EV supply chain is booming
Government efforts quickly overhauling Ontario’s once-dying auto sector
You don’t create one the world’s powerhouses in a 21st-century-defining activity without at least a bit of drama.
And drama we’ve had in the fractious negotiations over an electric vehicle (EV) battery plant in Windsor, Ont. That “gigafactory,” already under development, is crucial to Ontario’s strategy to create an EV supply chain of world-class status.
Fortunately, that strategy has never been in jeopardy, despite some panicky concerns raised during the Windsor negotiations.
More worrisome is the EV chain’s access to critical minerals. More on that later.
To a remarkable degree, the Ontario EV chain is already in place.
Ontario’s legacy vehicle assembly plants are undergoing retrofits to make EVs and hybrids.
Last month, Ottawa landed a second gigafactory, to be built in St. Thomas, Ont., by Volkswagen AG. That makes two Canadian EV battery plants, or two more than experts thought possible in the early going.
The feds have committed up to $13 billion in subsidies to the VW plant over the next eight years.
That deal spurred the partners in the Windsor plant, Stellantis NV, owner of the Chrysler, Jeep and Fiat brands, and South Korea’s LG Energy Solutions Ltd., to demand additional subsidies roughly equal to VW’s deal.
The VW subsidies, in turn, match the generous EV-sector incentives in last year’s U.S. Inflation Reduction Act (IRA).
To make its point with Ottawa, Stellantis abruptly halted construction on its Windsor plant last week. It claimed that Ottawa reneged on an agreement to match the IRA’s subsidy levels.
At which point Ottawa and Queen’s Park got into a sparring match, each demanding that the other provide the top-up for the Windsor plant.
The Ontario government, an enthusiastic financial backer of the EV transformation, said it had run out of money. But Ottawa insisted that Ontario provide more.
The fray was soon joined by leaders of the Ontario auto parts sector; Unifor, the union representing most Canadian auto workers; and politicians at all levels of government in the Windsor region.
That chorus was united in demanding that Ottawa and Queen’s Park get the Windsor plant into operation.
The panicky tone of that outcry was a bit misplaced, given the remarkable progress of Ontario’s EV renaissance, the Windsor debacle notwithstanding.
But the stakes are high.
In the past seven years, EV spending in the U.S. alone has increased 13-fold to last year’s more than $522 billion (Canadian), according to Bloomberg.
It is telling that the explosive stage of that growth in EV spending, in 2021 and 2022, was a period of high interest rates and recession fears that plunged the rest of the North American auto sector into a slump.
As well, EV spending has soared despite a limited number and variety of EVs.
That will change by 2025, when General Motors Co., for one, expects EVs to account for about half its vehicle lineup.
The growing dynamism in EV sales is in keeping with a forecast trillions of dollars in EV spending over the next two decades to decarbonize the global vehicle fleet.
That’s a trillion-dollar payday for an Ontario auto sector that was fading away until about three years ago. That’s when it began to seize on the once-in-a-lifetime chance to create a comprehensive EV supply chain, from critical minerals to finished vehicles.
Like Volkswagen’s gigafactory in St. Thomas, the Stellantis plant in Windsor will supply batteries for EVs sold across North America. Walking away from Windsor wouldn’t work for Stellantis. Its Windsor gigafactory is a key to Stellantis’s ambition to expand its U.S. market share against rivals that have been faster than Stellantis in getting EVs to market.
It would also mean taking a sizable loss on the money Stellantis has already invested in Windsor.
And for Ottawa’s part, losing the Windsor plant would be an epic political blunder, a setback for both its industrial strategy and climate change goals.
During the Windsor negotiations, Canada, the U.S. and Michigan last week quietly added another piece to the EV chain, a planned 1,400kilometre “EV corridor,” North America’s first, linking Toronto, Montreal and Detroit on a route that extends from Quebec City to Kalamazoo.
Equipped with no fewer than 369 charging stations, the planned corridor is meant to assuage hesitant EV buyers concerned about road range.
The big-ticket battery plants have obscured the sole major holdup in a genuine supply chain: Canada’s slothful approach to critical minerals extraction and processing.
Ottawa’s financial commitment to the VW plant alone is more than three times the funds it has dedicated to its Critical Mineral Strategy.
That strategy, intended to unlock Canada’s treasure house of critical minerals, has little to show for itself.
Those minerals are needed in the EV supply chain and in every aspect of the Information Age, from artificial intelligence to smartphones.
That’s a story for another day. For now, while still a work in progress, Ontario’s EV supply chain is taking shape at an impressive pace.