1 - Growing the domestic industry

Learn more about our recommendations for growing the domestic industry below, or click here to download the full report.

1.1 - Establish a national, auto industry strategy

Solidifying and growing the auto sector and its associated supply chain requires more than subsidy commitments. It also requires a more cohesive whole-of-government approach to sector development, underpinned by a comprehensive and goal-oriented industrial strategy.

Recommendations:

  • Growing the auto sector and maximizing the benefit of Canada’s powerhouse position along the supply chain requires coordination and clearly articulated objectives, including plant and production capacity targets. Absent such a plan, sector development is at risk of taking place along a more politicized timescale that treats investment as a tool for political competitiveness rather than a strategic economic building block. A comprehensive auto industrial strategy can usefully serve as a framework through which government officials, in various departments, and at federal, provincial, territorial and municipal levels, must understand and craft other related policy measures, including vehicle efficiency mandates, cross-border trade policy, regional development and infrastructure priorities as well as skills training, adjustment and fiscal incentives, among others.

  • Efforts to coordinate a comprehensive and national industrial strategy across various federal ministries and agencies (including Innovation, Science and Economic Development; Natural Resources Canada; Employment and Social Development Canada; among others) without a dedicated oversight body is both challenging and an inefficient use of government resources. The same is true for provincial governments, notably Ontario. Allocating responsibility for this work to a dedicated office is critical. An adequately resourced government body responsible for Canada’s auto sector strategy could function as a standalone Ministry of Automotive Supply Chain Development with dedicated staff resources, decision-making powers and a specific mandate. Also critical is establishing a permanent federal-provincial body to coordinate these efforts.

  • Through the office of the Ministry of Auto Supply Chain Development, governments must establish a single streamlined investment attraction division that can champion new investment opportunities and help navigate applications through various federal and provincial funding as well as municipal support programs. Such an approach would assist in securing new vehicle and component part production mandates as well as related supply chain investments in Canada. A “one-stop shop” can accelerate applications and review procedures, bring greater government expertise to the application process and help avoid unnecessary lag times. Governments must also ensure investment supports for major auto sector projects are on par or better than competing jurisdictions.

  • Of all manufactured goods in Canada, cars and car parts are the country’s most valuable export commodity. Even in its early days, the auto industry has always relied heavily on cross-border trade, mostly in North America. Unfortunately, Canada’s relentless pursuit of so-called free trade agreements, including with low-wage, low-cost and import-resistant jurisdictions, contributes to a competitive imbalance for the domestic auto sector. Consider that Canada for much of its history exported more vehicles and parts to the world than it imported. In 2005, Canada reported its last annual trade surplus in automotive trade of $4.5 billion. Since then, Canada’s automotive trade deficit has risen to more than $37 billion in 2021, a new record.4

    Canada's Automotive Trade Balance (2002-2021)

    A red line graph showing the decline in Canada’s automotive trade balance from a surplus of 5 billion in 2002 to a deficit if 35 billion 2021.

    Source: Trade Data Online (accessed April 29, 2022)

    For many years, Canada dangled access to its vehicle market and, by extension, the North American market, as a carrot to secure new free trade agreements including with Mexico, Korea and the European Union, among others. This approach has put added pressure on Canadian autoworkers to have wages cut and other costs, under threat of offshoring and job loss. Stronger auto trade and labour provisions in the new North American trade agreement that replaced NAFTA, the Canada-US-Mexico Agreement (CUSMA), are a shift in the right direction, but leaves room to do more. Canada must advocate for trade policies that expand, not harm, the domestic auto industry and its workers, by renegotiating or withdrawing from trade treaties that fail to meet this objective.

    4 Statistics Canada, accessed through Government of Canada Trade Data Online portal, April 5, 2022.

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

The opportunities for Canada’s auto industry require a “whole-of-supply chain” assessment of the industry’s growth potential. This value-chain strategy includes major investments in component parts production, including those related to future EV production. Canada must also expand its capacity in mining and refining critical minerals needed to feed the broader industry, including lightweight metals and battery grade precursor materials.

Recommendations:

  • 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

1.3 Leverage government procurement to encourage Canadian-built vehicles

Canada has both committed to lowering emissions through its vehicle fleet and advance and expand the auto industry’s footprint with new EV and battery production domestically. Government procurement policy and the ambitions of fleet emissions reduction must compliment Canada’s industrial policy while ensuring public dollars support domestic investment wherever possible.

Recommendations:

  • Natural Resources Canada must amend its Greening Government Fleet guidance to identify low-and zero emission vehicles assembled in Canada, including those that contain significant levels of Canadian parts content, for provinces and municipalities. Federal, provincial and municipal governments can undertake an assessment of existing vehicle fleets and their specifications and issue guidance to relevant agencies requiring them to include, where possible, Canadian-made vehicles in any requests for procurement. Canadian governments may also consider establishing price preferences for domestic-built EVs in procurement orders, similar to the rules set by the State of Illinois in November 2021.22

    22 In its Reimagining Electric Vehicles in Illinois Act, the state passed laws allowing for a 20% price preference for project bidders, for locally built EVs. See: https://khqa.com/news/local/pritzker-signs-bill-incentivizing-electric-vehicle-manufacturing

  • Further extending the objectives of the Greening Government Fleet program, federal and provincial governments shall establish a joint fund that provides provincial and municipal procuring agencies the financial support to renew existing vehicle fleets with low-emission or ZEVs. Requirements that procurement bids include vehicles assembled in Canada or that contain significant levels of Canadian parts content shall apply wherever possible.

1.4 Support leading-edge research and development

More research and development support on its own will not fix Canada’s automotive challenges. Assisting Canadian-based companies to upgrade their technical and engineering capacities and develop and produce new products can generate some clear economic benefits here at home.

Recommendations:

  • Governments in Canada offer a range of investment supports for sector-wide research and development, including through the Strategic Innovation Fund and the Scientific Research and Experimental Development Tax Incentive Program. Provincial government programs make sizeable contributions like Ontario’s Autonomous Vehicle Research and Development Partnership Fund and Quebec’s capital financing arm Investissement Québec. It is critical that public investments provided to auto industry players, from larger Original Equipment Manufacturers (OEMs) to small start-up technology firms help grow Canada’s production footprint and employment in Canada’s auto industry.

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