Why America’s rush to EVs might kill the entire Canadian auto parts business

And if he says something could adversely affect the Canadian auto manufacturing business — which employs some 135,000 Canadians directly and another 400,000 in related industries — we should all be concerned.

The discriminatory action in question is the United States’ proposed Build Back Better program, a surprisingly protectionist policy (only slightly) disguised as pandemic relief. More specifically, its incentive programs so completely favour American-built BEVs that it would almost completely shut down all Canadian exports of electric vehicles. Indeed, electric vehicles built in any country other than the U.S. would be so disadvantaged that automobile exports — at least moderately priced models powered by batteries — to the United States would virtually stop.

Too extreme a prognostication for you? Well, here’s how the program is supposed to work. Decide for yourself how it will affect the Canadian manufacturing industry.

If passed, Build Back Better would, according to Daniel Breton, president and CEO of Electric Mobility Canada, “expand and modify the tax credit programs that encourage consumers to purchase electric vehicles. The proposed new consumer incentives would fully replace the current maximum refundable tax credit system” by:
• retaining the current US$7,500 incentive for the next five years;
• supplementing it with an additional US$4,500 for EVs with final assembly by unionized workers in the United States; and
• adding an additional US$500 rebate for vehicles with 50 per cent of their battery components (including battery cells) made in the U.S.

From 2022 to 2027, this means anyone buying a battery-powered EV would receive at least US$7,500 — and as much as US$12,500, if the battery and car are built in the U.S.

More troubling — the death knell Volpe alluded to — is that, starting in 2027, this same bill proposes only vehicles with final assembly in the United States would qualify for any part of the program. In other words, after January 1, 2027, electric vehicles built in the U.S. would be eligible for US$12,500 in rebates; anyone buying an EV built anywhere else would receive nothing. Nada. Zip. Not a penny.

As unfair competitive practices go, Build Back Better’s EV program would seem an incentive with extreme prejudice. And, in fact, it may very well even be illegal and/or unenforceable. Under WTO rules (which govern most international trade) as well as the recently organized USMCA pact (which covers trade between the United States, Canada, and Mexico), such incentives for locally built products might not pass muster. While the incentive for union-assembled vehicles might be feasible — if, in fact, the incentive is offered for union-assembled EVs built anywhere in the world — as Joanna Kyriazis, a senior policy advisor for Clean Energy Canada , explains in our latest Driving into the Future roundtable, basing tax credits on country of origin might well violate trade rules.

The fly in that seemingly comforting ointment is that any such rectification after the proposal passes won’t matter. Or, at least, the program will cause significant damage to Canadian auto manufacturing in the interim. Superior political minds to mine predict that, for Build Back Better to pass before the mid-terms — after which, it is predicted, the Democrats will be in a minority position — it will have to clear the U.S. Senate by the end of February. If the EV incentive rules are then challenged — either under WTO or USMCA rules — it would be at least another year, most likely longer, before the case would be heard or adjudicated. Add it up and it would probably be at least a couple of years before there would be a resolution of this dispute.

Canada’s auto sector would struggle due to new U.S. policies.
Canada’s auto sector would struggle due to new U.S. policies. Photo by GM

Even if the American proposal is then dismantled, the next two years speak to a significant disquiet for automakers. Where a situation remains unclear, any large corporation will seek the path offering them the greatest certainty for success, and the path to certitude might not include any further investment in Canada’s auto sector.

As Scott Mackenzie, senior national manager of external affairs for Toyota Canada, explained during our illuminating Battery Manufacturing in Canada panel, our government has already mandated a complete phasing out of internal-combustion cars by 2035. If the American market is then made inhospitable to Canadian-manufactured EVs, “what exactly are we going to make in the future?”

No wonder Volpe says that “there is no Canadian auto sector if it doesn’t have access to the American market.”

As an example, Stellantis has announced plans to build two battery-producing “giga-factories’” in North America in the near future, one of which, Volpe believes — as a result of a statement by Stellantis CEO Carlos Tavares — could be in Canada. That hopefulness could well get tossed out the window as a result of Build Back Better’s fickleness. As Volpe says, “We definitely need to stop this thing. End of story.”

The one thing all our panelists agreed on is that this is an urgent situation, and the time for the federal government to act on behalf of our auto industry is right now. Which leaves your (not-so-)humble Motor Mouth in a bit of a pickle.

On the one hand, I’ve been critical of the Trudeau government for forcing EVs on Canadians too quickly, and have said that 2035 may be too soon to mandate that all cars be battery-powered. On the other, I now find myself admonishing the Liberals for not acting quickly enough to support our native automotive industry in its transformation to all things electric. Like Ridley Scott said, “Politics always leads to conflict.” I just wish he’d warned us that so much of it would be internal.

The article first appeared in Driving.ca

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