“The world is unpredictable,” but experts recommend Canada doubles down on its $52.5 billion supply chain investments — despite the challenges

Between 2022 and 2023, it seemed Canada could do no wrong as it developed and built a brand-new EV battery supply chain.

Trade ministers were regularly flying overseas to court investments and companies around the world began competing to lay claim to parcels of real estate to turn into their Canadian bricks-and-mortar factories.

However, in recent months, Canada has been hit by a wave of construction pauses, project cancellations and reevaluations leaving key gaps in the national zero-emission vehicle supply chain.

“The industry is facing a reality check right now,” says Alla Kolesnikova, head of data and analytics at Adamas Intelligence, in an interview with Electric Autonomy.

“All the scaled-down projects repeatedly quote the slowdown of EV projections. That is a valid case, but I think there are more underlying items going on.”

Canada’s provincial and federal governments tout over $46 billion in foreign investments flowing into the national EV battery supply chain since 2020.

To attract and secure these investments, governments at different levels have collectively committed billions in subsidies. The Parliamentary Budget Officer (PBO) estimates that total government support for these projects could reach $52.5 billion — $31.4 billion (60 per cent) from the federal government and $21.1 billion (40 per cent) from provincial contributions.

And, in Ontario (where many of the investments have been announced), the government is still highlighting more than “$45 billion in transformative automotive and EV investments” despite several significant project cancellations putting that target in doubt.

“Global automakers and suppliers know that Ontario has everything they need to be successful…while we understand that there will be challenges faced along the way, our priority is to protect our province’s world-class auto workers,” says a spokesperson for Ontario’s minister of job creation, Vic Fedeli.

But the recent EV project pauses and diversions are raising questions from coast-to-coast about the long-term economic impact on Canadians and whether these massive financial commitments will ultimately deliver on their promises.

A cloud of uncertainty now hangs over the Canadian EV battery supply chain and the unanswered question is: what will it mean for the future?

The domino effect

The first sign of distress for the EV battery supply chain in Canada came in November 2022, when UK startup Britishvolt scrapped its plans to build a 60GWh battery cell gigafactory, an R&D centre and anode and cathode processing facilities in Bécancour, Que.

A spokesperson told Electric Autonomy at the time that the project has come to an end due to “worsening global economic conditions” and the “very significant reduction in available investment capital.”

It took some time for the next domino to fall, but this summer Ford moved away from its $1.8 billion plans to build EVs at its Oakville, Ont., plant. Then, in August, the automaker revealed delays in its $1.2 billion joint venture with South Korean partners EcoPro BM and SK On to build a battery cathode factory in Bécancour, Quebec.

Finally, on October 31, Ford announced a complete withdrawal from its battery projects, citing fluctuating consumer demand for electric vehicles as a driving factor.

Only a week later, Umicore announced it was indefinitely pausing construction of its $2.76 billion battery materials plant in Loyalist, Ont., after it already announced in July that the company would put off spending on construction pending further analysis.

Umicore CEO Bart Sap attributed the pause to the “challenging environment” in the automotive industry’s shift toward electrification. Umicore confirmed it did not draw on any of the incentives promised by the federal and Ontario governments.

And then, just last month, Swedish battery maker Northvolt filed for bankruptcy protection in the U.S. and announced it is scaling back operations. These include partial shutdowns at its gigafactory in Sweden, the sale of its cathode material facility in Borlänge and relocating lithium-metal battery R&D from California to Västerås.

Despite this, Northvolt insists its $7-billion EV battery plant in McMasterville, Que., will proceed as planned, though it may be delayed up to 18 months.

“We will focus on meeting our commitments to our stakeholders, including our employees, customers, suppliers and the governments of the countries in which we operate,” says Tom Johnstone, Northvolt’s interim chairman of the board, in a press statement.

Altogether, these projects represent the jeopardy of at least $12.8 billion in foreign investment, 10,045 projected jobs and $10.46 billion in planned government subsidies.

Challenges in scaling

Ford, Umicore and Northvolt are all pointing to challenges tied to the broader transition to electric mobility as the cause for pausing or reevaluating their Canadian battery projects.

But, according to Kolesnikova, these reasons only scratch the surface.

Gigafactory announcements often tout ambitious gigawatt-hour production goals. But they lack clarity on the types of cells or chemistries to be manufactured and how they’re going to achieve scale, says Kolesnikova.

Meanwhile, Chinese manufacturers (the clear global leaders in EV battery supply chains) have achieved efficiencies in scaling and waste reduction leaving producers outside of China facing a steep learning curve.

“Scaling up the production, reducing waste and creating cells is a complex process,” Kolesnikova explains.

“[These are] all new supply chains, it’s new processes and new scaling that [these companies] have never had to do before,” she says.

