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The road ahead

A look at how innovation and electrification are shaping Canada’s auto sector

This year marked the fifth anniversary of the Canadian International AutoShow, which set attendance records including the largest single-day audience in the show’s history.

Second to Michigan, Ontario is the largest producer of vehicles in North America. It is one of Canada’s largest industrial sectors and an important segment of the economy.

According to Invest Ontario, the province is home to over 700 part suppliers; five global OEMs; assembly plants that consistently rank among the world’s highest for quality (J.D. Power, 2022); and over 500 tool, die, and moldmakers. Eighty per cent of production vehicles and parts made in Ontario are exported to international markets. Four parts companies are ranked in the top 100 global suppliers, and more than 300 companies are working in connected and autonomous development and smart mobility.

And while the automotive sector has its ups and downs, the last few years have seen significant investment from OEMs and provincial and federal governments—upwards of $16 billion, with $13 billion earmarked for electric vehicle (EV) and EV battery production.

This year also marked the 50th anniversary of the Canadian International AutoShow, which set four daily attendance records, including the largest single-day audience in the show’s history.

Shift Towards EVs

The AutoShow highlighted key aspects of automotive trends and innovation, including electrification, autonomous technology, and connectivity. The show debuted an indoor EV test track, where many attendees test drove an EV for the first time.

“As the demand for cleaner vehicles increases, we’re going to see more electrification across vehicles, and that includes hybrids and plug-in hybrids,” said Sam Fiorani, vice-president of global vehicle forecasting, AutoForecast Solutions. “Ultimately, the goal is to remove internal combustion engines completely from most vehicles. But getting the public there is going to take time. It’s not growing as fast as the manufacturers who have jumped into this market would like. But for most buyers, they are a leap—they’re faster, they’re quieter, they’re smoother, and they will do everything you need them to do.”

As more of the general public becomes familiar with EVs and invests in the technology, the more EVs will become widely available. Those who are interested in purchasing an EV may find themselves on a long wait-list. This is partly because of semiconductor shortages but also because EVs are still an unproven market.

“We’ve been building internal combustion engine vehicles for 125 years, we know how many buyers there are out there,” said Fiorani. “We’ve only spent the last 10 years developing the EV market. As we transition to EVs, it’s hard to gauge just how many buyers there are out there. It’s going to take a while for us to figure that out. We’re just learning to walk at this point. It’s going to take years, if not decades, to progress to get to a point where an internal combustion engine can be replaced exactly with an electric vehicle.”

The market is reaching a point where more mainstream models are becoming widely available—the more than 75 all-electric vehicles on display at the AutoShow proves that. No longer does a buyer need to drop over $100,000 on an electric truck. Instead, some very basic EVs can easily replace an internal combustion engine vehicle, and their price points are starting to reflect that. For example, the 2024 Chevrolet Equinox EV has a starting price of $30,000, making it more accessible for the general public.

However, there are some additional challenges that go along with that.

The EV market is reaching a point where more mainstream models are becoming widely available. For example, Hyundai showcased three fully electric vehicles including the new Ioniq 6, four hybrid electric vehicles, and one hydrogen vehicle.

Not All Optimism

While there is tremendous optimism from the industry and policy-makers, whose jobs require them to promote Canadian industry, the numbers don’t necessarily reflect that optimism. In the 2000s, Canada was making about 3 million vehicles per year, but by 2021-2022, that number was down to just over 1 million.

“The automotive industry in Canada has always been about investment and jobs, but those jobs are disappearing,” said Greig Mordue, associate professor, Walter G. Booth School of Engineering Practice and Technology, McMaster University. “The assembly of an electric vehicle requires fewer people. It has fewer parts and therefore, requires fewer people. Ultimately, the capacity of this big, iconic industry to continue to generate jobs is being diminished. And we’re not really talking about that.”

The reality is that we need to think about automotive jobs for what they will be in the future, and they will be different from traditional auto work of the past.

“Recently, there have been lots of major investment announcements, but if you look at what’s happening, the announcements are mostly about model changes. The only difference is that the vehicles being assembled will have electric drivetrains, not internal combustion engines,” said Mordue. “I suppose the alternative is that they simply suspend operations, so at least that is promising.”

One of the big questions going forward is what the automotive jobs landscape will look like as more EVs take hold. Will OEMs employ more workers? Traditionally, 30 per cent of a vehicle’s value comes from the drivetrain, and that has been 100 per cent controlled by the OEM. However, if that 30 per cent now comes from a battery made by companies like LG or Contemporary Amperex Technology Co. Ltd. (CATL) and not the automotive companies, what will those jobs look like and how will that affect the quantity and quality of jobs they offer? What will the jobs and working conditions in the new actor’s operations look like? Will they provide automotive industry-type jobs? Or will they be more akin to standard electronics industry jobs? OEMs pay upwards of $55/hour all in. Will battery plant jobs be comparable to traditional automotive jobs, or will they look more like the jobs in electronics plants in the home country of their owners?

