October 21, 2024
Table of contents
Supporting Canada's automotive industry: Zero emission vehicles and electric vehicle battery investments
Key messages:
- The Government of Canada is committed to the automotive industry's transition to electrification, while creating and maintaining jobs, promoting economic growth and enabling a shift towards a net-zero economy
- Federal and provincial government collaboration with industry has attracted over $40 billion in announced investments since 2020 to transition to electric vehicle (EV) production and to establish a battery supply chain
- These investments are expected to generate thousands of jobs and long-term growth in the automotive industry
- Recognizing Canada's efforts to develop an end-to-end battery ecosystem, in 2024 BloombergNEF reported that Canada has the strongest electric vehicle battery supply chain potential in the world
Supplementary messages:
- Canada has everything it needs to lead in the global zero-emission vehicle ecosystem:
- strength in automotive manufacturing
- access to markets
- talent
- green energy
- critical minerals
- The Government of Canada has attracted electric vehicle (EV) and battery manufacturing investments through a number of initiatives, including the Strategic Innovation Fund, Special Contribution Agreements tied to production, and the Clean Technology Manufacturing and EV Supply Chain investment tax credits (ITCs)
- Plans relating to announced projects may be subject to change, which could include production delays
- Responsible risk-taking is an inherent part of supporting innovation in a competitive global economy
Background:
The Canadian automotive sector supports nearly 550,000 direct and indirect jobs, contributed $18 billion in 2023 to Canada's gross domestic product, and is one of the country's largest export industries. The sector is anchored by the presence of five automotive manufacturers:
- Stellantis
- Ford
- GM
- Toyota
- Honda
The Government of Canada supports Canada's transition to electrified transportation. In 2022, Canada released its 2030 Emissions Reduction Plan, followed by Budgets 2022, 2023 and 2024, which proposed competitive measures to create jobs while fighting climate change.
Budget 2024 announced the Electric Vehicle (EV) Supply Chain investment tax credit (ITC) on the cost of buildings for businesses that invest in three supply chain segments:
- EV assembly
- Battery production
- Cathode active material production
This complements the Clean Technology Manufacturing ITC, which covers 30 percent of costs in new machinery and equipment used to manufacture or process clean technologies and extract, process or recycle critical minerals.
In light of the global transition to zero-emission vehicles (ZEVs), Canada has stepped up to compete for key investments to produce EVs, as well as batteries and battery components. The government has recently attracted large anchor investments in ZEV manufacturing as well as battery material processing, all of which stand to increase the supply of ZEVs and further encourage the industry's transition. Some of these investments include:
- Honda: $15 billion to create Canada's first comprehensive electric vehicle supply chain in Ontario, including EV, battery, and battery material manufacturing
- NextStar Energy (Stellantis/LGES): $5 billion for an EV battery manufacturing plant in Windsor, Ontario
- PowerCo: $7 billion for a cell manufacturing plant in St. Thomas, Ontario
- Northvolt: $7 billion to establish a battery manufacturing facility in Saint-Basile-le-Grand and McMasterville, Quebec
- Stellantis: $3.6 billion for EV manufacturing at its Windsor and Brampton assembly plants
- General Motors (GM): $1 billion for production of Brightdrop EV600 and EV400, electric light commercial vehicles, in Ingersoll, Ontario
- GM/POSCO: $600 million to produce cathode active materials in Bécancour, Quebec
While these investments establish the foundation for long-term growth, the automotive industry is facing short-term challenges due to several factors including the significant cost and time needed to transition to EV production, compounded by a slowdown in the growth of EV demand, which has resulted in companies globally revisiting their investments in EV and battery production. Consequently, as it is the case in other jurisdictions, timelines and manufacturing plans for some of the announced investments in Canada may be adjusted to ensure assembly plants are prepared for long-term success.
In August 2024, the Government of Canada announced a series of measures to protect Canadian workers and key economic sectors from unfair Chinese trade practices.
In addition to supporting these initiatives, the government is investing in public charging infrastructure, supporting consumer purchases and encouraging manufacturers to adopt clean technologies.