The result is that some companies on this learning curve are experiencing higher upfront costs as they troubleshoot challenges. Capital can quickly bleed away as they do this, leaving companies in a precarious financial position.

Matthew Fortier is the CEO of Accelerate, a national zero-emission vehicle industry alliance. He says the substantial investments into the EV battery supply chain in Canada are long-term plays, not quick payoffs.

“People make investments based on assumptions that are reasonable at the time. But the world is unpredictable,” says Fortier in an interview with Electric Autonomy.

“This is a transition and transitions take time.”

Risk vs reward

Fortier believes the leap from investment to returns requires a balance of risk and patience.

“We do need to see a lot of risk capital in this space, but we also have to see a lot of patient capital. We have to understand that this is going to take a while to get online. Investors want to see a return quickly. But the reality is that these returns will take quite a lot of time.”

While high-profile project delays dominate headlines in Canada, several other battery supply chain initiatives are progressing as planned.

Volkswagen’s PowerCo battery gigafactory in St. Thomas, Ont., remains “fully on track” to begin production in 2027, previously reported Electric Autonomy in September.

The NextStar Energy battery manufacturing facility, a joint venture between Stellantis and South Korea’s LG Energy Solution, commenced battery module production in Windsor, Ont last month.

Meanwhile, General Motors’ partnership with Posco Future M for its Ultium CAM cathode plant in Quebec is progressing “steadily,” with construction now two-thirds complete and production “expected to begin in late 2025 or early 2026,” says Sarah Goldfeder, director of government relations for GM Canada, in a statement to Electric Autonomy.

And finally, Honda is building out a $15 billion comprehensive EV and battery supply chain in Canada. With its partner, Asahi Kasei, Honda began construction of a lithium-ion battery separator plant in Port Colborne, Ont. in November.

The Japanese automaker also has a basic agreement with Posco Future M Co., Ltd. to produce cathode-active materials.

Kolesnikova and Fortier point out that many of the projects that are succeeding have direct ties to well-established OEMs.

“These [OEMs] have been undertaking these kinds of major projects for a long time and they know where it fits within their global business strategies,” says Fortier.

“This allows for more patient capital internally. They also have a clear vision of where the products made in Canada will integrate into their internal supply chains and they have partnerships already baked in. That’s the difference.”

What about Ford?

But with every trend, there’s always an outlier. In this case, it’s Ford.

While others are moving forward with their plans for electrification, the American automaker has been slowing its rollout of EVs and battery manufacturing due to what they say is high costs and tepid consumer demand.

But Ford’s justification doesn’t align with the numbers.

Most recent data from S&P Global reveal that battery-electric and plug-in hybrid vehicles accounted for an all-time high of 16.5 percent of new vehicle registrations in Canada during Q3 2024.

September sales data from Adamas Intelligence also highlights significant growth.

“There are record high numbers from the history of tracking electric vehicles on the battery capacity, in deploy[ment] of metals and on overall sales,” says Kolesnikova.

Slower growth

However, what may be feeding the perception of a decline in EV customer interest is that, globally, EV growth is shifting from exponential to incremental.

“Uptake around the world is still growing,” says Fortier.

“Just because that rate isn’t being realized in the timeframe that people thought it would doesn’t necessarily mean that this isn’t happening. It is happening.”

In North America, the market is still performing steadily, says Kolesnikova, with Canada’s EV market share continuing to grow, even as the U.S. maintains its larger share.

“But, that being said, in Europe, there is indeed slowdown,” says Kolesnikova. “And because of that, the continuous narrative that EV sales have slowed down impacts forecasts for batteries, for raw materials and that is what is percolating down to the supply chain.”

When it comes to Ford’s approach to slowing down, Fortier explains that it is all part of the complexity of corporate strategies in a shifting market.

“Each of these companies has unique characteristics. They all have different corporate strategies,” says Fortier. “Ford, for example, has an imperative to keep people employed, make money and ensure a return for their shareholders. [Their] corporate strategy is going to differ from another OEM because there are different variables affecting all of them.”

But regardless of the different paths each automaker chooses, it will all lead to electrification, believes Fortier.

“It will be along a different timeline but that’s okay.”

The future of battery supply projects

Overall Kolesnikova views the recent setbacks in Canadian battery projects as “hiccups” — natural growing pains for a developing industry.

“We’re in a new industry and we’ll always have some winners and losers,” says Kolesnikova. “A lot is being learned and discussions are happening on all levels. I’m, overall, positive about us moving in the right direction.”

Meanwhile, Fortier highlights the importance of bullishness and adaptability while navigating an uncharted industry.

“At the end of the day, we only get ahead if we value entrepreneurship and risk-taking,” says Fortier.

“Our job in Canada is to work with as many of these companies as possible to help them get further along that path [to electrification], but also recognize that it’s not always going to work. So, let’s be ready for the next company that’s got a good idea.”