Export tariffs are just the tip of the iceberg for Canada’s automotive sector

Note this Substack article is a duplicate of my Fraser Institute sponsored Op-Ed last week with The Hill Times.

Canada’s electric vehicle (EV) industry may be steaming toward an iceberg, mainly due to shifts in policy south of the border.

In particular, the Trump administration’s withdrawal from the Paris Agreement (and its net-zero 2050 framework) and its elimination of the U.S. EV mandate represent an existential threat to Canada’s EV investments and the viability of the large EV battery plants under various stages of planning and construction in Ontario and Quebec.

The former Biden Administration mandated new emissions standards for the automotive sector, which would have required upwards of 56% of new vehicles sold must be EV and 13% be plug-in-hybrids by 2032.

Indeed, the Trudeau government, along with the Ontario and Quebec governments, negotiated several significant battery manufacturing deals , which included subsidies and construction funding totaling $4.6 billion for the Northvolt AB plant near Montreal, Quebec, $13.2 billion for the Volkswagen plant in Saint Thomas, Ontario, $15 billion for the Stellantis plant in Windsor, Ontario and $1.6 billion for the Japanese battery company Asahi Kasei plant in Port Colborne, Ontario. Although both Northvolt AB and Stellantis are reconsidering their EV battery investments in Canada—Northvolt AB is approaching bankruptcy and Stellantis thinks that current federal subsidies are insufficient to justify its investment.

According to the Parliamentary Budget Officer, taxpayer subsidies (a.k.a. corporate welfare) for these deals will cost Canadians upwards of $44 billion between 2022/23 and 2032/33.

In the U.S., EV sales in 2024 were 1.2 million (7 per cent of auto total sales) buoyed by an EV tax credit of US$7,500 per new vehicle, which translates into US$9 billion in EV consumer subsidies that year alone.

All of this raises the question: can the EV industry stand on its own without these massive subsides from taxpayers?

In 2023, of the two largest EV producers, Tesla and Ford, only Tesla would break even without the EV tax credit subsidies. According to Reuters, Tesla earned approximately US$8,300 in profit per EV in 2023, and of the 1.8 million Tesla vehicles produced globally, only 400,000 were produced in the United States.

Meanwhile, even after the subsidies, Ford lost US$64,700 per EV in 2023 and US$32,700 in 2024. (It’s also worth noting that Ford, with the second-highest EV production in the U.S., produced a mere 72,000 vehicles in 2023.)

While Ford still plans to make EVs, it recently announced plans to shift production at its Oakville, Ontario factory from electric sports vehicles to gas-powered pickup trucks. The news came shortly after General Motors announced it would trim its forecast of EVs produced in 2024 by 50,000.

Clearly, legacy U.S. automakers are worried about overproducing against sluggish consumer demand, knowing that their profitability and fiscal viability resides in their internal combustion engine vehicle production lines. Numerous large European automotive manufacturers also saw a decline in EV sales in 2024 and are re-investing in their combustion engine production lines to protect profits.

Finally, beyond only EVs, Canada’s automotive manufacturing sector is in decline. Between 2014 and 2023, automotive production fell from 2.4 million to 1.5 million vehicles, while automobile imports increased from $57 billion to $82 billion. Of the 1.5 million vehicles produced in Canada in 2023, 88 per cent were exported to the U.S., leaving the industry highly vulnerable to shifts in American policy (which currently include President Trump’s threat of a 100 per cent tariff on automobile exports).

The iceberg is in view. Canadian policymakers must take stock of the decline in the automotive manufacturing sector, its near total dependence on U.S. exports, and uncertain government-driven EV investments. And they should ask if the push to electrify the automotive manufacturing base is in the long-term best interests of Canadians.