An unexpected shock to Canada's electric vehicle industry?

An unexpected shock to Canada's electric vehicle industry?

The ongoing trade conflict between the US and Canada could pose significant challenges for the decarbonization efforts of both nations, but it may also present some long-term prospects for Canada, particularly in the electric vehicle (EV) sector. Existing bilateral tariffs on steel and aluminum are already affecting the market, and the industry is preparing for additional US tariffs expected on April 2. While President Donald Trump previously indicated that tariffs on auto imports from Mexico and Canada would commence on that date, recent revelations suggest that these sector-specific tariffs may be postponed for now. Imposing tariffs on this highly integrated supply chain—which sees components cross the border multiple times during production—could lead to substantial cost increases. However, the impact of these tariffs on North American electric vehicles could be less severe, potentially creating opportunities for Canada in the long run. According to research from BloombergNEF, traditional gasoline-powered vehicles consist of more cross-border parts than EVs, indicating that auto tariffs may raise costs more for conventional vehicles, thereby giving electric vehicles a competitive edge. "The overall situation is intriguing; the tariffs might actually benefit electric vehicle production compared to internal combustion engine production," remarked Antoine Vagneur-Jones, head of trade and supply chains at BNEF. In Canada, where the EV sector has been slow to develop, the production of electric models and plug-in hybrids remains limited. However, the country aims to establish a domestic ecosystem for manufacturing electric vehicles and batteries by leveraging its abundant resources of critical metals, minerals, and clean energy. Significant investments—amounting to tens of billions of dollars—have been made to attract EV and battery manufacturers, with companies like Ford, Stellantis, General Motors, Volkswagen, Honda, and Northvolt striking agreements in Ontario and Quebec in recent years. Before the trade conflict, the sector was already facing significant hurdles, including slow public adoption of EVs. Currently, internal combustion engine vehicles must remain profitable to subsidize EV production, according to Andrew McKinnon, director of policy for Accelerate, which supports the Canadian EV supply chain. He stated, "It's essential to safeguard the traditional automotive sector before transitioning to what it will ultimately become." Conversely, Ollie Sheldrick-Moyle, clean economy program manager for Clean Energy Canada, asserts that Canada could take measures to mitigate the effects of Trump's tariffs. By mining, refining, and utilizing more of its critical minerals, Canada could enhance the efficiency of its domestic EV industry. Additionally, reducing economic barriers between provinces, providing more consumer incentives, and expanding trading relationships beyond the US could prove beneficial, according to Sheldrick-Moyle. As the US appears poised to discard various climate-friendly initiatives and tax incentives, Canada could serve as a refuge for stranded clean-tech investments. Furthermore, US trade policies may prompt increased electrification of Canada's power grid, particularly if exports of power transformers and grid equipment from Canada (and Mexico) to the US decline, as BNEF analysis suggests may occur. "We have the capacity to generate abundant, affordable power within our borders and utilize it to meet the daily needs of families," Sheldrick-Moyle noted. In his inaugural address as prime minister, Mark Carney outlined his vision to establish new trade corridors with "reliable" partners and unify Canada's economy across its provinces and territories. He also pledged to make Canada a leader in both traditional and clean energy sectors. Following his call for a national election on April 28, Carney will take this vision to the campaign trail.

Bloomberg