Windsor, on
Published January 19, 2025
For Canadian auto parts manufacturers such as the one that Saylo Lam runs, and the dozens that he represents as chair of the Canadian Association of Mold Makers, the past few years have already been a wild ride.
A bumpy electric-vehicle transition has put these suppliers – most of which, including Mr. Lam’s company Circle 5, are in southwestern Ontario – at the mercy of global automakers that are adopting, shifting and delaying plans to overhaul assembly lines.
Contributing to the chaos has been a series of what Mr. Lam describes as black swan events – among them the COVID-19 pandemic and ensuing supply chain crunch, a period of high inflation and a trade war with China.
Many companies are already feeling bruised and battered heading into a week that could bring the biggest disruption of all, if U.S. president-elect Donald Trump makes good on his threat to impose tariffs as high as 25 per cent on all Canadian exports after he’s inaugurated. And that’s not to mention the prospect of Mr. Trump pulling back EV subsidies and reversing regulations aimed at encouraging EV uptake.
Mr. Lam gamely tried, during a recent interview, to offer a positive spin that all the upheaval of the past few years has built up resilience to whatever comes next.
But there was only so much he could gloss over the consequences if demand from heavily U.S.-based clients suddenly dries up. “It would be devastating,” he acknowledged.
The devastation could be felt across the highly integrated North American auto sector. That includes the automakers themselves, who can ill afford greater production costs and ensuing price increases for vehicles just as they’re trying to move past years of sluggish consumer demand and their own stumbles while cutting into the Chinese auto industry’s massive lead in electrification.
But interviews and site visits to various corners of Canada’s auto industry in the period following Mr. Trump’s election win in November suggested that the risk is particularly acute for parts suppliers.
These are the hundreds of Canadian companies that, directly employing about 100,000 workers and generating about $35-billion in annual revenue producing everything from assembly-line equipment to engine components, make up the heart of the domestic auto sector. And the smaller they are, the greater the existential threat.
The multinationals that assemble vehicles in Ontario – Ford Motor Co. F-N +2.46%increase, Honda Motor Co. HNDAF +3.61%increase, General Motors Co. GM-N, Stellantis NV STLA-N and Toyota Motor Corp. TM-N – are not leaving any time soon. In almost all cases, they have assembly lines (for gasoline-fuelled vehicles, EVs or a combination) locked in for the next several years or retooling underway. Relocating to the United States would be far too expensive and time-consuming to undertake based on tariffs that may only last weeks or months if they’re imposed at all.
It’s seemingly a similar story with the three landmark EV battery plants at varying stages of development in Ontario, all of which are (heavily government-subsidized) investments meant to pay off over multiple decades.
During recent visits by The Globe and Mail to two of those projects, they appeared to be proceeding on schedule. At the Windsor battery facility being built by Stellantis and LG Energy Solution (which has already modestly begun production), approximately 1,000 workers were continuing construction. Atthe St. Thomas site that will be home to the Volkswagen Group’s first North American foray into battery making, crews were busily preparing the grounds for construction to begin this year, toward the first production lines starting in 2027.
The third battery plant, to be built by Honda as part of an electrification push at its long-standing manufacturing facilities in Alliston, is currently the least advanced. But Asahi Kasei, with which Honda has partnered, recently broke ground on a battery-component plant in Port Colborne.
Honda Canada representative Ken Chiu said he could not speculate on the effect of Mr. Trump’s policies. “What I can tell you is that we remain committed to our current Canadian manufacturing and our plans for electrification production in Canada,” he said. “Our Canadian EV value chain investment plans are for the long term and already include flexibilities to allow us to adapt present and future operations where necessary and reflect any changes in market conditions.”
That was consistent with what industry insiders are saying about other automakers’ plans: Rather than redraw long-term strategies, they’re more likely to respond to immediate turmoil by adjusting schedules – whether that means curbing production at existing facilities, pushing back start dates or scaling up new products more gradually.
While that could still be bad news for shareholders and employees, the past couple of years have demonstrated that it can be worse for the supply-chain companies that count on the big automakers as clients.
