Industry Minister François-Philippe Champagne didn’t hesitate when asked which policies he worries could be reversed by the next government.
He often recounts stories about his role in helping to attract around $100 billion in public and private investment for a dozen or so projects that could form the backbone of a domestic electric vehicle (EV) supply chain.
But as Prime Minister Justin Trudeau prepares to exit office in March, construction on many of those projects has hardly begun, and only a fraction of the estimated $31 billion in federal support has been distributed. That, in turn, has raised questions about whether any of the proposed EV projects will be scaled back or even cancelled, especially if EV sales stutter.
“We have reshaped the industrial landscape of this country,” Champagne said at a Canadian Club luncheon in downtown Toronto last week. “I would wish that we don’t reverse that because I think that we have prepared Canada best for the 21st century.”
The projects, mainly in Quebec and Ontario, range from EV assembly plants to plants that would convert raw metals into chemicals needed for battery cell manufacturing.
Although EV sales continue to grow, reaching a record 16.5 per cent of all new sales in Canada in the third quarter, some policies that have helped prop up EV sales in North America are now being scaled back or cancelled.
For example, the federal government earlier this month paused a financial incentive program that had been in place since 2019 and provided up to $5,000 for purchasing an EV because it ran out of money; Quebec has put a similar hold on its program.
In the United States, President Donald Trump on Monday signed an executive order to eliminate what he called the EV “mandate.” Although no such mandate exists, the order and reports indicate he will likely try to scrap a $7,500 tax credit for new EV purchases as well as other Joe Biden-era policies supportive of EVs, some of which may require congressional action.
He is also threatening to impose 25 per cent tariffs on all Canadian goods, which some automakers have said could have devastating effects on their sales, given that auto parts often cross the border multiple times before a vehicle is completed. The U.S. was the destination for 93 per cent of all autos exported by Canadian automakers in 2023, according to the Canadian Vehicle Manufacturers’ Association.
Of the estimated $31 billion in support that the federal government committed to provide, roughly $24 billion is supposed to come in the form of production subsidies, according to a mid-2024 analysis by the Parliamentary Budget Office. Champagne said the actual amount of money distributed so far is around “a few hundred million,” which is a fraction of the total committed support.
Political analysts say the lag time in construction and because only millions of the billions of dollars in committed support have been distributed so far make it easier for companies or politicians to walk away from projects in the future.
“Minister Champagne is right to be worried,” said Meredith Lilly, a former trade adviser under prime minister Stephen Harper and a professor at Carleton University who has written about Canada’s auto sector.
“The auto sector is a huge part of our trade in the United States … these are the realities that we need to be thinking about”
She said the first concern stems from reports that a Trump administration plans to roll back many of the Joe Biden administration’s policies in support of the EV transition, possibly including its signature bill, the Inflation Reduction Act (IRA), which has already funnelled tens of billions of dollars into EV supply chain projects.
That would have implications in Canada, she said, because the federal government enticed many companies to invest here by entering into contracts with companies that agree to roughly match the subsidies offered under the IRA.
Lilly said the federal government has disclosed that, at least in some cases, its subsidies “will only be available” for as long as the IRA incentives remain in effect.
The Canadian contracts are not publicly available, so the details of how subsidies would be affected if the IRA were repealed in whole or in part are difficult to fully gauge.
But Lilly said both Biden and Trump prioritized boosting manufacturing in the U.S., which is now a long-term trend that is likely to increase pressure on companies that manufacture products in Canada for export to the U.S. to relocate there.
“It’s obviously a really concerning time for the sector and I feel for them,” she said. “The auto sector is a huge part of our trade in the United States, so I don’t welcome any of this, but these are the realities that we need to be thinking about, and financing and planning around.”
Projects announced for Canada’s EV supply chain are in various states of operation, and many remain years away from production.
Of the four multibillion-dollar battery cell manufacturing plants announced for Canada, only one — a joint venture known as NextStar Energy Inc. between South Korea’s LG Energy Solution Ltd. and European automaker Stellantis NV — progressed into even the construction phase.
Based in the heart of Canada’s auto sector in Windsor, Ont., the NextStar plant started assembling batteries in October using imported cells. Later this year, the company hopes to begin cell production on site.
Eventually, NextStar aims to build production capacity for enough batteries to support around a half-million vehicles every year, which is more than the roughly 320,000 EVs that were sold in Canada in 2023.
Other proposed plants haven’t progressed as far.
For example, Volkswagen (VW) in 2023 said it would invest $7 billion by 2030 to build a battery cell manufacturing complex in St. Thomas, Ont., that could eventually support one million EVs per year. It marked the first new automaker to commit to building manufacturing operations in Canada in a generation.
Champagne told the Canadian Club audience that he cold-called a VW executive and cultivated a relationship to convince them to build in Canada.
