1.2 Adopt a ‘whole-of-supply chain’ approach to investment attraction

Securing new product programs in passenger vehicle assembly is certainly a critical measuring stick of Canada’s powerhouse prowess. Since 2000, the closure of major Canadian assembly facilities dealt devastating blows to workers and to local communities in: Sainte-Thérèse, Quebec (GM car plant); Windsor, Ontario (Chrysler truck plant); Talbotville, Ontario (Ford car plant); Oakville, Ontario (Ford truck plant); and Oshawa, Ontario (GM truck plant). The resultant loss of production capacity also significantly affected jobs across the supplier base and elsewhere in the economy. Locating new product programs, as was done following the restart of truck production at the Oshawa Assembly Complex, has major spillover benefits, including the restart of parts supplier facilities and re-employment for thousands of workers.

However, new vehicle assembly programs are not the only measure of auto sector success. The opportunities for Canada today require a “whole-of-supply chain” assessment of the industry’s growth potential. This value-chain strategy includes major investments in needed upstream component parts production, including those related to future electric vehicle (EV) production, such as battery cells and related modules5, electric powertrain and drivetrain systems, power electronics, thermal heating systems and others.

Connected with this value-chain approach, Canada must expand its capacity in mining and refining critical minerals needed to feed the broader industry, including lightweight metals and battery grade precursor materials. In fact, Canada is the only country in the world with significant mineral deposits needed for advanced battery production, including nickel, graphite, lithium and cobalt. Recognizing the strategic importance of this upstream development to the Canadian auto sector’s growth will provide Canada a unique advantage and a foundation upon which an industrial strategy can be built. Canadian officials must not squander this advantage by allowing the export of raw materials for refining and upgrading outside of Canada.

5 For more information on Canada’s battery supply chain potential, see Clean Energy Canada, Turning Talk into Action: Building Canada’s Battery Supply Chain (May 2021): https://cleanenergycanada.org/wp-content/uploads/2021/05/Turning-Talk-into-Action_Building-Canadas-Battery-Supply-Chain.pdf

  • The Canadian auto sector benefits from a deep pool of nearly 1,000 component parts suppliers6, employing approximately 75,000 workers. The shift toward vehicle electrification will significantly affect the parts supply base. In some cases, the viability of some parts suppliers will be threatened by a decline in demand for certain existing component parts, particularly those connected to gasoline-based powertrain, fuel and exhaust systems as well as components not incorporated in electric vehicles. In other cases, transferrable parts must adapt to the specifications of ZEVs for suppliers to secure future contracts. Most importantly, Canada must identify new high-value, in-demand parts for ZEVs and focus investment attraction efforts on them, building production capacity right here in Canada.7 Electric motor systems, e-axles, power electronics and battery cells are some of the lucrative component parts powering electric cars. Securing production of these parts creates new job opportunities and, in some cases, pathways for existing Canadian powertrain (i.e. engine and transmission) facilities to diversify production and steadily transition to an all-electric future. Stellantis and LG Energy’s $5 billion battery cell manufacturing investment in Windsor-Essex in March 2022 shows that, with the right mix of supports, Canada can attract these critical EV component parts and the thousands of jobs that come with them.8 Canada must also focus resources to secure lucrative supplier parts contracts for both existing ICE vehicles while securing future product commitments for parts in ZEVs at the same time.

    6 See Automotive Policy Research Centre Database: https://automotivepolicy.ca/database/

    7 The Automotive Parts Manufacturers Association’s (APMA) Project Arrow initiative (an all-Canadian built ZEV concept car) presents a compelling case for growing the Canadian parts industry’s production footprint, see: https://projectarrow.ca/

    8 Stellantis Press Release (March 23, 2022) https://www.stellantis.com/en/news/press-releases/2022/march/stellantis-and-lg-energy-solution-to-invest-over-5-billion-cad-in-joint-venture-for-first-large-scale-lithium-Ion-battery-production-plant-in-canada

  • Nothing in the Strategic Innovation Fund nor provincial investment funds precludes support for the development of important precursor materials needed to feed Canada’s growing battery supply chain. However, Canada currently produces virtually no battery-grade materials derived from nickel, cobalt, manganese, graphite or lithium despite storehouses of these critical minerals.9 Given the strategic importance of such production, it is imperative that government officials calibrate investment attraction efforts toward these areas. Investment announcements by both GM10 and BASF11 show that Canada can grow this strategic segment of the battery supply chain with active government support. This growth includes the expansion of smelting and refining capacity in Canada. Government must also ensure that development is conditional on and guided by strict principles of environmental stewardship and sustainability.

    Major Stages Along the Battery Supply Chain

    White u-shaped graph over red tinted image of an auto assembly line sowing the supply chain from exploration to extraction, battery materials, battery components, cell production, module, e-powertrain, power electronics, and other parts production, battery pack assembly, integration in vehicle, white arrows point to recycled materials and beginning of supply chain cycle.

    9 See Brendan Marshall, Building Supply Chain Resiliency of Critical Minerals, published by the Canadian Global Affairs Institute (November 2021): https://www.cgai.ca/building_supply_chain_resiliency_of_critical_minerals#Battery. In this article, Marshall states: “Possessing battery minerals and metals… does not equate to having value-added battery-grade materials. To create battery-grade materials, a specified value-added manufacturing stage and process are required for nickel, cobalt, manganese, graphite and lithium. For example, nickel needs to be transformed into nickel sulfate; cobalt into cobalt sulfate; manganese into manganese sulfate; graphite into ultra-high-purity spherical graphite and lithium into lithium carbonate and lithium hydroxide. While Canada has a strong foundation of battery minerals and metals, and downstream smelting and refining capacity for nickel and cobalt, it does not produce battery-grade nickel, cobalt, manganese, graphite or lithium.”