Canadian critical mineral development
Key messages:
- With the Canadian Critical Minerals Strategy as its guide, the Government of Canada has been investing to develop entire critical minerals value chains by expanding manufacturing, processing and recycling capacities
- Through the Strategic Innovation Fund, Innovation Science and Economic Development has made available $1.5 billion for critical minerals projects
- These investments will help build resiliency along critical mineral supply chains, bolster Canada's global economic competitiveness, and secure Canada's position as a global leader in responsibly sourced mineral products
- Budget 2024 proposed several new measures in support of Canada's critical minerals sector by expanding and clarifying the scope of activities eligible under the Clean Technology Manufacturing Investment Tax Credit and setting targets aimed at accelerating impact assessment and permitting processes
Supplementary messages:
- Critical minerals are needed to power clean technologies such as solar panels, wind turbines, semiconductors and electric vehicles
- Canada is uniquely positioned to play an important role in the global energy transition; having an abundance of critical mineral resources, a skilled workforce, and high environmental, social and governance standards
- Globally, Canada is regarded as a strategic partner and a provider of reliably sourced high-quality critical mineral inputs that will contribute to the net-zero economy
- Government of Canada funding is stimulating industrial growth, attracting investments and furthering Canada's economic prominence in global markets
- The government is committed to working together with the provinces, territories and industry partners to ensure Canada's success
Background:
The quantity and quality of critical minerals needed to support the world's ambitious low-carbon transition continues to bring to light bottlenecks in critical minerals supply chains. Non-market economies, especially China, currently dominate the production and processing of critical minerals like graphite and rare earth elements; important inputs into the EV value chain. In response, governments are diversifying their supply chains to decrease dependence on non-market entities, while securing their value chains. Canada is achieving this by investing in, and implementing policies, to support and secure the development of our domestic critical minerals value chains and those of our allies.
In Budget 2022, the Government committed up to $3.8 billion over eight years to support work announced in the Canadian Critical Minerals Strategy, which is being co-led by the Departments of Innovation, Science and Economic Development and Natural Resources Canada.
This funding is being used to drive industrial capabilities, contribute to the economic development of rural, remote and Indigenous communities, and help build a sustainable economy.
Through the Strategic Innovation Fund, $286 million has been allocated to date to support three major projects:
- E3 Lithium received $27 million to demonstrate the viability of the extraction of lithium from brines in Alberta. This facility will be the first step toward a full-scale lithium production plant that will produce up to 20,000 tonnes of battery-grade lithium
- Rio Tinto Fer et Titane received $222 million for a critical minerals project in Sorel-Tracy, Quebec to produce several critical minerals
- Vale in Becancour, Quebec, received $37 million towards a battery grade nickel sulfate plant to process nickel pellets and rounds
Note: This project was not announced through a ministerial event but was posted on Proactive Disclosure in 2023
Budget 2023 introduced a number of new investment tax credits (ITCs) to provide an enhanced level of support for project proponents, and encourage investment in sectors such as clean technologies, energy, clean technology manufacturing, as well as carbon capture, utilization and storage. Draft legislative proposals to implement the Clean Technology Manufacturing ITC, which includes certain mineral extraction and processing activities, were released in December 2023.
This incentive would provide a 30 percent tax credit on the cost of eligible activities related to producing all or substantially all of the six target minerals outlined in the Critical Minerals Strategy, i.e., copper, nickel, cobalt, lithium, graphite, and rare earth elements.
Budget 2024 builds on this by:
- providing support and clarity to businesses with projects covering multiple metals
- providing further clarification on using the value of the qualifying materials as the output metric to assess property usage
- modifying eligible investments to include eligible property used in qualifying minerals activities
Canada's abundance of the necessary resources for battery manufacturing, coupled with its strong automotive sector, gives it a competitive advantage over many countries. To leverage this advantage, Canada is working towards developing a world-class, domestic battery ecosystem, while maintaining its leadership in sustainability.
In support of this work, Budget 2024 provides further funding to drive investment opportunities in the clean economy through the previously announced ITCs, along with a newly announced Electric Vehicle (EV) Supply Chains ITC. This EV Supply Chain ITC would provide a 10 percent tax credit on building costs for businesses investing in Canada across the following supply chain segments:
- Electric vehicle assembly
- Electric vehicle battery production
- Cathode active material production
This new ITC would help to attract private investments, strengthen the EV supply chain and secure the future of Canada's automotive industry.
