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Canada’s electric dream: Are government incentives and smart R&D enough to build a domestic EV industry?

Oct 16, 2020

Leaders are born in times of crisis By entering your e-mail you consent to receiving commercial electronic messages from The Logic Inc. containing news, updates, offers or promotions about The Logic Inc.’s products and services. You can withdraw your consent at anytime. Please refer to our privacy policy or contact us for more details. The Big Read Canada’s electric dream: Are government incentives and smart R&D enough to build a domestic EV industry? Zachary Monteiro for The Logic Last updated 1 hour ago This is the second in a series taking a deeper look at the landmark deal to bring electric vehicle production to Ontario. In the first installment, we reported on what the deal means for auto workers . OTTAWA & HALIFAX — When Ford declared last week that it would become the first automaker to produce consumer electric cars in Canada, announcing a $1.8-billion endeavour run out of the Oakville, Ont. plant, it was the best news the Canadian auto sector had received in some time. The record-high spend for the sector—born out of negotiations with Unifor, the union representing Ford’s workers—is seen as a pivotal moment for Canada in the shift away from petrol-sipping cars. The federal and provincial governments will each contribute $295 million to Ford’s project. “Today’s investment marks the beginning of zero-emission-vehicle manufacturing in Canada,” Industry Minister Navdeep Bains, a former Ford accountant, said at the announcement, “and secures Canada’s place in a cleaner and more sustainable global automotive ecosystem.” Talking Point Ottawa hopes Ford and Chrysler’s multi-billion-dollar investments in making electric vehicles in Canada are only the start of the auto sector’s new green future. A vibrant innovation ecosystem of researchers and firms working on batteries, charging equipment and other parts of the supply chain holds promise. But with consumer interest in the cars still low worldwide and practical challenges to production, it’ll take more than hefty government incentives and landmark deals to make Canada an EV powerhouse. That was just one piece of a bigger plan to incentivize EV production and sales in Canada. On Thursday, Unifor president Jerry Dias announced another tentative agreement—Fiat Chrysler will spend up to $1.5 billion to build electric or hybrid vehicles at its Windsor, Ont. plant, fuelled by as-yet-unspecified government incentives. The union’s next negotiating target is GM. Ottawa has a consumer-facing plan, too. Bains’s Liberal federal government wants zero-emission vehicles to make up 10 per cent of light-duty sales by 2025, and 100 per cent by 2040; last month’s throne speech promised measures to make them more affordable. The hope is that auto manufacturers will follow consumers in making the transition to EVs. A zero-emission-vehicle strategy prepared by Innovation, Science and Economic Development Canada (ISED) in March claimed the electrification of the auto industry, as well as aviation and rail, “represents an opportunity for Canada.”  With its new focus on EVs, Canada is joining a global convoy that’s gaining momentum. To date, 13 countries have set policies to phase out the manufacturing and sales of combustion engine vehicles, and 31 cities and regions have done the same. In interviews and op-eds, Bains has made the argument that Canada is well positioned to lead in the EV sector. Most of the components for a domestic EV value chain already exist within Canada—from essential raw materials and a robust R&D and startup network for batteries to plants that churn out tens of thousands of cars a year. The government is hoping manufacturing will be the key link in that chain. By incentivizing car makers to build their electric models here, Canada may be able to tie together those disparate strengths. The question is whether having the parts naturally leads to the whole: a fully fledged electric-vehicle industry. Consumer interest in battery cars is still low, at just five per cent of newly registered vehicles in 2019. And with plants in China, Germany and the U.S. already set to produce EVs for leading manufacturers, some worry that Canada is late to the game. Between the Ford deal, rebate schemes and funding programs for battery innovation, Ottawa has already bet close to $1 billion on the burgeoning industry. But is it enough to entice companies to set up shop—and carve out a leading role for Canada in the global EV sector? Purchase a subscription to read the full article. I agree to receive commercial electronic messages from The Logic Inc. By entering your e-mail you consent to receiving commercial electronic messages from The Logic Inc. containing news, updates, offers or promotions about The Logic Inc.’s products and services. You can withdraw your consent at anytime. Please refer to our privacy policy or contact us for more details. Canada’s EV potential starts with the raw materials buried in the ground within its borders. From nickel in Ontario and lithium in Quebec to cobalt in the territories, exploration and mining projects churn up the resources needed to do battery research in the first place. According to a recent BloombergNEF report, Canada ranks fourth in the world—after China, Japan and South Korea, and two positions ahead of the U.S.