    10 Automotive News (Marcy 7, 2022) https://www.autonews.com/automakers-suppliers/gm-build-393-million-ev-battery-materials-plant-quebec

    11 Electric Autonomy (March 4, 2022) https://electricautonomy.ca/2022/03/04/basf-battery-cathode-quebec/

  • Canada has identified a list of critical minerals12 considered vital to the nation’s low-carbon economic growth plan. Under its Minerals and Metals Plan, Canada is positioning itself as a leading mining nation, recognizing these materials as key to the economic security of Canada and its allies. In the context of auto sector development, access to these minerals presents significant industrial benefits. It is imperative that Canada maximize the value of such assets to meet its economic, job-growth and sustainability objectives. Budget 2022, and the earmarking of $3.8 billion in funds to accelerate production and processing of critical minerals, takes an important first step.13 Government officials may consider domestic processing opportunities and arrangements prior to awarding permits for mineral exploration and mining development. This process can involve mining firms demonstrating efforts to seek offtake agreements or other supplier arrangements with Canadian-based processors and refineries. Governments may also consider purchasing and stockpiling critical minerals and redirecting those materials to processors with incentives to set up shop in Canada. To achieve these goals, Canada must undertake strong oversight to guard against foreign ownership and control of critical minerals and processing capacity, including through the Investment Canada Act.

    Li-ion Battery Raw Material Supply Rankings (2021)

    World map showing a ranking of countries by lithium ion battery raw material supplies with China, 1, Australia, 2, Brazil, 3, South Africa, 4, Canada, 5 (tie), Indonesia, 5 (tie), Chile, 7, Democratic Republic of Congo, 8, Finland, 9 (tie), Philippines, 9 (tie), USA, 11 (tie), Turkey, 11 (tie), Japan, 13, Mexico, 14, Argentina, 15 (tie), India, 15 (tie), Bolivia, 15 (tie), South Korea, 18, Czech Republic, 19 (tie), Norway, 19 (tie), Morocco, 19 (tie).

    * represents countries that are tied.
    Source: BloombergNEF (accessed June 14, 2022): https://about.bnef.com/blog/u-s-narrows-gap-with-china-in-race-to-dominate-battery-value-chain/

    12 Natural Resources Canada, Critical Minerals list, available at: https://www.nrcan.gc.ca/our-natural-resources/minerals-mining/critical-minerals/23414

    13 Budget 2022 (p.65): https://budget.gc.ca/2022/pdf/budget-2022-en.pdf

  • The severe supply-chain disruptions that stalled auto production around the world in recent years, illustrates the industry’s heavy reliance on computer chips. Recent events also raised flags over the heavy concentration of semiconductor manufacturing in specific parts of the world. In fact, South Korea and Taiwan account for virtually all advanced semiconductor production14 led by major corporate players Samsung and TSMC.15 The United States and China are developing noteworthy plans to expand semiconductor production as a matter of national security. Canada’s microscopic footprint in this growing sector hurts our industrial development ambitions. The federal government would be wise to incubate a domestic semiconductor industry to supply strategic growth sectors. Canada should follow the strategic advice of the Canada Semiconductor Council16 and foster a domestic semiconductor ecosystem around Canada’s domestic EV strategy.

    Green circuit board with red, blue and black emphasized text six to 10 times more semiconductor content in an electric vehicle drivetrain compared to an internal combustion engine vehicle drivetrain.

    14 Boston Consulting Group, April 1, 2021, Strengthening the Global Semiconductor Supply Chain in an Uncertain Era: https://www.bcg.com/publications/2021/strengthening-the-global-semiconductor-supply-chain

    15  See Bloomberg News, May 6, 2021, The Chip Shortage Keeps Getting Worse. Why Can’t We Just Make More? https://www.bloomberg.com/graphics/2021-chip-production-why-hard-to-make-semiconductors/

    16 See Canada Semiconductor Council report recommendations, https://canadassemiconductorcouncil.com/wp-content/uploads/2021/11/Canadas-Semiconductor-Action-Plan.pdf

  • Canada has a patchwork of rules and procedures governing the disassembly of vehicles, the proper disposal of hazardous materials and the recovery of reusable parts. The rise of battery electric vehicles (BEV) brings with it a host of new challenges, and opportunities, to advance Canada’s vehicle recycling programs and secondary use for critical parts. Provincial Extended Producer Responsibility (EPR) programs that place responsibility on automakers to track materials and properly manage hazardous components17 are positive initiatives that must extend across the country. These initiatives should also include growing Canada’s capacity to recycle and repurpose lithium-ion batteries. Expanding the scope of component parts in EPR programs can also encourage automakers to better utilize existing in-house networks of Parts Distribution Centres to store parts and manage after-market logistics.

    17 For example, see B.C. Ministry of Environment and Climate Change Strategy, Extended Producer Responsibility Five-Year Action Plan 2021-2026: https://www2.gov.bc.ca/assets/gov/environment/waste-management/recycling/recycle/extended_producer_five_year_action_plan.pdf