A frequent complaint from parts makers during the EV transition has been that after hurriedly beginning to produce parts for new vehicle lines – or making related capital investments – they’ve been left in the lurch when their automaker clients have abruptly changed or postponed plans. And that could become an even more common occurrence, on both sides of the border, with what Mr. Trump may have in store.
If so, it won’t hit all suppliers equally. And one of the key differentiators, in terms of durability, may be size.
The biggest players in Canadian parts making have certainly taken their hits already during the electrification journey. For instance, Linamar Corp. – the country’s second-largest parts maker – has put off plans to make EV frames at a new factory it’s already building in Welland, Ont., after client demand dried up. (Linamar has not said who the client was, but it’s widely speculated in the industry that it was Ford, which last year delayed a plan to make EVs at its Oakville plant.)
Nevertheless, in an interview at Linamar headquarters in Guelph, executive chair Linda Hasenfratz sounded bullish about how the company – which reported strong year-over-year earnings growth in its most recent quarterly report – has weathered the storm so far.
In fact, she said, it’s taken over work – and, in some cases, assets or entire facilities – from competitors that are struggling to adjust to automakers’ sudden pivots.
Ms. Hasenfratz credited that opportunity to Linamar’s corporate strategy of prioritizing flexibility, including by mostly investing in assets that are not EV-specific and can also be used to make components of gas-fuelled or hybrid vehicles. “There’s a lot of suppliers out there that bet the farm on battery electric, and they’re hurting right now because they rode one horse,” she said.
But a large, diversified asset profile is also a luxury that many smaller companies don’t have. And it’s meant less impact on the bottom line when an investment does face a major setback, as in Welland.
The U.S. tariff hit would be considerably more challenging for all concerned. But even then, Automotive Parts Manufacturers’ Association president Flavio Volpe said, the bigger players would have greater ability to absorb short-term hits. (Among the more vulnerable to upheaval, he noted, are Tier 2 companies – smaller players that supply other parts makers rather than the big automakers directly, and that can have problems passed down to them.)
It points to an obvious risk that the total number of Canadian companies in this space will shrink considerably if there is a lengthy period of hardship.
At the same time, there would also be lots of pain for U.S.-based companies, fuelling hope among industry representatives that Mr. Trump will back off.
American parts makers have been similarly battered by the past few years, and don’t enter this situation in much stronger shape. MEMA Original Equipment Suppliers president Collin Shaw – Mr. Volpe’s U.S. counterpart – said in an interview that his members’ profit margins have not yet climbed back above 5 per cent, after being around 8 or 9 per cent before the pandemic. He thinks 2025 could be better, because the market is due for a surge of consumer purchases. But if the Trump tariffs are imposed, all bets are off.
It’s not as though production of parts currently made in Canada could move to the U.S. overnight, and the general consensus is that few companies would start the lengthy process of building new product lines there on the basis of tariffs that might be quite temporary. And the continental sector is so intertwined, with parts for vehicles made on both sides of the border constantly travelling across it, that Mr. Trump’s tariffs – plus possible retaliatory Canadian ones – would raise costs for all concerned.
The fact that punitive measures anywhere near the level Mr. Trump has suggested make so little sense for the entire North American industry, and are directly at odds with competing with China, is “strangely calming,” Mr. Volpe said.
Heading into Monday’s U.S. presidential inauguration, Mr. Lam (who represents a narrower swath of the industry than Mr. Volpe) suggested it was best to treat the tariffs as purely hypothetical. There were a few things he advised his association’s members to do, including reviewing purchase orders to ensure the commercial terms state the suppliers are not responsible for duties and taxes. Mostly, they just had to proceed with business as usual.
But such sanguineness may be harder to maintain, now.
Even if Mr. Trump does not immediately impose tariffs on Canada, the threat will linger, and his appetite for policy upheaval could further destabilize the industry in other ways.
Already, Mr. Lam said, the EV transition is likely to involve significant consolidation – survival of the fittest, or perhaps the nimblest. But another black swan event now, as companies are still finding their footing after the previous ones, could accelerate it.
“Smaller businesses are all just trying to manage these tectonic forces, all these plates that are coming together,” he added. “I mean, the timing is uncanny.”
Shared from: https://www.theglobeandmail.com/business/article-for-parts-suppliers-facing-a-bumpy-electric-vehicle-transition-trumps/