“I am proud of having fought every single day to bring investment to this country,” he said. “We are in competition with the world, and I believe, yes, you need to intervene, and yes, you need to be there.”
But construction of the VW plant is not scheduled to begin until this spring and initial cell production will not begin for years. A spokesperson for PowerCo SE, VW’s battery company, said it recently surpassed 100 employees and continues to hire.
“We are focused on delivering a project with the right engineering and the right supply chain partners and will provide further updates when available,” the spokesperson said in an email.
He declined to comment on how any changes in U.S. policies could affect the project.
Both the Volkswagen and NextStar projects are supposed to receive federal and provincial support for their projects in Canada, including $1.2 billion and $1 billion, respectively, in direct construction support.
But far larger incentives are expected to come through federal and provincial production subsidies, which the Parliamentary Budget Office has estimated could amount to tens of billions of dollars, including as much as $15.4 billion for VW and $17.6 billion for Stellantis.
So far, none of that money has been distributed because production has not started yet.
The exact amount is tied to battery production at the plants, which, of course, ties in to EV demand. Many auto industry insiders have said that the final production subsidies will be far lower than planned given the headwinds in the EV sales, which nonetheless accounted for a record 16.5 per cent of all new vehicle sales in Canada in the third quarter last year.
Still, the largest single private investment in any sector by any company in Canadian history came in 2024 from Honda Motor Co. Ltd., which committed to build a $15-billion battery and EV assembly complex in Alliston, Ont.
It is not slated to begin production until 2028, but did not receive the same production subsidies as Stellantis and VW. Instead, Honda negotiated to receive tax credits that were introduced last year in the federal budget.
The Clean Technology Manufacturing Credit allows corporations to write off 30 per cent of machinery and has been passed into law, but the EV supply chain investment tax credit, which provides a write-off of 10 per cent on buildings, has not yet been enshrined into legislation.
With Parliament prorogued until spring, the credit could be delayed until after the next election.
“There’s not much I can add at this time,” Ken Chiu, a spokesman for Honda, said in an email. “But what I can tell you is that we remain committed to our current Canadian manufacturing and our plans for electrification production in Canada.”
Meanwhile, there are fresh questions in Quebec about the viability of a planned $7-billion battery factory after Sweden’s Northvolt AB, the parent company behind the project, filed for creditor protection in November.
Both the federal and provincial governments had lined up behind the project, with each committing more than $1.3 billion in construction support plus an additional combined $5.5 billion in production subsidies.
Emmanuelle Rouillard-Moreau, a Northvolt North America spokesperson, said the only public support received for the project so far is a 100 per cent repayable loan from Quebec, which was used to purchase the land. She did not specify how much had been received, but said all future public support is pegged to construction progress.
“We remain fully committed to this project, which is strategic for the future of Northvolt,” she said in an email, adding that construction is poised to begin in the spring with the initial pouring of concrete.
Rouillard-Moreau said the North American subsidiary is not a party to the parent company’s reorganization, although it is affected by it. She said there would be an update on the project once the parent company’s reorganization is completed, possibly this spring.
Other parts of the EV supply chain are already facing doubts.
For example, in December, Saint-Jérome, Que.-based Lion Electric Co., which had received $100 million in provincial and government support to assemble batteries in Canada for electric school buses and trucks, said it would file for bankruptcy in the U.S. and creditor protection here.
Ford Motor Co. announced this past summer that it was pushing back EV assembly at its Oakville, Ont., plant — which had been slated to receive an estimated $590 million in federal and provincial support — until later this decade, and would produce conventional gasoline-powered pickup trucks there in the meantime. It is unclear how that could affect public support for the project.
A spokesperson for Champagne’s office could not provide comment by the time of publication on how much total money had been distributed in support of an EV supply chain.
“Some of the projects will fail, but that’s OK,” said Joanna Kyriazis, director of public affairs for Clean Energy Canada, a think tank that has advocated for EV investment. “That’s how industrial strategy works. I’m confident that some of them will succeed.”
There are some bright spots. General Motors Co. is producing an electric delivery van known as the BrightDrop at its plant in Ingersoll, Ont.
Stellantis has started producing battery-powered EVs and plug-in hybrid EVs at its Windsor assembly plant, and it is slated to receive more than $1 billion in government support to backstop approximately $3.6 billion of investments in its operations here.
Brendan Sweeney, managing director of the Trillium Network for Advanced Manufacturing, which advocates for more production in Ontario, said that there is no doubt that EVs remain the long-term future of the auto sector.
It’s a sentiment that automakers also echo, with the caveat that the timeline for EV adoption is changing.
Champagne made a similar point, noting that Tesla Inc. remains one of the world’s most valuable companies and it only produces EVs.
“The mistake would have been not to prepare the auto industry for the future, not to bring these investments into Canada,” he said. “I think 10 years from now … we’ll go back and say, ‘You know what? This was a good shot for Canada.’”
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