How long will Canada's honeymoon phase last when it comes to EV investment?

A series of electric-vehicle and battery supply-chain investments in Canada and the United States this spring have shifted North America’s automotive axis a bit farther north, industry insiders say. But despite few wins in Mexico’s column so far — zero of 10 large-scale battery plants — it is too early in the EV transition to discount the role that country could play in the segment over the long term.

“In this first generation of mass-market EV production, I think [automakers] realize that they have no choice but to get it right,” said Angelo DiCaro, director of research at Unifor, which represents about 41,000 workers at auto assembly and parts plants in Canada.

With EV commitments this spring in Ontario — notably those at General Motors’ CAMI Assembly Plant in Ingersoll and Stellantis plants in Brampton and Windsor — automakers recognized the part that highly skilled workers play in a smooth shift to EVs, DiCaro said.

“What they don’t need is a bunch of lemons pushing people away from that market and making this transition much more difficult,” he said.

Tapping long-established internal-combustion-engine vehicle hubs in both Canada and the United States for the new investments lets automakers draw from familiar labour pools to ensure they have the right mix of talent for big new projects, said Michael Robinet, executive director of Michigan-based S&P Global Mobility.

Frank Voss, president of Toyota Motor Manufacturing Canada, agreed.

“[In] Ontario and Canada, we have talented people. I think that’s the No. 1 aspect that we bring to this revitalized industry. And we’ve demonstrated our ability over a long period of time, first and foremost, an excellent workforce [and] we have a technology leadership in Ontario.”

Windsor, with its deep automotive roots, was one such hub. In March, LG Energy Solution and Stellantis announced plans to build a $5-billion battery-cell plant in the city.

USMCA ‘CERTAINLY HELPS’

Yet for both the new battery plant and EV product mandates at assembly plants throughout southern Ontario, labour is just one of the considerations, Robinet said.

“It has been a confluence of shifting sands that have allowed Canada to be a much more considered player in the sweepstakes,” he said.

Another factor are new labour rules introduced under the United States-Mexico-Canada Agreement (USMCA), said Bill Rinna, director of vehicle forecasts for the Americas at LMC Automotive.

The new trade agreement stipulates that starting in 2023, at least 40 per cent of the components in passenger vehicles assembled in North America must come from plants where workers earn at least US $16 an hour. For light or heavy trucks built on the continent, the threshold is 45 per cent.

The new requirement “certainly helps Canada versus Mexico,” Rinna said.

The labour-content rule is not likely the “make-it-or-break-it part of an [automaker’s] decision-making” but is working in Canada’s favour, DiCaro said.

“It’s certainly playing a role and having automakers make different calculations about where a product needs to land in North America.”

Unifor research shows that labour costs account for four to five per cent of the total cost of a vehicle, DiCaro said.

A unified federal-provincial government approach backed by ample investment dollars is yet another factor driving investment in Canada after years of production declines. Vehicle output peaked at around three million units in 2000 before falling to just short of two million in pre-pandemic 2019.

AGGRESSIVE INCENTIVES

Canada’s recent wins can be chalked up partially to “aggressiveness on Canada’s part not to lose their stake in the automotive market,” Rinna said. Attractive incentive packages have helped lock in deals with Stellantis and other large players, he said.

The string of automotive investments also extends to Quebec, thanks at least in part to Canada’s battery mineral wealth and federal and provincial strategies to make use of the resources.

Germany-based chemical giant BASF, as well as a joint venture between GM and South Korea’s Posco Chemical, each committed to building cathode-active-material plants in Bécancour, Que., in March. GM pointed to Canadian raw materials as among the venture’s reasons for choosing the site, midway between Montreal and Quebec City.

As Ottawa pitches foreign investors, a senior Canadian government official close to the matter said the nation’s stores of battery minerals are a key issue among automotive investors.

“The focus on critical minerals in Canada; the supply of them in Canada; the pathfinder investments that some of the larger companies have made, like GM; those are all building momentum behind what is a pretty good ecosystem that is starting to emerge,” said the official, who spoke on background.

MEXICO LAGS ... FOR NOW

While Canada and the United States rack up EV and wider investments in the battery supply chain, such spending in Mexico has been limited.

Ford and GM have each committed EVs to one of their Mexico plants, but a host of other EV product mandates and all 10 of the multibillion-dollar battery plants recently announced by automakers or their partners have landed in the United States or Canada.

The realignment is positive for Canada but unlikely to last, said Greig Mordue, an associate professor of engineering and ArcelorMittal chair in advanced-manufacturing policy at McMaster University in Hamilton, Ont.

“In these relatively early days of battery EVs, there’s an increased comfort with investments in the U.S. in particular and Canada as well,” Mordue said. “But as companies become more familiar and have greater capacity, understanding of the processes, I think this will all even out.”

Even within the Canadian government, little expectation exists that Mexico’s auto industry faces a long-term threat in the EV era.

“More investment is flowing slightly further north, but the supply chain, I think, will adjust and certainly account for the fact that the overall cost of the car and its components need to be competitive,” the senior government official said. “And Mexico certainly has a role to play there.”