Why some Canadian suppliers won't survive the EV revolution

Thousands of supply-chain jobs and dozens of parts plants in Canada are under threat as auto suppliers position themselves for the shift from vehicles powered by internal-combustion engines (ICE) to those propelled by electricity.

“When it comes right down to it, an electric vehicle is actually a simpler machine, and it is going to require fewer people to manufacture,” said Ken Delaney, managing director of Prism Economics and Analysis, a Toronto-based management consultancy.

• Click on the link below to see which parts are lost and gained in an electric vehicle.

With fewer, and often different, components required to turn an EV’s wheels, the parts sector can expect a major shake-up, with some of the existing players unlikely to make it, Delaney said.

Nearly 60 per cent of Canada’s 950 auto-parts plants will be affected in some way by the shift to EVs, according to a report released last fall by the Future of Canadian Automotive Labourforce (FOCAL) Initiative, a collaboration involving Prism, the Automotive Policy Research Centre and the Canadian Skills Training and Employment Coalition.

The report identified 64 powertrain and transmission parts plants in Canada at high risk because of their focus on components needed in only ICE vehicles. An additional 302 metal manufacturers and 199 tooling and automation plants are expected to suffer moderate impacts.

THOUSANDS OF JOBS AT RISK

The fallout on auto jobs will likely reach into the thousands, with most of the effects being felt in Ontario, Delaney said. Of the approximately 140,000 total Canadian auto parts jobs that the FOCAL report identifies, 16,500 are at the threatened powertrain and transmission plants. An additional 66,500 jobs are tied to plants that face lesser disruptions.

Early signs of this EV-related supplier realignment are already on display.

To make way for its new electric BrightDrop delivery van, General Motors plans to begin retooling its CAMI

Assembly Plant in Ingersoll, Ont., this spring. As Automotive News Canada reported in November, Butcher Engineering Enterprises Ltd. will be shutting its doors as a result. Butcher provides the plant fully assembled front-end modules for the Chevrolet Equinox crossover.

The modules — made up of a transmission, engine, radiator and other key components — are not needed for the new delivery vans, a reality that will put 350 people out of work.

Unifor — which represents hourly workers at Detroit Three assembly plants in Canada and at a host of parts suppliers including Butcher Engineering — expects more such closures as CAMI and Ontario’s other assembly plants transition to electrified products.

CHANGE ‘SUBSTANTIAL,’ ‘MONUMENTAL’

The shift is affecting the whole auto sector, said Michael Robinet, executive director of automotive advisory services at IHS Markit, a data and information company. The scale of the adjustment depends on what the supplier builds, he said.

“This is a substantial change for [automakers],” Robinet said. “It is a monumental change for some suppliers.”

For parts makers that have laid the groundwork for the transition, Robinet sees a path to growth. Typically, he said, it will be the big, multisector suppliers that stand to benefit because they are able to tap into global economies of scale.

“They saw this a number of years ago,” he said, “so they more or less understood that they needed to make sure that they had a foot in the old world and definitely a foot in the new world.”

Magna International Inc. is among the large companies working to adapt and take advantage of the shift to EVs.

The transition has made some in the company nervous, said Tom Rucker, president of Magna Powertrain. But Magna’s scale and early start on the transition will help it capture a growing share of the market, he said.

“The way we look at it, you need a global presence, you need to have good relationships with your customers. You need, quite frankly, to have a certain size and scale to be able to manage heavy investments within R&D.”

Magna expects to be doing US $2 billion in EV and hybrid powertrain sales by next year and to double that figure by 2027. The growth in its EV business will coincide with a decline in its ICE parts sales, Rucker acknowledged. But the supplier expects its total addressable market to grow through the 2030s because the EV parts it builds will be applicable to a wider range of vehicles than those it currently builds for ICEs.

At the plant level, Rucker said, some closures or overhauls are a certainty, but Magna is on track to enlarge its global footprint.

“Right now, we’re looking more at a growth scenario and not a consolidation scenario in our plants.”

BIG PROBLEM IF YOU’RE SMALL

The transition is likely to be “lumpier” for smaller players, said Robinet of IHS Markit.

“I worry more about the small and mid-size, single-sector suppliers. They’re the ones that maybe doubted this a bit, maybe felt that ‘Well, I don’t have the resources to have a role in the [battery] EV world, so I’m just going to keep doing what I’m doing; and you know, it’s good enough.’ ”

As the EV market matures and adaptive suppliers distance themselves from those clinging to ICEs, Robinet expects further consolidation to take place, with the large parts companies getting larger.

Electronic components for EVs, conversely, offer growth opportunities.

Prism’s Delaney and Robinet expect this will mean further encroachment from international electronics and technology companies. But Raed Kadri, vice-president of strategic initiatives at the Ontario Centre of Innovation and head of the Ontario Vehicle Innovation Network (OVIN), said the continued convergence of technology and automotive will work both ways.

“This all got kicked off when the tech sector started to dabble in the movement of people and goods in the auto sector,” he said. Traditional parts suppliers are now pushing back by branching out into electronics and software themselves, Kadri said.

To help direct Ontario suppliers further in this direction, OVIN, an arm’s-length government initiative, is tasked with driving the commercialization of made-in-Ontario auto technologies. Among other programs, it runs a research and development partnership aimed at supporting small and midsize parts firms working to gain a foothold in EVs.

“They’ve innovated in the past, and they’ve put out new products and services to fuel the market,” Kadri said, “and that’s why our cluster’s always grown and not contracted.”