almost $600 million in the reinvention of Ford’s Canadian operations. That’s still a bit shy of the level of state investment other countries make in their auto sectors. But it’s much closer to the global average, in an industry that has always been a public-private-sector partnership.
Those two governments are also expected to invest in FCA’s planned Windsor makeover.
Two additional changes since 2018 are an increased EV adoption rate by Canadian consumers, and the emergence of an EV recharging infrastructure. The two go hand in hand, of course.
Among G7 countries, Canada is tied with Germany for the highest EV adoption rate, at 3.0 per cent of total vehicles on the road. The global average is 2.5 per cent. British Columbia leads the country at about 5.0 per cent.
The long-awaited emergence of recharging outlets, or “chargers,” remains gradual but has lately shown more impressive growth.
Late last year, Petro-Canada completed its coast-to-coast “Electric Highway” of 40 EV charging stations along the Trans-Canada Highway.
This year, Canadian Tire Corp. Ltd. and convenience store giant Alimentation Couche-Tard Inc. unveiled plans for their own networks of charging stations.
The assembly of EVs is only part of the story, of course.
Domestic EV production will provide a ready market for sophisticated EV components made by Canadian auto-parts makers.
It is the parts makers, ranging from giants Magna International Inc. and Linamar Corp to startups making highly specialized components, that account for most of the auto sector’s employment.
The speed and resolve with which the auto industry is reinventing itself will appear in hindsight to have been astonishing.
Few industries are more hidebound than automaking. It has had to be forced into almost every major safety and fuel-efficiency improvement it has made, usually by government regulators.
To be sure, governments are among the confluence of factors that have pushed the auto industry to fully embrace EVs, with which they merely dabbled for years.
The fight against climate crisis, and the challenge of improving air quality in carcongested cities, is a preoccupation of governments worldwide. With increasing vigour, they have impressed their own sense of urgency on automakers
Meanwhile, as every major automaker has joined the race to become an EV leader, EV production costs and vehicle prices have come down. Speed and acceleration performance have improved. And EVs now boast long ranges on a single charge, allaying the “range anxiety” that has kept potential buyers away from EVs for fear of running out of juice on a long trip.
Consumer EV demand is growing as a result. During the pandemic, sales of traditional vehicles powered by internal combustion engines (ICE) plunged in Europe, as in North America. But European sales of EVs have continued to rise during the pandemic.
To capitalize on EVs, Volkswagen AG will spend $40 billion (U.S.) to develop enough EV models to sell 28 million EVs by 2028.
General Motors Co., in even more of a hurry, is aiming to have 20 new EV models in GM showrooms by 2023, part of GM’s planned $20-billion (U.S.) investment in EVs and autonomous, or driverless, vehicles.
Canada is at a turning point with EVs.
Industry experts calculate that the current rate of Canadian progress on EVs will see only a 14 per cent adoption rate for EVs by 2040, far short of Canada’s official target of 100 per cent by that year.
In that scenario, Canada’s EV sector would grow to $43 billion in GDP from the current $1.1 billion, and account for 342,000 jobs compared with the current 11,000.
There is another scenario, however, in which governments pair Canada’s growing proficiency in making EVs with the country’s buried treasure of lithium, cobalt and other minerals required in EV production.
The resulting world-class EV supply chain would need to be augmented with mandated minimum quotas on EV sales, as California did this year in banning sales of new gasoline and diesel-powered vehicles by 2035.
In that second, holistic scenario, Canadian EV market share is projected to reach 30 per cent of total vehicles by 2030, and 100 per cent by 2040.
And in that case, the EV sector would account for more than 1.1 million jobs by 2040, and about $150 billion in GDP.
“We believe in an all-electric future,” Mary Barra, GM’s CEO, told reporters earlier this year.
If Canada does emerge as an EV leader, Barra might reconsider her decision to end the 113-year-long tradition of automaking in Oshawa, at a plant that was distinguished by world records in quality and productivity.
Otherwise, there are some 20 other major automakers that might be interested in taking the plant off her hands and giving it a second life as an EV maker.