Globally, Canada is regarded as a strategic partner and a provider of reliably sourced high-quality critical minerals inputs that will contribute to the net-zero economy. As Canada assumes presidency for the G7 group in 2025, it will seize this opportunity to further Canada's goals by reinforcing supply chain security, sustainability and responsible critical minerals sourcing.
PBO report: Fiscal analysis of support for EV battery manufacturing plants
Key messages:
- The Government of Canada welcomes the Parliamentary Budget Officer's reports
- There are some differences in methodology and scope between the government's analysis and the Parliamentary Budget Officer's latest reports, including the distinction between capital expenditures, and future production support
- When assessing the value of these company investments, it is critical to take into account the broader economic benefits of electric vehicle (EV) manufacturing, and the evolving nature of the industry
- These investments are expected to generate thousands of jobs and set up Canada's automotive industry for long term growth
- The government is committed to supporting the automotive sector as it transitions to a net-zero future, helping to position Canada as a global leader in electric vehicle and battery manufacturing
Supplementary messages:
- In its analysis, the Parliamentary Budget Officer (PBO) compares total private capital investment needed to establish these facilities in Canada, with government support provided for both capital expenditures and future production support; an inequitable comparison
- As of June 2024, total announced private investment in capital expenditures was approximately $40 billion and Canada's total announced support for same type of expenditure was up to $7.02 billion via Strategic Innovation Fund (SIF) and investment tax credits
- Canada has everything it needs to lead in the global zero-emission vehicle ecosystem:
- strength in automotive manufacturing
- access to markets
- talent
- green energy
- critical minerals
- Through close federal and provincial government collaboration with industry, Canada has announced generational investments of more than $40 billion to transition the sector to EV production and to establish a domestic EV battery supply chain
- Leveraging the SSIF, Special Contribution Agreements and Investment Tax Credits, announced government investments include both support for capital expenditures and production-based support
- Canada's efforts to develop an end-to-end battery ecosystem and to become a global leader in the production of batteries were recognized in 2024 when BloombergNEF reported that Canada has the strongest electric vehicle battery supply chain potential in the world
Background:
In 2023, the Canadian automotive sector supported over 550,000 direct and indirect jobs and contributed $18 billion to Canada's gross domestic product.
In 2022, Canada released its 2030 Emissions Reduction Plan, followed by Budgets 2022, 2023 and 2024, which proposed competitive measures to create jobs while fighting climate change.
In light of the global transition to zero-emission vehicles (ZEVs), Canada has stepped up to compete for key investments to produce electric vehicles (EVs), as well as batteries and battery components. The government has recently attracted large anchor investments in ZEV manufacturing as well as battery material processing, all of which stand to increase the supply of ZEVs and further encourage the industry's transition. Announced investments include:
- Honda: $15 billion to create Canada's first comprehensive electric vehicle supply chain in Ontario, including EV, battery, and battery material manufacturing
- NextStar Energy (Stellantis/LGES): $5 billion for an EV battery manufacturing plant in Windsor, Ontario
- PowerCo: $7 billion for a cell manufacturing plant in St. Thomas, Ontario
- Northvolt: $7 billion to establish a battery manufacturing facility in Saint-Basile-le-Grand and McMasterville, Quebec
- Stellantis: $3.6 billion for EV manufacturing at its Windsor and Brampton assembly plants
- General Motors (GM): $1 billion for production of Brightdrop EV600 and EV400, electric light commercial vehicles, in Ingersoll, Ontario
- GM/POSCO: $600 million to produce cathode active materials in Bécancour, Quebec
The Parliamentary Budget Officer (PBO) updated release on June 18, 2024, found that:
- From October 8, 2020, to April 25, 2024, a total of $46.1 billion in investments across the EV supply chain has been announced across thirteen project groupings
- For the $46.1 billion in investments (capital expenses) across the EV supply chain, PBO estimates total corresponding government support (for capital and operating expenses) to be up to $52.5 billion, which is $6.3 billion (14 per cent) higher than announced investments
- Of the up to $52.5 billion in government support, PBO estimates federal support to be up to $31.4 billion (60 per cent) and provincial support to be up to $21.1 billion (40 per cent)
In the June 2024 release, the PBO compares total private investment, representing the estimated capital expenditures needed to establish these facilities in Canada, with government support provided for both capital expenditures and production.