—for the strength of its lithium-ion battery supply chain. Myriad breakthroughs in battery technology have happened on Canadian soil. That institutional knowledge of battery technology has been a draw for manufacturers wading into the space. When Elon Musk set out to build a million-mile battery, the Tesla CEO bet on Jeff Dahn, a Dalhousie University physics professor, to deliver. In 2015, Dahn’s lab signed a contract with the Palo Alto-based company with the assignment to make Tesla’s batteries cheaper, more powerful and longer lasting. Dahn’s research happens across 10 labs at Dalhousie, carried out by a team of about 25 people. Part of the deal with Tesla—the price of which neither partner has disclosed—is that Tesla gets the intellectual property rights to any discovery Dahn and his colleagues make. “We’re funded at a pretty high level, and we can do what we think makes sense to do,” said Dahn. “We have the ability to publish our work—that’s highly important for graduate students so they can get jobs afterwards—and in exchange for that, Tesla gets the IP. That’s the deal that we made. It may not be the best deal, but it works for us.” Traditional automakers, too, are conducting significant R&D in Canada, including on EVs. Ford pledged $500 million in March 2017, and now has about 500 R&D positions in Canada, per Canadian Vehicle Manufacturers’ Association CEO Brian Kingston, who also said GM has about a thousand engineers working on active safety technology and autonomous vehicle software. Fiat Chrysler, meanwhile, funds a research centre at the University of Windsor. The road from R&D to manufacturing isn’t always smooth. The story of Boucherville, Que.-based Blue Solutions Canada is in a sense a cautionary tale. Hydro-Québec originally seeded the firm with $250 million to develop solid-state batteries, which are cheaper and have higher energy density than the lithium-ion models currently in widespread use. But French conglomerate Bolloré bought the company out of bankruptcy in March 2007 to advance its own efforts. “They gained a couple of years, for sure,” said Alain Vallée, Blue Solutions Canada general manager, who originally joined Hydro-Québec to work on the project in 1993. Bolloré only had a pilot plant in operation, while its acquisition had already launched commercial production of a smaller battery model. But the deal ended up benefiting Boucherville, too. Mixing the two firms’ work on the battery’s polymer electrolyte, Vallée explained, created “a real breakthrough” in the cyclability of the battery—the number of charges before it starts to degrade. “We moved from 100 cycles to 2,000 cycles in less than six months.” The combined effort could finally compete with lithium-ion models. Bolloré also invested in R&D, and restarted production at the plant, which had been suspended following the bankruptcy. Blue Solutions also does both at a facility in Brittany, France that Vallée called “a copy and paste” of his own. The new corporate parent has also provided customers. The batteries the two plants turn out have powered vehicles in Bolloré’s car-sharing network and the electric buses it sells to public transit agencies. The firm recently signed a deal with Mercedes-Benz parent Daimler to put them in its electric buses, instead. The cells are currently too tall and must be kept at too high a temperature for consumer EVs, but a 2025 model could prove viable. Blue Solutions is a product of a thriving electric-vehicle ecosystem fostered in its home province. “Quebec is really the place that gave us our start,” said Travis Allan, vice-president of public affairs, at AddÉnergie. The firm makes EV charging stations and operates Flo, a network that handles payment processing, use-tracking and energy management for a mix of its own units and ones owned by businesses with car fleets. Allan cited provincial support for innovation and commercialization as well as less obvious benefits like “designing for Quebec winters,” a key consideration for public charging infrastructure. AddÉnergie CEO Louis Tremblay with a Flo EV charging station in Montreal in December 2017. The Canadian Press/Paul Chiasson AddÉnergie is another of those made-in-Quebec success stories. The firm’s CEO, Louis Tremblay, started developing the technology for its charging stations as an electrical engineer at Université Laval. The Quebec City-based company has sold 30,000 over the last decade, including to provincial power companies in Quebec, New Brunswick and British Columbia. Los Angeles’ Bureau of Street Lighting and New York’s ConEdison have both installed curbside stations developed by AddÉnergie for Montreal. The firm assembles in Shawinigan, builds and tests hardware in Quebec City, and develops software in Montreal. “Supportive home markets [are] absolutely essential to