“The challenge that Canada has always had is that we are beholden to decisions that are made by primary actors that are located outside of Canada,” said Mordue. “Investment decisions generally default to the home country. Alternatively, they gravitate to the lowest-cost option, to places like Mexico or central or eastern Europe. Already, we’re seeing Mexico emerge as an electric vehicle location.”

Canada does have the critical minerals that are required for battery manufacturing. The problem is, unless the government is willing to force companies to process those minerals in this country, there is unlikely to be a major positive effect on Canadian manufacturing and jobs.

And while Canada continues to compete aggressively for manufacturing mandates, competition—particularly from the U.S., which has traditionally sat out of this in the past—is also accelerating. There are more incentives now, but those incentives are being undercut by other countries looking to bolster their own auto sectors.

“We only wish that the incentives for Canada had come in play earlier,” said Fiorani. “Unfortunately, the market lost a few manufacturers over the last 20 years. A number of plants have shut down and it’s unlikely that many will return with the incentives. There’s the potential for more battery plants and the suppliers that go with those, but getting a full assembly plant to emerge in Canada is less likely than it was maybe 30 years ago.”

Many analysts have been very excited about this transition to EVs, and there is a lot to be excited about. However, it’s important to be realistic about some of the challenges, including emerging markets, production costs, infrastructure, and more.

Concept vehicles have always given us a glimpse of what’s next, and this includes a realistic view of the future. APMA’s Project Arrow is an excellent example of that.

“The excitement seems to be well beyond where we see the market going,” said Fiorani. “As of late, the market has shown a little softness and is not growing nearly as fast as a lot of people thought was going to happen a few years ago. But we’re seeing prices drop on vehicles. In the United States, they’re pushing incentives, and these are just high line compared to local incentives across North America and other parts of the world. Restrictive emissions controls around the world are driving this push. It’s not a demand-driven push. It is a need-based push from the manufacturer’s side.”

Canadian Innovation

While there are some significant challenges ahead for the automotive industry, there are still some areas of optimism.

Did you know that the last major prototype vehicle built in Canada was from Magna in the late 1980s? Even though that vehicle didn’t go into production for a number of reasons, it showed that concept vehicles are a great way to showcase the latest and greatest Canada has to offer.

“Concept vehicles have always given us a glimpse of what’s next, and this includes a realistic view of the future,” said Fiorani. “The Automotive Parts Manufacturers’ Association (APMA)’s Project Arrow is an excellent example of that, with many of the components being off-the-shelf parts and with existing manufacturers producing the parts. All the technology there is easily transferrable into a current production vehicle. The problem is that all the technology that’s in Project Arrow makes that car an expensive car. We’re not going to see $20,000 cars with all the technology included. The fact that 99-plus per cent of that vehicle is locally sourced is a great symbol of what Canada has to offer.”

The concept vehicle itself is extremely useful for the smaller companies attached to it that are now able to at least get their foot in the door of some North American OEMs to show off what they can do.

“Through Project Arrow, some smaller Canadian companies may be able to have conversations with OEMs that would otherwise never have happened for a variety of reasons,” said Mordue. “They can demonstrate, using the vehicle, exactly what they can provide. OEMs may or may not be interested in partnering up with someone that can bring it to scale.”

The Project Arrow vehicle is a great way to give smaller firms a chance to compete and help drive specialized innovation forward rather than turn the concept into a production vehicle.

And while we are seeing pockets of innovation in Canada, overall, the volume of automotive R&D happening in Canada is relatively small. Mordue demonstrated this through a study that he conducted that analyzed global automotive patents from 2000 and on.

“I went through global automotive patents, patent by patent, from 2000 onward. In 2000, Canadians generated about 1 per cent of the world’s automotive patents. By 2019, we had less than half of 1 per cent. Throughout that time, we were promoting Canada as having more people that were educated, more graduates, and more engineers, but we weren’t generating more knowledge-intensive automotive work.”

Mordue noted that part of the reason for this is because the R&D decisions are made in proximity to the all-powerful OEMs. There aren’t any OEMs in Canada. Even the major Tier 1 suppliers in Canada—companies like Magna, ABC Technologies, and Linamar—conduct most of their R&D, not in Canada, but in proximity to their OEM customers in places like Michigan and Germany.

Even some luxury vehicle makers showed off their EV platforms. This McLaren Artura is the newest plug-in hybrid electric supercar and is priced accordingly at upwards of $300,000.

The Canadian manufacturing sector has many different struggles ahead of it, but acknowledging these challenges is the first step in moving forward.

Even some luxury vehicle makers showed off their EV platforms. This McLaren Artura is the newest plug-in hybrid electric supercar and is priced accordingly at upwards of $300,000.

Reposted from https://www.canadianmetalworking.com/canadianfabricatingandwelding/article/madeincanada/the-road-ahead