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Ont vs Que: Battle of the batt....eries

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Ontario risks losing its auto crown as cheap, green power gives Quebec the EV edge

As both provinces race to woo automakers and battery makers, a new quandary could arise

Author of the article:

Gabriel Friedman

Publishing date:

Mar 11, 2022  •  20 hours ago  •  8 minute read  •   84 Comments

Quebec's cheap, clean energy gives it an edge in the shift to EVs. PHOTO BY GIGI SUHANIC/NATIONAL POST ILLUSTRATION

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Ontario Premier Doug Ford this past fall spoke at a provincial construction industry conference and told his audience that his province would be at the vanguard of the next revolution in automotive production.

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“We’re going to be the No. 1 manufacturer of electric cars anywhere,” he said.

 

Similar things are said next door in Quebec. Economy Minister Pierre Fitzgibbon regularly brags about the powerful combination of his province’s rich mineral endowment and the cheap, low-emission electricity produced by Hydro-Qubec.

 

“If we play our cards right, we could become world leaders in this market of the future,” he said at a press conference a year ago.

 

In Ontario, which has been the locus of Canada’s auto sector for decades, months have come and gone without any new battery manufacturing projects being announced. But in Quebec, nodes that could become part of a North American supply chain for electric-vehicle battery production are already popping up.

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In the past week, two international manufacturing giants — General Motors Co. and BASF SE — announced plans to open what would be the continent’s first cathode-making facilities, both located in Bcancour, an industrial port city about 180 kilometres northeast of Montreal.

 

That adds to the electric van and bus manufacturer Lion Electric Co.’s planned battery assembly plant outside Montreal. And several battery companies, including BritishVolt Ltd., a United Kingdom-based manufacturing firm that has partnered with Glencore PLC, have expressed interest in building a facility in Quebec.

 

Meanwhile, Ontario’s leaders continue to say they, too, are negotiating with international battery and auto companies, insisting that an announcement is months away, possibly weeks.

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As both provinces look to woo automakers and battery makers with financial incentives and subsidies, the situation may raise a new quandary for Canada. In their zeal to grab a piece of the burgeoning EV supply chain, will Quebec and Ontario end up competing against one another in a race to the bottom, in which all the purported benefits of industry, from jobs to tax revenue, fly out the window as companies secure lucrative deals?

 

“Obviously, I think Quebec and Ontario are always in competition for the new auto industry,” said David Adams, president of the Global Automakers of Canada, a lobby group that represents non-American companies such as Honda Motor Co. Ltd. and Bayerische Motoren Werke AG (BMW).

 

Adams added that having an auto industry in both provinces could also be complementary. If battery manufacturers build facilities in Quebec because of its cheap, low-emission electricity, that may also help entice automakers to build operations in Ontario, which has a track record of building vehicles.

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The potential upshot is that Ontario may no longer be the geographic locus of Canada’s automotive supply chain as the sector begins one of the largest industrial transformations in history, and the major value component shifts from the internal combustion engine to the battery.

 

A mural in Oshawa, Ontario. depicts the city’s more than century-long history of making automobiles. PHOTO BY COLE BURSTON/BLOOMBERG

At a press conference this week in Montreal at which GM announced its plans to build its $500-million cathode plant, Franois-Philippe Champagne, the federal industry minister, portrayed the project as a victory for all of Canada.

 

“The competition, it’s never between us,” he said, as translated from French, “but it’s really with the different American states.”

 

The cathode plants will make Quebec an important part of the North American automobile industry again

 

The cathode plants will make Quebec an important part of the North American automobile industry again.

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“That’s a major shift,” Champagne said, before backtracking and pointing out that the factories in southern Ontario — just across the river from Michigan — already tie Canada into an international network of auto plants.

 

Still, many people working in Ontario’s auto sector acknowledge that Quebec’s cheap, clean energy gives it an edge in the shift to EVs. It was the major factor cited this week by GM and BASF — both of which have their Canadian headquarters in the Greater Toronto Area — for choosing Quebec as the location for their cathode plants.

 

“We made the decision to put it in Bcancour because of Quebec’s low-cost, but zero-GHG (greenhouse gas) electricity system,” David Paterson, vice-president of General Motors Canada, said in an interview, “which is a huge advantage, because you know that’s a big part of your operational cost.”

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Vuk Milojkovic, chief executive of BASF Toda America LLC, a unit of Germany-based BASF, and director of Battery Materials North America, said picking a battery manufacturing site requires companies to look at energy costs because it is an energy-intensive process.

 

“One of the key factors in Quebec, specifically, is the availability of hydroelectric power at very attractive prices compared to anywhere else in North America,” Milojkovic said about the decision to locate in Bcancour.

 

Federal minister of industry Francois-Philippe Champagne tours walks past a new electric bus during a tour of the Novabus plant in 2021 in St. Eustache, Quebec. PHOTO BY RYAN REMIORZ /THE CANADIAN PRESS

But he added his company had acquired enough land so that it can expand as the electric-vehicle battery industry grows, possibly adding upstream facilities such as battery recycling.

 

“When we invest, it’s sort of with a longer-term view in mind,” Milojkovic said. “It’s usually not just a one-off investment.”