getting the scale and the proof points that allow for successful sales into the U.S. and broader markets,” said Allan. Hydro-Québec plays a vital role in the province’s EV network. Battery R&D from the public utility has generated IP covered by over 100 families of patents. It has licensed its tech to more than 60 licensees and its patents have brought in $120 million in revenue since 2011, a Hydro-Québec spokesperson told The Logic. In 2017, it launched the Center of Excellence in Transportation Electrification and Energy Storage to consolidate its R&D in the sector. The next year, it raised $165 million from Ohio-based Dana, in a merger that saw Hydro-Québec’s subsidiary TM4 build electric motors with the U.S. firm. Hydro-Québec’s innovation now feeds into the manufacturing side of the EV supply chain that’s emerging in the province. Quebec is home to the continent’s largest electric school bus manufacturer, Lion Electric, whose motors come from TM4. The company produces one bus per day at its Saint-Jérôme plant. “Today, in any iPhone, iPad or electric vehicle, inside the cell, at least one patent was built in Quebec,” said Karim Zaghib, a former researcher at Hydro-Québec, who was recently tapped by Investissement Québec to help attract funding to the local battery industry. Zaghib said Quebec serves as an example of what could be a national industry that connects Canada’s distinct strengths in the sector—all the way from extracting the resources to building the cars themselves. While Zaghib is personally entrenched (and well funded, he said) in the research link of the value chain, he believes Canada would be remiss to ignore its manufacturing potential in the space. He’s not the only one to stress the importance of commercializing publicly funded R&D to keep Canada’s auto sector competitive. Electrification, cybersecurity for connected cars, and the data vehicles generate will contribute an increasing share of profits, said Robert Asselin, senior vice-president of policy at the Business Council of Canada. “Are we just going to package batteries or are we also going to be the R&D producer and keep the IP in Canada so we can export this knowhow globally?” he said, expressing concern about “innovation leakage” that ultimately generates revenues elsewhere for foreign firms. If commercialization is a goal, Zaghib argued, governments play a crucial role in that process. Within five years, electric vehicles sales are expected to account for 10 per cent of global passenger-vehicle sales, rising to 28 per cent in 2030 and 58 per cent in 2040. “If you’re a [manufacturer] and you’re not switching to electric vehicles, you’re going to lose your place,” said Zaghib. But automakers, he suggests, won’t, or can’t, do it on their own. Over 125,000 people have jobs in Canada’s auto-manufacturing and -assembly business—jobs that could be at risk, said Zaghib, without a widespread retooling of car plants in the country aided by government incentives. “We need to have this transition as soon as possible, and governments need to help create a consortium of private and public participants,” he said. “In order to accelerate, we need some push.”  Some executives say Ottawa’s recent support for major EV projects is an exception, with incentives for a local EV supply chain otherwise lacking. For the past year, Frank So, vice-president of E-One Moli Energy, has been in talks with the federal and B.C. governments for funding to help bring the Taiwanese company’s battery manufacturing back to Canada. In a past life, his firm was actually a Canadian company with a thriving manufacturing operation here, though its rise and fall was largely tethered to government support. The firm was established in 1977 through a joint initiative with the University of British Columbia and Teck Mining to commercialize the pioneering battery research that Rudi Haering was doing in his lab at UBC. By 1984, the company had produced the Molicel, a lithium-metal battery that would go on to power cellphones and laptops, thanks in part to a loan from the B.C. government in the order of $20 million, Haering recently told trade publication Electric Autonomy. The company had more than 75 employees, and planned to build a manufacturing plant near its R&D facility in Maple Ridge, B.C. and another in Ontario. It hoped to have 500 employees in Canada within three years. The company’s fortunes took a turn in 1989 when a cellphone equipped with a Molicel caught fire and injured the person using it. An investigation revealed that the Molicel caused the fire, and that lithium-metal batteries were generally dangerous and shouldn’t be used in personal electronics. The findings derailed Moli’s growth plans. The incident spooked the B.C. government, and the province demanded a repayment on its loan; the company was forced into bankruptcy. Within days, the government had signed a deal with a Japanese tech consortium to sell Moli for $5 million, less than a tenth of the value of its assets at the time. “The government worried that the technology was going in the wrong direction, and they just didn’t have the cash flow to