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Canadian government initiatives support electric vehicle landscape

July 19, 2021

Authored by RSM Canada LLP

Joel A. Humphrey, CPA, CA shared this article

Canada government initiatives support electric vehicle landscape

THE REAL ECONOMY  | 

Global automotive brands have unleashed a flood of announcements over the last nine months about their intentions to either become fully electric vehicle (EV) manufacturers or broadly shift away from the traditional internal combustion engine (ICE). In Canada, a number of recent government initiatives aim to support such goals. These announcements from original equipment manufacturers (OEMs) represent a significant change in the way they plan to manufacture vehicles—with companies planning to use new processes, machines and advanced technologies—as well as in what they require from suppliers, from battery cells to software to charging technologies.

MIDDLE MARKET INSIGHT

With the coming of electric vehicles, original equipment manufacturers are planning to significantly change the way they make vehicles.
The plans represent billions of dollars in investments globally, and some OEMs have laid out aggressive timelines to achieve a fully electrified fleet in under a decade. Volvo, for instance, expects its lineup will be fully electric by 2030, and Ford expects the same for its European models. BMW expects zero-emission vehicles to comprise at least 50 per cent of its sales by 2030. Audi announced that it will no longer develop entirely new ICE engines—though the company will update existing powertrains with the goal of being fully electric. Growth in the EV market brings a range of new technological innovations, including smart vehicles, autonomous vehicle technology and much more. The expectations that consumers and businesses have for their vehicles are changing, at an accelerated rate and in dramatic ways that go well beyond simply replacing ICE engines with electric motors and batteries; the technological possibilities of EVs will affect the whole supply chain.

Government support

Ontario is an important manufacturing hub in Canada, supporting the country’s automotive industry directly by producing as many as 2.2 million vehicles annually as of 2017 (and it’s worth noting that production has fallen 25 per cent since 2000 due to global competition, according to this government report). Global OEMs such as Toyota, Honda, GM, Ford and Stellantis have established a large manufacturing footprint in Ontario, supporting over 100,000 direct jobs as well as many more indirect jobs via key suppliers that support these plants.
The Ontario government and the federal government have announced a number of initiatives related to the electrification of vehicles.
In order to spur growth in this key hub, the Ontario government and the federal government have announced a number of initiatives related to the electrification of vehicles. These include the federal, five-year, $280-million Zero Emission Vehicle Infrastructure Program (ZEVIP)—ending in 2024—which aims to address the lack of charging and refuelling stations in Canada. As of October 2020, the government of Canada indicated it has provided over $300 million to support the establishment of a coast-to-coast network of EV fast chargers; natural gas, hydrogen refuelling stations; and research and development of next-generation charging technologies. Other initiatives include the following:
  • Ontario will reduce the cost of doing business in the province by cutting the Workplace Safety and Insurance Board premium—without touching the benefits—by almost 50 per cent, representing potential savings of over $2 billion a year.
  • In addition, Ontario will allow companies to record accelerated capital cost allowance, which means OEMs can write off their new equipment purchase within the same year. This would represent billions in savings as traditional automotive production plants retool for the production of EVs.
  • Ford Motor Co. of Canada has made an investment in its Oakville Assembly Plant to build multiple EV models and install a battery-pack assembly line in Canada. This project, valued at $1.8 billion, will include federal and provincial contributions of $295 million each.
  • General Motors confirmed plans to invest $1.0 billion in its CAMI Ingersoll plant to build electric commercial trucks, supplying customer FedEx with 500 units by the end of 2021.
  • Ontario announced a $56.4-million investment over the next four years to create the Autonomous Vehicle Innovation Network, aimed at spurring collaboration in the EV space.

Retooling? Rebranding? The road ahead for OEMs

As recently discussed in our second-quarter industry outlook for manufacturing and energy, the American Jobs Plan in the United States is investing up to US$174 billion to “win the EV market.” Canada’s federal government and the Ontario provincial government are providing similar support as OEMs are set to invest billions of dollars to retool manufacturing facilities and launch new products. The EV push will open up plenty of new opportunities for companies in this space. Here are some of the key strategies automotive suppliers should be considering today:
  • Refocusing R&D investments in technologies required by the new fleet of vehicles, and accessing available grants and subsidies
  • Pivoting from manufacturing ICE-only parts (exhaust systems, manifolds, engine blocks) to EV parts by acquisitions and/or partnerships
  • Transitioning to become a local/regional supplier to OEMs, thereby reducing risks to OEMs and others in the highly interconnected global supply chain
  • Establishing a proper financial structure to invest today given the low interest rate environment
  • Retooling of existing manufacturing equipment for non-automotive/alternative applications
Middle market manufacturers should consider the implications of the OEMs’ decisions and determine how they can benefit from the downstream impact of the investments in Ontario. Companies that are current suppliers to ICE vehicles should evaluate how the OEMs’ decisions affect their own future capital expenditures, R&D investments, labour needs and geographical alignment. Lastly, given the OEMs’ proposed timelines, middle market manufacturers should rethink product differentiation and develop a strategy to achieve a competitive advantage in the EV environment.

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This article was written by Grand Lui, Otto Cheung and originally appeared on 2021-07-19 RSM Canada, and is available online at https://rsmcanada.com/our-insights/the-real-economy/the-real-economy-canada-summer-2021/government-support-of-the-electric-vehicle-industry.html.

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