U.S. electric vehicle rush could kill entire Canadian auto parts industry


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‘Build Back Better’ May Boost America’s Auto Industry, But It Will Kill Canada

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Politics is very interesting and always leads to conflict.

Ridley scott

“This discriminatory action” could spell the “death knell” of the Canadian auto industry . That’s what Flavio Volpe is saying, and he should know it, since he’s president of the Auto Parts Manufacturers Association of Canada, the body responsible, among other things, to encourage car manufacturers and their associated suppliers to build their production plants here in the Great White North. And if he says something could hurt the Canadian auto manufacturing company – which directly employs some 135,000 Canadians and 400,000 others in related industries – we should all be concerned.

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The discriminatory action in question is the United States’ proposed Build Back Better program, a surprisingly (only mildly) protectionist policy disguised as pandemic relief. Specifically, its incentive programs favor US-built BEVs so much that it would almost completely shut down all Canadian exports of electric vehicles. Indeed, electric vehicles built in any country other than the United States would be so disadvantaged that exports of automobiles – at least of moderately priced battery-powered models – to the United States would virtually stop. .

Too extreme a prognosis for you? Well, here’s how the program is supposed to work. Decide for yourself what impact this will have on the Canadian manufacturing industry.

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If passed, Build Back Better would, according to Daniel Breton, President and CEO of Electric Mobility Canada, “expand and modify tax credit programs that encourage consumers to buy electric vehicles.” The proposed new consumption incentives would entirely replace the current maximum refundable tax credit system by:

  • maintain the current incentive of US $ 7,500 for the next five years;
  • by supplementing it with an additional amount of US $ 4,500 for electric vehicles with final assembly by unionized workers in the United States; and
  • adding an additional $ 500 discount for vehicles with 50% of their battery components (including battery cells) made in the USA

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From 2022 to 2027, that means anyone buying a battery-powered EV would receive at least US $ 7,500 – and up to US $ 12,500, if the battery and car are built in the US.

More troubling – the death knell Volpe alluded to – is that, starting in 2027, this same bill proposes that only vehicles with final assembly in the United States would be eligible for any part of the program. In other words, after January 1, 2027, electric vehicles built in the United States would be eligible for US $ 12,500 rebates; anyone who buys an EV built elsewhere will not get anything. Nada. Zipper. Not a penny.

Parts of a pre-production all-electric Ford F-150 Lightning prototype truck are seen at the Rouge Electric Vehicle Center in Dearborn, Michigan, the United States, on September 16, 2021.
Parts of a pre-production all-electric Ford F-150 Lightning prototype truck are seen at the Rouge Electric Vehicle Center in Dearborn, Michigan, the United States, on September 16, 2021. Photo by Rebecca Cook /Reuters

As unfair competitive practices disappear, Build Back Better’s EV program would appear to incite extreme bias. 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 produced products might not be successful. While the incentive for union assembled vehicles may be feasible – if, in fact, the incentive is offered for union assembled electric vehicles built anywhere in the world – such as Joanna Kyriazis, Senior Policy Advisor for Clean Energy Canada , explains in our last Driving into the future roundtable, basing tax credits on the country of origin may well violate trade rules.

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The fly in this seemingly heartwarming ointment is that such a correction after the proposal is passed will not matter. Or, at least, the program will cause significant damage to Canadian auto manufacturing in the meantime. Political minds above me are predicting that for Build Back Better to pass before midterm – after which Democrats are predicted to 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 will take at least another year, possibly more, before the case is heard or adjudicated. Add it up and it would probably take at least a few years before there is a resolution to this dispute.

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Even if the US proposal is subsequently dismantled, the next two years show significant concern for automakers. When a situation remains uncertain, any large company will seek the path that offers it the greatest certainty of success, and the path of certainty may not include further investment in the Canadian auto sector. As Scott Mackenzie, Senior National Director of External Affairs for Toyota Canada, explained during our Battery manufacturing in Canada group of experts, our government has already imposed the complete elimination of internal combustion cars by 2035. If the US market then becomes inhospitable for electric vehicles made in Canada, “What exactly are we going to do in the future?

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No wonder Volpe says that “there is no Canadian auto sector if it does not have access to the US market”. For example, Stellantis has announced its intention to build in the near future two battery production “giga-factories” in North America, one of which, according to Volpe: following a statement by Stellantis CEO Carlos Tavares – could be in Canada. That hope may well be thrown out the window due to Build Back Better’s inconstancy. As Volpe says, “We absolutely have to stop this thing. End of the story.”

Justin Trudeau makes a political announcement at an electric vehicle dealership during a campaign stop in Trois-Rivières, Que.
Justin Trudeau makes a political announcement at an electric vehicle dealership during a campaign stop in Trois-Rivières, Que. Photo by Submitted

The one thing all of our panelists agree on is that this is an urgent situation and the time has come for the federal government to act on behalf of our auto industry. Which leaves your (not-so-) humble Motor mouth in a little pickle.

On the one hand, I criticized the Trudeau government for forcing electric vehicles on Canadians too quickly and said that 2035 may be too early to require all cars to be battery powered. On the other hand, I now find myself blaming the Liberals for not moving quickly enough to support our native auto industry in its transformation to anything electric. As Ridley Scott said, “Politics always leads to conflict.” I just wish he had warned us that a lot of this would be internal.

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