move into lithium-ion developments,” said So. The company now builds all of its products in Taipei, including its high-power lithium-ion batteries for Dyson and sports-car makers in Europe. While it still has an R&D facility in Maple Ridge, the last of its Canadian manufacturing left the country in 2009 following the economic recession. But with capacity at its Taiwanese facility maxed out, the company is looking to Canada for its next expansion. Moli is anticipating $240 million in capital costs to launch the manufacturing facility near Maple Ridge, B.C., where it plans to add 350 jobs. The company has applied for funding through Ottawa’s Strategic Innovation Fund (SIF), and So expects it will get some federal help, but not nearly as much as it has asked for, based on recent conversations with government officials, he said. In terms of provincial support, “B.C. has been horrible,” said So. “They would support research from universities, but my feeling is that’s not where Canada needs help. We do a lot of really good R&D work in Canada in general, and then we just cannot make the manufacturing work because of operating costs and all this ends up going overseas. I find it to be very disappointing,” said So. “But that’s just been the trend in Canada for many years, and we’re trying to buck that trend.” In other words, if the EV revolution is to come to Canadian automaking, government investment incentives will be just as important as any innovation happening at research centres and institutes across the country. The federal government’s chequebook is at the ready. Ottawa’s zero-emission-vehicle strategy identified a number of opportunities to subsidize planned manufacturer projects, redacted in the version obtained by The Logic via access-to-information request. But it remains to be seen how much production government spending will attract. In Ontario, Unifor’s agreements with Ford were a template for the union’s contract negotiations with Chrysler, and will be for GM. However, an industry executive with knowledge of the contract negotiations said the new-EV pattern is unlikely to repeat, despite their big investments in making such cars south of the border. The reasons are practical. Unlike Ford’s Oakville facility, GM doesn’t have products being phased out of its Ontario plants before their next contract negotiations in four years. Rather, this round of bargaining centres on its combustion-engine manufacturing plant in St. Catharines, which the company doesn’t plan to retool to build EV parts, said the industry executive, whom The Logic agreed not to name because of their involvement in active negotiations. With most EVs still losing money for the companies that make them, there’s little incentive for manufacturers to retool any sooner in Canada than they have to. GM is already heavily invested in EV south of the border, with a car-manufacturing plant and a battery lab, both in Michigan, and a $3-billion battery manufacturing site in the works in Ohio. “GM is kind of covered in the U.S.,” they said. Toyota, similarly, is unlikely to turn its plants to battery EVs any time soon. It produces hybrid versions of its RAV4 and Lexus RX sports utility vehicles in Woodstock and Cambridge, Ont., respectively. The world’s second-largest automaker has announced plans for more than 10 battery EV models in the 2020s, and will likely make one in Canada—eventually. “We’ll make decisions based on who’s got available capacity and what cars we need to put into the marketplace,” said Scott MacKenzie, senior national manager of external affairs at Toyota Motor Manufacturing Canada (TMMC). One practical consideration is what consumers are buying. Existing programs in Canada to increase EV uptake have proved popular—a $5,000 rebate scheme launched in May 2019 paid out 75 per cent of its $300-million budget within 15 months. But automakers just don’t see enough demand yet—here, or anywhere. Just 24,656 new passenger battery EVs were registered in 2019, Statistics Canada data shows. Toyota alone makes about half a million cars a year in Canada. Prime Minister Justin Trudeau, with then-Ontario premier Kathleen Wynne, tries his hand at leather stitching with instructor Kyle McCaig during their visit to the Toyota Motor Manufacturing Canada facility in Cambridge, Ont. in May 2018. The Canadian Press/Peter Power Even if rebates and regulation create a huge demand surge, electrifying every car in the country still won’t be enough to bring EV production to plants in Ontario. Canadian auto has long been an export sector. “We won’t make decisions in terms of what vehicles we make in Canada, considering only the Canadian market—it’s too small,” MacKenzie said; about 80 per cent of TMMC’s production goes to the U.S.  