As of June 2024, total announced private investment in capital expenditures was $46.1 billion, as quoted in the PBO's June 2024 release.
At that time, both the federal and provincial governments had announced up to $13.8 billion in support for capital expenditures. Of that $13.8 billion, the federal government had announced up to $7.02 billion via SIF and investment tax credits.
Due to some recently-announced (summer 2024) changes in production plans, e.g. Ford's July 2024 announcement that it will invest $3 billion to build F-Series Super Duty pickup trucks in Oakville, which marks a shift away from Ford's plan to produce EVs at that facility as of 2027, Innovation, Science and Economic Development Canada (ISED) now favours the more accurate figure of "over $40 billion in announced investments since 2020," while the PBO's June 2024 release used the then-accurate figure of $46 billion.
Support for the steel and aluminum sectors
Key messages:
- Steel and aluminium form the basis of Canada's infrastructure, are the backbone of manufacturing, and essential inputs for securing Canada's energy future; and they generate high-quality Canadian jobs
- The Government of Canada is committed to tackling global excess capacity, which undermines competition and disrupts the free flow of fairly traded goods and services
- Canada is standing with its allies and trade partners in opposition to subsidized, carbon intensive imports from China
- Canada's imposition of a 25% surtax on steel and aluminum products imported from China is an important step in addressing excess global capacity and levelling the playing field for Canadian producers
Supplementary messages:
- Canadian steel and aluminum firms are at the forefront of efforts to reach Canada's net-zero 2050 goals
- Excess capacity and production of high-carbon metal in other jurisdictions, such as China, undermines Canada's decarbonisation efforts, which are of critical importance given that steel and aluminum represent ten percent of global emissions
- Canadian investments in high-cost technology to support low-carbon metal production are challenged to compete with cheap, carbon-intensive production subsidized by non-market economies
Background:
Global excess production capacity:
Excess capacity is described as the build-up of production capacity that does not respond to market demand or price signals. This facilitates and incentivizes over-production and over-supply, leading to trade distortions and market disruptions, including supply/demand imbalances, demand saturation, low prices, weak profitability, localized job losses and increased environmental degradation. Countries with significant excess capacity are typically non-market environments supported by government policies and practices that shield them from market conditions.
Producers in market economies, meanwhile, subject to the discipline of market cycles and price signals, are hard-pressed to compete against nationally backed state-owned enterprises who do not need to concern themselves with profitability.
China's steel production capacity accounts for approximately half of global capacity, while their share of global aluminum production capacity has grown to 57 percent as of 2023. Even a small imbalance in their production can lead to global exports greater than Canada's entire national production in a given year. Furthermore, countries who are subsidizing steel capacity for which there is insufficient demand are also subsidizing high carbon steel production. These high carbon steel products are eroding the competitive position and profitability of domestic producers making it harder for them to have sufficient capital to invest in decarbonization initiatives.
Canadian surtaxes on steel and aluminum:
On August 26, 2024, a notice of intent was published by the Department of Finance (FIN), outlining that a 25 percent surtax is being imposed under section 53 of the Customs Tariff Act to certain steel and aluminum products imported from China. Following a public comment period, the final list of products to be covered was published on October 1 and the surtax is effective October 22, 2024. Measures will be reviewed within a period of one year from their entry into force. Canada also indicated intent to implement a framework to consider requests for surtax relief, with details being published prior to the surtax's entry into force. FIN is developing advice on a remission framework (subject to separate decision and announcement by Minister of Finance).
Global Forum on Steel Excess Capacity (GFSEC):
Established in December 2016 under the OECD, the GFSEC is an international platform to combat excess steel production capacity. Under ISED's leadership as Chair in 2023, the Forum was reinvigorated and is now pressing on to addressing excess capacity, and building the coalition of like-minded partners.