Question Period Note: Strategic Innovation Fund [SIF]: Automotive Industry (ZEVs)

How is the Government of Canada using the Strategic Innovation Fund (SIF) to support Canada’s automotive sector transition to zero-emission vehicles?

• As the North American automotive sector pivots to electric vehicle (EV)-based platforms, battery manufacturing investments will be a critical component of the new value chains.

• Canada is supporting the transportation sector and building a green economy by investing in projects that will help achieve net-zero greenhouse gas emissions by 2050.

• The transition to zero-emission vehicle production includes leveraging the Strategic Innovation Fund (SIF), to strengthen the battery supply chain.

• SIF investments to build this capacity will have significant benefits for Canadian workers and the Canadian economy, both now and in the future.

The Canadian automotive sector supports 500,000 direct and indirect jobs, contributes $16 billion annually to Canada’s gross domestic product, and is one of the country’s largest export industries. Overall, Ontario is the second-largest automotive manufacturing jurisdiction in North America.

Canada’s automotive sector represented 9 per cent of total merchandise exports in 2021. The sector depends on the U.S. market, with about 95 per cent of vehicles produced destined for the U.S. The Canada-United States-Mexico Agreement (CUSMA) outlines a renewed understanding between the parties on the importance of these trade relationships.

It is projected that the global production of electric vehicles (EV) is expected grow 22-fold by 2030, and Canada’s ahead of the curve. Canada is in the driver seat with investments across the EV supply chain to benefit all Canadians. Canada’s continued strength in automotive production is a key aspect towards building a strong, healthy future for Canadians. As part of these efforts, the Government of Canada released, in April 2022, its 2030 Emissions Reduction Plan, as well as Budget 2022, which together propose measures to create thousands of new, good-paying jobs and grow the economy, all while fighting climate change. Budget 2023 build on these policies and investments to continue to support industrial transformation and the transition to a clean economy.

The automotive sector has been affected by an ongoing shortage of semiconductors and other supply chain disruptions which has limited production capacity and reduced sales. Several factors have played a role in driving the semi-conductor shortage, including increased demand for consumer electronics, supply chain issues, natural disasters, and COVID-19.

The Canadian and U.S. automotive manufacturing sectors are highly integrated, thus making them reliant on each other for the supply of vehicles and parts. Given this level of integration, there was concern regarding the potential for the U.S. Clean Vehicle Tax Credit to exclude Canadian produced vehicles. In August 2022, President Biden signed the Inflation Reduction Act (IRA) which resolved this issue with the inclusion of Canadian made vehicles in the tax credit. Additionally, the IRA introduced the Advanced Manufacturing Production Credit which provides financial incentives for battery manufacturing to occur in the U.S., and which could, consequently, position Canada as a less attractive location for automotive manufacturers when selecting future manufacturing sites.

• In addition to $500 million over ten years to SIF to support the development and application of clean technologies, Budget 2023 directs SIF to use $1.5 billion in existing resources to support sectors vital to a thriving ZEV and battery ecosystem, including key inputs such as critical minerals.
- These investments are a part of a larger package of tools to build Canada’s clean and green economy, including tax credits for critical minerals, clean electricity generation, clean hydrogen, and nuclear and geothermal energy.

• The biggest players in the automotive industry have announced investments in Canada: Ford, Honda, GM and Stellantis have all committed billions to growing their businesses here. The Government of Canada supports manufacturers that want to embrace the electrification of transportation and build Zero-Emission Vehicles (ZEV), right here in Canada.

• The government is also attracting anchor investments in battery material processing and cell manufacturing to build a domestic battery ecosystem. The battery-related industry’s announced investments include:
- PowerCo (Volkswagen): to establish an electric vehicle battery manufacturing plant in St. Thomas, Ontario (details to come);
- NextStar Energy (Stellantis/LGES): $5 billion for an electric vehicle battery manufacturing plant in Windsor, Ontario;
- GM/POSCO: $500 million to produce cathode active materials in Bécancour, Quebec; and
- Umicore: $1.5 billion for a battery materials plant in Loyalist, Ontario.

 
• Investing in building this capacity in Canada will have significant benefits for Canadian workers and the Canadian economy, both now and in the future, by: anchoring and accelerating investment across the value chain, promoting growth in the automotive sector of the future, supporting the shift to a net-zero economy and, securing good jobs for Canadians.