Global politics, trade tensions and the slowdown of new-vehicle sales have stymied talks aimed at luring a China-based automaker to Canada, but industry officials remain optimistic that a new assembly plant could eventually land in Ontario.
Discussions between the Automotive Parts Manufacturers’ Association (APMA) and China-based car companies had been going on for three years until Canada’s detention last December of Huawei CFO Meng Wanzhou, said APMA President Flavio Volpe.
“It’s clear the Chinese believe that Ontario is competitive; otherwise, I never would have gotten past the first conversation,” Volpe said, adding that the federal and Ontario governments also were holding separate meetings with the manufacturers.
“But now all talks are on hold, and that sets back the process until the Chinese government is satisfied with the outcome of the Huawei situation.”
Meng was detained at the request of U.S. government officials who have charged her and the Chinese telecom giant with trying to circumvent U.S. sanctions against Iran.
THE BIG TEN
For competitive reasons, Volpe declined to name the automakers he had been meeting with, but said they are among the largest in the country.
The 10 biggest China-based automakers by sales volume are: SAIC, Geely, Changan, Dongfeng, BAIC, Great Wall, Chery, FAW, GAC, and BYD, according to the Center for Automotive Research (CAR) in Ann Arbor, Mich.
Meng’s detention also has hampered efforts by Ottawa to negotiate a free-trade deal with China, which seeks greater access to Canada’s oil sands. As a condition to granting that access, Volpe has urged federal negotiators to secure auto investment commitments in this country from the Chinese.
Despite the setback, analysts interviewed by Automotive News Canada say it’s just a matter of time before Chinabased auto manufacturers either begin selling cars — through distribution networks — or locate plants in North America.
U.S.-China trade tensions could work in Canada’s favour, said Michael Dunne, CEO of ZoZo Go, a U.S.-based research firm that tracks China’s auto industry.
“The Chinese automakers have not given up their ambitions to go global, so they begin to look for the path of least resistance,” he said. “In the last 12 months we’ve seen automakers begin talks both with Mexico and Canada as sort of staging areas. ... ‘How do we get a foothold in North America while we bide our time and hope U.S.-China trade tensions cool down? Let’s first establish ourselves in either Mexico or Canada or both.’”
But China’s fragmented industry might mean seven to 10 years before its vehicles are assembled in North America.
David Adams, president of Global Automakers of Canada (GAC), said Chinabased automakers are concentrating on their home market, which is the largest on the globe.
“Sales in China have leveled off, and I don’t think immediate export markets are top of mind,” Adams said.
“Their market has so many companies competing for sales, and it won’t be easy to achieve enough sales in North America to make building vehicles here feasible in the short term.”
Qiang Hong, senior research scientist at CAR, said after a decade of annual double-digit growth, sales in China fell by 2.8 per cent in 2018 to about 28 million passenger and commercial units compared with the previous year, and they’re expected to plunge between 10 and 15 per cent in 2019.
“Economic trends in China have slowed down and international trade issues have had a lot of impact on the automotive market,” said Qiang.
As recently as the end of last year, six automakers had announced plans to enter the U.S. market, said Dunne. “Five of the six have announced delays ... only Zotye remains committed to entering the market, in late 2020.”
EV ENTRY POINT
After Toyota, Honda and Nissan began selling vehicles in North America, they were the only Japanbased companies big enough to justify building assembly plants in Canada and the United States.
They all made inroads in North America initially by manufacturing small vehicles, said Joe McCabe, CEO of AutoForecast Solutions LLC.
“They found a niche in the market, and it remains to be seen if the Chinese can find a similar niche to drive sales. There’s also the issue of building brand awareness, setting up a dealer network and getting to a certain volume of sales to make assembling here more feasible than shipping.”
Fleet vehicles also might be a shortcut into the market, McCabe said. He cited the recent announcement by BYD Auto Co. — China’s largest manufacturer of electric vehicles, buses and trucks that is backed by Warren Buffett’s Berkshire Hathaway — to build an electric bus plant in the Greater Toronto Area.
“The EV bus puts them in the electrification space,” McCabe said. “For that reason alone, I could see them testing the waters.”
Ted Dowling, vice-president of BYD Canada, said in a statement the new facility will “put Canada on the map as a North American leader in electric bus assembly.
“BYD is well-positioned to replicate in Canada the kind of rapid growth we’ve seen in places like Lancaster, Calif., a plant which started with about 100 workers in 2013, and now employs more than 750,” Dowling said.
One tipoff about when the China-based companies might consider assembly-plant investment in North America is if their fragmented market begins consolidating or developing joint ventures outside China, said Brendan Sweeney, a researcher at McMaster University’s Automotive Policy Research Centre.
Chinese investors have already purchased Ontariobased auto parts suppliers. Valiant Machine and Tool was bought by HCD Group, and JCI Automotive, Meridian Lightweight Technologies became part of Wanfeng Auto Holding Group.
Such investment has slowed in the past two years, Sweeney said, but no retrenching has occurred, either.
Another possible jurisdiction for an assembly plant is California, which recently was chosen to become the headquarters of Guangzhou Automobile Group, said McCabe.
California is the most logical U.S. state because it has emerged as a major customer base for imported vehicles, particularly those from Japan and South Korea, he said.
But, Ontario’s established cluster of assembly plants, parts suppliers, and experienced workforce, makes it the most attractive province for investments by China companies, he said.