A pivot to markets across the Atlantic could save Canada’s auto industry—but so could one to markets across the Pacific

The welcome mat is certainly laid out, Finnish President Alexander Stubb — who is becoming not only something of a spokesperson for the E.U., but also a thorn in Donald Trump’s side — recently quipping that “Wouldn’t it be lovely if Canada was the 28th state of the European Union rather than the 51st state of the United States?” But, as much as Canada at large might benefit from closer relations with the E.U., the important question for this column is…

Would our auto industry prosper?

Unsure. On the one hand, the E.U. is the biggest unified automotive market after China and the United States. For another, Canada’s low-carbon energy production would mean any products — like cars, batteries, or hybrid powertrains — with iron, steel, or aluminum in them wouldn’t get dinged by the E.U.’s Carbon Border Adjustment Mechanism (CBAM) tariff as much as those from a high-emission country. China’s electricity generation efforts, for example, currently emit at least three times more carbon dioxide per kilowatt-hour than Canada’s green(-ish) grid.

On the other hand, there would seem little chance of any European automaker assembling cars here (unless, of course, you consider Stellantis’ production of Dodge Chargers and Chrysler Pacificas “European”). Not only are Mercedes, BMW, and, most of all, Volkswagen reeling from Chinese consumers’ sudden rejection of Western brands, but their home markets are suffering as well. Cutbacks seem the order of the day, not expansion into small — and therefore risky — markets. Most importantly, they bet big on pure electrics and, as Motor Mouth contended last week, North Americans want hybrids, a technology where E.U. automakers — and especially the Germans — trail the pack.

So, where should the Canadian auto industry pivot to?

The United Kingdom recently signalled its transition away from the E.U. by signing a trade pact with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a free-trade zone that includes countries such as Australia, New Zealand, Singapore, Malaysia, Vietnam, Japan, Mexico, and, yes, Canada. Although a smaller combined market for automobiles than the European Union, it is a market of some 600 million souls whose economies are growing far faster than Europe.

Britain’s treasury department estimates the deal will add £2 trillion (almost CDN$4 trillion) to Britain’s economy, per a recent article by MoneyWeek’s Matthew Lynn. And yet despite being a long-time member of the CPTPP — we joined in 2018 — there’s been comparatively little push to expand our bilateral trade with its members.

That might be a mistake. As Motor Mouth detailed last week, Canada might well be advised to focus our auto industry’s future on hybrids. For one thing, trying to compete with China on EVs — as many in the Liberal government, as well as APMA President Flavio Volpe, have counselled — is a non-starter. China’s lead in battery development is so prohibitive that catching up would seem to be impossible, especially for someone so late to the game as Canada.

Wouldn’t it be lovely if Canada was the 28th state of the European Union rather than the 51st state of the United States?

On the other hand, a cursory investigation into CPTPP nations’ auto market suggests that, in almost all CPTPP member countries, hybrids outsell BEVs. In some, penetration is small — Malaysia and Mexico, for instance — while in others, like Australia, for one, HEVs and PHEVs own almost 30% of the market. Even in Vietnam, home to the same VinFast that now sells EV in Canada, there’s been a run on hybrids, largely because there’s a lack of public charging stations.

And then there’s Japan. Almost 55% of the cars sold in The Land of the Rising Sun are a hybrid of some kind. That’s compared to the less than 2% market penetration for BEVs. In all, Japanese motorists buy two million hybrids each and every year. More importantly, Toyota and Honda are, by far, the most important automakers assembling cars in Canada and, as Motor Mouth also detailed last week, most of the almost one million vehicles they produce here are hybrids. Somewhere in there, there’s gotta be a deal to be made.

From the auto industry’s point of view, that deal revolves around Canada’s plentiful supply of critical minerals—the cobalt, nickel, copper, aluminum, magnesium, graphite, and lithium that are all crucial to the production of batteries and electric motors. We also have an abundance of the clean, green electricity required to build (relatively) low-carbon batteries. Most importantly, if a deal could be made, we already have the customers for said batteries and electric motors: between the two of them, Toyota and Honda currently build some 500,000 hybrid-powered vehicles in Canada, and the plan is for that number to grow.

So, is there a grand bargain to be made? Japan needs our critical metals (not to mention the rare-earth minerals of which Canada also has an abundance). We need to expand our input into auto assembly and auto parts manufacturing. Currently, the majority of batteries and electric motors built into Canadian-assembled hybrids come from either Japan or the United States.

Could there be a deal whereby we could supply Japan advantageously-priced critical metals and rare-earth minerals in return for building batteries and electric motors here in Canada, as well as being allowed to export all those electrified CR-Vs and RAV4s to someone besides the Americans? I don’t know, but wouldn’t it be fun — once we had signed some agreements to exploit that abundance of resources — to slap a 100% export tariff on all such critical and rare-earth products destined for the good ol’ U.S. of A?

If this all sounds a little too much like the Liberals’ botched plans to become an EV powerhouse, understand that Trudeau’s virtue-signalling — as Shakespeare (kinda, sorta) said, one should never let the wish be father to the thought — was a dream that wasn’t based in any kind of reality. Building those same products — again, batteries and electric motors — for a proven and rapidly expanding market for hybrids, both domestically and abroad, is not.

Like I said, we may be talking to the wrong people.

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