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Such facilities represent the missing middle of a North American battery supply chain, which has grown up around mines and recycling facilities that can produce raw materials for EV batteries, and battery cell manufacturing plants.

 

But the raw materials, such as lithium, nickel and cobalt, need to be converted into a crystalline material, known as battery precursor, which, in turn, needs to turned into active cathode material, a dust, which is what GM and BASF are targeting. GM estimated its cathodes represent 40 per cent of the value of a battery.

 

These intermediate steps remain missing in North America, and both GM and BASF plan to import battery precursor from Asia for the foreseeable future.

 

But the nascence of the battery supply chain has helped spur a tide of investment and excitement that a first-mover advantage can still be obtained.

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Neither GM, nor BASF have disclosed how any branch of government may end up supporting or subsidizing their projects. Likewise, both the federal and Quebec provincial governments have said they plan to help finance an undisclosed portion of the project, possibly through forgivable loans, but have not disclosed any details.

 

The French language news outlet La Presse reported that Quebec may offer loans to help finance up to 25 per cent of GM’s total project costs, which would be forgivable if certain hurdles, such as job creation, are achieved, with the federal government contributing a similar amount.

 

Such arrangements have also been used in Ontario, which hasn’t yet attracted any significant battery manufacturing facilities, but has drawn billions of dollars of investment in other parts of the EV supply chain.

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For example, Ford Motor Co. in 2020 announced it would invest $1.8 billion to retrofit an Oakville, Ont., assembly plant for electric vehicles. Ontario and the federal government each agreed to provide $295 million for the project, for a total $590 million investment.

 

Meanwhile, GM plans to invest $1 billion in its assembly plant in Ingersoll, Ont., to build electric vans.

 

The European automaker Stellantis NV has said it plans to build two battery plants to supply its North American operations, and many are hoping this includes a battery plant in southern Ontario. A 2020 agreement with the union at its Windsor assembly plant indicates it would invest between $1.35 billion and $1.5 billion in its operations there.

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Quebec’s done a pretty good job of demonstrating that they have not only the resources, but all of the support to entice all of the battery makers

DAVID ADAMS, PRESIDENT OF THE GLOBAL AUTOMAKERS OF CANADA

Although Ontario also has a lower-emission electrical grid compared to other parts of North America, it is neither as clean nor as cheap as Quebec.

 

“Quebec’s done a pretty good job of demonstrating that they have not only the resources, but all of the support to entice all of the battery makers,” said Adams, president of the Global Automakers of Canada.

 

He cited the province’s electricity and its incentives to encourage consumers to buy electric vehicles as advantages.

 

Water rushes through a hydro electric dam in Carillon, Quebec. Industrial customers in Quebec pay anywhere from 30 to 80 per cent less for electricity than they would in Ontario. PHOTO BY RYAN REMIORZ /THE CANADIAN PRESS

An inventory of greenhouse gases by Environment and Climate Change Canada puts the difference between the provinces’ respective electrical grids into raw numbers. In Quebec, every kilowatt hour of electricity consumed in 2019 produced 1.5 grams of carbon dioxide equivalent emissions. The comparable figure in Ontario was 30 grams — about 20 times higher.

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Meanwhile, industrial customers in Quebec pay anywhere from 30 to 80 per cent less for electricity than they would in Ontario, according to Bryan Purcell, vice-president of policy and programs at The Atmospheric Fund, a non-profit endowed in Toronto that looks to reduce air pollution. He cited a study by Hydro-Qubec for the data.

 

“There’s no question that Quebec’s grid is a lot cleaner than Ontario’s,” he said.

 

Purcell criticized the Ford government’s decision in 2018 to cancel nearly 800 renewable energy projects, which it said would save money. He contends the decision means Ontario will increasingly rely on natural gas, which will make its electrical grid more carbon intensive and, eventually, more expensive as the carbon tax kicks in in the decades ahead.

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“They aren’t stimulating any new supply” of renewable power, he said. “That’s a big concern of industry.”

 

A spokesperson for Vic Fedeli, Ontario’s industry minister, declined to comment.

 

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Flavio Volpe, president of the Toronto-based Automotive Parts Manufacturers’ Association, said both provinces have advantages, and Ontario’s proximity to Michigan, home to the largest automakers in the United States, and its track record of supplying the engineering, procurement and other skilled labour necessary to run an auto-manufacturing operation can’t be overlooked.

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In the end, Ontario may retain its auto-manufacturing jobs, while Quebec may grab more battery manufacturing jobs.

 

“I think we’d all be well-served if that meant an increase in the actual amount of manufacturing in Quebec,” Volpe said.

 

The province once had a thriving auto sector, but the onset of globalization and free trade agreements in the 1990s meant that it and other provinces lost factories to lower-cost jurisdictions, such as Mexico.

 

The federal government can ensure that interprovincial competition does not spiral out of control by abstaining from matching any grants, Volpe said, who added he believes Ontario will see investment from battery companies.

 

But he said government has to put subsidies and financial incentives in place if it hopes to lure industry.

 

“You have to have a compelling offer, and a compelling offer usually comes down to money,” Volpe said. “You have to pay to play, and you can’t moralize