Canada’s automotive sector is cruising for a bruising or perhaps, steaming toward an automotive iceberg. Beyond the immediate threat of a 100% tariff on automobile exports, Canada’s automotive manufacturing sector suffers from declining production and a near total dependence on the United States.Between 2014 and 2023, Canada’s automotive production fell from 2.4 million to 1.5 million units, while imports increased from $57 billion to $82 billion. Of the 1.5 million automobiles Canada produced in 2023, 88 per cent were exported to the US, leaving the industry highly vulnerable to a shift in American policy.And American policies are shifting so sharply as to pose a serious, iceberg-level threat to Canada’s already weakened auto sector. In particular, the withdrawal of the US from the Paris Accord and its Net Zero 2050 framework (again,) represents a massive threat to Canada’s nascent electric vehicle (EV) investment. With the current US Administration formally ending the former administration’s EV mandate on January 20, Canadians should be concerned about the viability of the large EV battery plants under various stages of planning and construction in Ontario and Quebec..The Trudeau government, along with the Ontario and Quebec governments, negotiated several significant battery manufacturing deals as part of its push towards EV production and in support of the Liberal government’s zero emission vehicle mandate. Some of the major deals initially inked include production subsidies and construction capital support totalling $4.6 billion for Northvolt AB, $13.2 billion for Volkswagen AG, $15 billion for Stellantis NV-LG Energy Solution and $1.6 billion for the Japanese battery company Asahi Kasei.According to the Parliamentary Budget Office, taxpayer subsidies for these deals will cost Canadians upwards of $44 billion between 2022-23 and 2032-33 if these projects actually proceed.Other causes for concern are the US federal funding pause for the Inflation Reduction Act (IRA) and the massive effort underway to reduce its deficit, together with the fact that the Canadian EV production tax credits have run out of funding at the federal and at numerous provincial levels..When we consider that the US EV market sales in 2024 were 1.2 million units (7 per cent of total sales,) the legacy IRA EV Tax Credit of $7,500 USD per new vehicle translates into US$9 billion in subsidies in that year.The question is whether the EV industry can stand on its own without these massive subsides? When we look at profitability of the US EV manufacturing sector in 2023, we find that of the two largest producers, Tesla and Ford, only Tesla would be capable of breaking even without IRA EV Tax Credit subsidies.According to Reuters, Tesla earned approximately US$8,300 in profit per EV unit in 2023 and of the 1.8 million units produced globally, only 400,000 were produced in the US..Meanwhile, even after IRA subsidies, Ford lost $64,700 per EV unit produced in 2023 and its 2024 loss per unit was $32,700. Note that Ford, at second place in US EV production, produced a mere 72,000 units in 2023.While Ford still plans to make EVs more broadly, it recently announced plans to shift production at its Oakville, Ontario factory in Canada from electric sports vehicles to gas-powered pickup trucks. The news came shortly after General Motors announced it would trim down its forecast of EVs produced in 2024 by 50,000.It is clear that legacy US automakers are worrying about overproducing against sluggish retail consumer demand, knowing that their profitability and fiscal viability resides in their internal combustion engine vehicle production lines..Also note that both Northvolt AB and Stellantis NV-LG Energy Solution are reconsidering their EV battery investments in Canada, where the former is approaching bankruptcy proceedings and the latter views Canadian federal subsidies as being insufficient to justify sanctioning of their final investment decision.Canadians, and their elected governments and policymakers need to take stock of the long term decline in their automotive manufacturing sector’s production rates, their near total dependence on US exports, and uncertain government-driven EV investments. They should be asking if the push to electrify their automotive manufacturing base is in their long term best interests if demand remains sluggish North America-wide?