That last fact, in the current free-trade environment, introduces some obstacles for automakers that could turn into opportunities for Canadian firms. The USMCA has more stringent country-of-origin requirements than its predecessor for cars and components moving across the continent. “The more electrification [there is] and more complicated a vehicle is, the more challenging it is to actually make it compliant in order to receive duty-free access in any market,” said MacKenzie. North America doesn’t churn out a lot of electronics, and the components Toyota does source in the U.S. and Mexico often contain parts manufactured in Southeast Asia. The only solution is to increase localization, and Canadian parts-makers and companies like Blue Solutions stand to benefit—if they can compete with firms elsewhere in North America. This road, too, could lead to more government incentives. Toyota’s Woodstock and Cambridge facilities, for instance, are set up for the company’s latest platform, the industry term for a combination of design, engineering and components shared by vehicles with different bodies and even badges. Toyota is spending $1.4 billion on the initiative, announced in May 2018. A purpose-built EV would require a new platform. “That’s expensive,” said MacKenzie. “If the market demanded that, that’s something all automakers—not just us—would have to do. But it does certainly help if you know [government] programs are available to give companies a lift.”  Ford’s $590-million government windfall to bring EVs to Oakville sets a new high, but investment incentives are a mainstay of Canadian carmaking. The $3.5-billion SIF—created in 2017 by rolling up sector-specific auto, aerospace and defence funds— awarded parts-maker Linamar $49 million in January 2018 for a $750-million AI and advanced manufacturing effort; Blue Solutions got $9 million the same month to work on its battery packs. Ottawa’s SIF and the Ontario government each provided a $110-million subsidy to Toyota’s project. Incentives alone won’t attract a product mandate, according to Paul Boothe, senior associate deputy minister for Industry Canada (since renamed ISED) between 2007 and 2010. Proximity between manufacturing and market, as well as facilities’ existing capacity, come first. But financial inducements are still “table stakes” in such decisions. Traditionally, the department started negotiations at 20 per cent of project costs. “As an economist, I understand that in a perfect world it would be much more efficient if no jurisdictions offered any incentives,” said Boothe. But other countries and states won’t put down their subsidy packages just because Canada does. “If you want to compete, then you have to figure out what it’s worth to you.” He noted that Industry Canada had staff who kept track of the lifecycle of every North American plant, projections of their upgrade costs, locations of suppliers, and other details. The CVMA’s Kingston cited the Ford Oakville announcement as “a good example of why it’s really critical that government incentive programs like the [SIF] are set up to be nimble and timely.” He pointed to the sector’s spinoff effects—the association estimates every job at an automaker creates seven others in the supply chain. Several executives also highlighted the strength of Canada’s auto-parts sector, with top suppliers like Magna International, Linamar and Martinrea International all closely integrated with manufacturers’ operations on both sides of the border and working to adapt their products and methods for electrification. The Detroit Three have all committed to spending billions on EV development in the coming decade. To ensure Canada gets a share, “we have to make sure we’re viewed as a competitive place to invest in and build vehicles,” Kingston said. On Tuesday, the Automotive Parts Manufacturers’ Association unveiled a new play in the EV game: it presented the design for Project Arrow, a concept car to be built from the wares of domestic suppliers. It’s meant to be a window into what’s possible for Canada’s EV industry, a demonstration to manufacturers that they can find the talent and components to build their own models here. It’s named for the Avro Arrow, a much-mourned , never-deployed warplane designed to be produced domestically. The symbolism may find its mark in Ottawa, where the federal government is making its own pitch to avoid another missed opportunity, this time with EVs. The government’s zero-emission-vehicle strategy touted the “variety of world-class researchers and organizations dedicated to advancing emerging technologies in clean transportation.” Dalhousie’s Dahn merited a special mention. Share the full article! x That the federal government is even discussing his work is news to Dahn. “I don’t talk to politicians much,” he said, though some do on occasion pop by his lab. At 63 years old, he’s motivated by climate change—the prospect of massively reducing emissions—more than by any potential returns his research could generate for Canada or being part of a national EV supply chain. “I don’t know where the wealth is going to come from,” Dahn conceded from his office at the university—whether its manufacturing or research jobs, or patent royalties. That’s not what this is about. “If there was no greenhouse gas and global warming, and there [were] infinite fossil fuels, why would you do this?” he asked. “You do this because you’re trying to save the earth.”

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