EDITOR’S NOTE: This is part three of a three-part Automotive News Canada series called Electrifying Oakville, which takes a closer look at the pledge Ford. Motor Co. has made to electric vehicles and its only assembly plant in Ontario, and how that could affect the Canadian auto industry as a whole.
As automakers shift to electric vehicles, Canadian suppliers face a “valley of death,” having to invest in expensive new technologies with little short-term prospects to earn a profit, analysts and auto parts executives say.
“We’re trying to develop portions of the supply chain from scratch,” said Brendan Sweeney, managing director of the Trillium Network for Advanced Manufacturing, a London, Ont.-based nonprofit organization dedicated to raising public and investor awareness of Ontario’s advanced manufacturing.
A collective agreement reached in September between Unifor and Ford Canada commits the company to begin retooling its Oakville assembly plant in 2024 to build five battery-electric vehicles there by 2027. This initiative presents suppliers with both opportunities and challenges.
Major Canada-based suppliers, such as Magna International and Linamar, might only need to retool to build some EV components, but other portions of the supply chain simply don’t exist here, Sweeney said. While many EV components are similar to those found in internal combustion engine (ICE) vehicles, propulsion systems (electric motors, transfer cases and related parts) and batteries are unique to EVs.
“The big one is batteries. We don’t do that much in Canada...China, Japan and Europe have much more advanced battery technologies.”
BEREFT OF BATTERIES
Creating a battery supply chain will require increased mining of raw materials, adding refining capacity and developing advanced manufacturing that is not done here, Sweeney said. Yet, he believes it can be done because Canadian suppliers can “piggyback” on technological advances achieved in other jurisdictions.
“Can we realize a battery supply chain here? Sure,” said Sweeney, noting the country has reserves of the rare-earth and other minerals used in lithium-ion batteries.
Importing batteries from offshore suppliers is unrealistic, said Joe McCabe, CEO of AutoForecast Solutions, a U.S.-based industry consultancy and forecasting firm. He said that under provisions of the United States-MexicoCanada Agreement (USMCA), automakers must source 75 per cent of a vehicle’s content from North America to avoid hefty tariffs. Batteries are a major component in EVs.
McCabe said China-based companies could set up Canadian subsidiaries to avoid USMCA tariffs but “would have to justify building 50,000 units,” which is unlikely to be large enough to merit the investment.
Brett Smith, director, technology for the Center for Automotive Research, in Ann Arbor, Mich., said any new battery facility in Canada can expect to operate well below capacity for several years while the market grows. To fund it, companies would likely have to harvest profits from the sale of internal-combustion components and channel them into the unprofitable EV field.
“How do you get through this valley of low profitability?” said Smith. “Some call it the valley of death.”
EV INVESTMENT RISK
Smith said automakers might estimate high volumes — Unifor President Jerry Dias said Ford could eventually produce 200,000 EVs annually in Oakville — but the actual sales could be much lower.
“Everyone estimates that they’re going to build 200,000, but it might turn out to be 65,000,” said Smith.
Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, said the challenge small parts makers face is “reaching scale.”
In some cases, those companies might seek partnerships with large, diversified companies, such as Magna, to achieve the capacity to manufacture at the scale required by automakers.
The potential for a large supply order will likely “inspire” those companies to develop the necessary capabilities, he said.
Volpe cited three smaller companies with strong potential: Quebec-based Dana TM4, eCAMION and Electrovaya.
Dana TM4, a partnership between Dana and HydroQuebec, develops electric-vehicle motors, generators, power electronics and control systems; eCAMION is a Scarborough, Ont.-based energy-storage company formed by engineers who worked on EVs for General Motors; and Mississauga, Ont.-based Electrovaya developed lithium-ion based rechargeable batteries for the NASA space shuttle program.
“These three long-term players may finally see their day,” said Volpe.
Smith said they’re going up against large international suppliers, such as LG Chem, which have deep pockets and advanced experience.
LONG ROAD TO PROFITABILITY
Yet small parts makers have little choice but to try, he said, noting that the industry has made a commitment to EVs as the future.
ECAMION President Carmine Pizzurro said his company is already taking steps to bid on a contract to supply a propulsion battery for the Ford EVs. To accommodate the automaker’s capacity needs, eCAMION has partnered with Matcor-Matsu, of Brampton, Ont., a large maker of precision stamped and assembled metallic components for the auto industry.
“We’re like 30 or 40 people [at eCAMION],” Pizzurro said. “We’re engineers. We can figure it out, but we need the capital a large company has.
“The amount of money it takes to ramp up — you’re going to lose money for a while ... you have to know how much it’s going to cost you, and how long it will take you to get it back.
“If you’re building 20,000 e-cars a year, you are not going to get it back.”
Pizzurro, a former GM employee who worked on the Chevrolet Volt hybrid-sedan program, pointed to battery maker XALT Energy, of Midland, Mich., as an example of the lengthy payback time. It took that company eight years before it reached profitability, he said.
Canada does not make battery cells at all, instead importing them from the United States and Korea, Pizzurro said. A few years ago, eCAMION sought federal subsidies to establish a battery-cell manufacturing facility here but was denied because the company was not well known and did not have secured business, he said. Except for the cells, eCAMION manufacturers all other battery components in Canada, he said.
Electrovaya spokesman Jason Roy said the company took over a Smart car EV battery-cell plant in 2014 from Daimler in Germany. When sales volumes dropped to 5,000 a year, Electrovaya abandoned the facility in 2017 as uneconomical.
Electrovaya assembles battery parts in Canada sourced from around the world, including the United States and Asia, Roy said. He declined to comment on future product plans, although he acknowledged a major investment would spur growth: “The more [investment] we get, the faster the electric motor runs.”