Canada’s auto sector faces uncertain future
Tariffs, delays, and doubt: Canada’s auto sector faces uncertain future
Canada’s automotive industry is caught in the crosshairs of a shifting US trade policy. Investment has stalled, jobs are at risk, raising urgent questions about the country’s role in North America’s automotive future.
The Canadian automotive industry is under pressure with the Trump administration undermining the sector with tariffs. Reported comments at a recent Toronto conference by the US commerce secretary, Howard Lutnick, perhaps demonstrate the seriousness of the situation. Lutnick, echoing his president’s strident words, reportedly said the Trump administration “does not want automotive manufacturing in Canada”. Whether the US government can enforce such industrial imperialism or even really wants to bring the Canadian auto sector to an end is a debatable point, but the industry and Canadian politicians are right to be worried.
Cross-border trade in parts is essential to the manufacture of vehicles in both Canada and the US. Canadian industry and government spokesmen regularly cite that Canadian-made vehicles contain 50-60% US content
Investments on hold
Uncertainty pervades the industry right now and the major vehicle companies with production facilities in Canada have paused investments in new models and converting factories to electric vehicles. Stellantis has postponed the electric Jeep Compass and Charger, GM has stopped production of its Bright Drop electric vans and Ford has cancelled EVs destined for Canada, but it will make some of the larger ICE-powered F-series Super Duty vehicles in Canada.
Cross-border trade in parts is essential to the manufacture of vehicles in both Canada and the US. Canadian industry and government spokesmen regularly cite that Canadian-made vehicles contain 50-60% US content, both parts and raw materials; the Canadian content of US content is generally much lower but there are major VM-owned engine plants in Canada and a whole host of suppliers which ship parts south across the border into Michigan, Ohio and further afield. Many Canadians living in Ontario cross the border into Michigan each day for work and many US citizens work in auto companies in and around Ontario. Disrupting long-established patterns of economic activity can have a very direct and immediate impact on the people involved if the companies they work for lose business and end up closing because of trade disputes.
Prior to the Trump administration upending so much of the established economic order … Canada had seen in the region of C$46 billion of new investment in automotive manufacturing since 2020
Uncertainty over EV production
Both Canada (which announced a number of reciprocal tariffs in response to those imposed from the US) and the US itself have announced a series of measures to ameliorate the full impact of tariffs. However, for suppliers especially the work involved in proving compliance with these ameliorating conditions is far from easy and is not cost-free; additional staff are required process the necessary documentation, whether online or on paper.
Prior to the Trump administration upending so much of the established economic order in North America in general and in the auto industry in particular, Canada had seen in the region of C$46 billion of new investment in automotive manufacturing since 2020. This included vehicle programmes noted above and others, some of which have been cancelled or delayed in the light of the new tariff regime. And even key projects such as GM planning a cathode facility in Canada may be in doubt. Some of this investment has come from major Canadian-owned suppliers, notably Linamar and Magna. Linamar announced investment of C$1 billion in new projects in Ontario in January 2025, focused on hybrid and EV powertrain parts. How much of this will be at risk now with EV programmes delayed or cancelled is not clear.
The same concerns apply to the investment from Taiwanese-based Minth Group. Minth plans to build two factories in Ontario, with around 1,100 new jobs created. One plant will make casings for EV batteries, the second plant is a joint venture with Aisin of Japan which will take a range of aluminium, steel and plastic components, also for EVs. However, which vehicles will use these parts and in what volume is open to question with the cancellation or delay to many EV programmes is open to debate.
At a national level, Canada has been promoting itself as an alternative source of all – or almost all – the key materials required for batteries
Looking at markets beyond the US
The state of Ontario government is also trying to support the development or maintenance of the automotive supply chain. Well-intentioned though its efforts undoubtedly are, schemes worth C$56m in homegrown Canadian companies provide only limited support compared to what is likely to be required to maintain or help grow the sector. And applying for such support and proving eligibility and compliance is time-consuming, costly and potentially diversionary from core business activities. At a national level, Canada has been promoting itself as an alternative source of all – or almost all – the key materials required for batteries. Countries and companies across the world want to reduce reliance on China which dominates either mining or the processing (or both) for critical minerals. If the market for EV battery materials in the US dries up, there will likely be a market for these materials in Europe where pressure is rising to reduce dependence on China for critical minerals.
What all of the above produces is a state of uncertainty for new investment; and with the underlying USMCA (CUSMA to Canadians) free trade deal, negotiated under the previous Trump administration due for review and potential renewal in the coming years, investors are getting nervous. Recently the Candain Federation of Independent Business suggested Ontario alone (which is where most of the Candain auto sector is based) could lose out on C$2.9 billion of automotive investment in the next year because of the uncertainty over future trade relations between Canada and the US. Half of the 500 companies responding to its survey said they had paused or cancelled automotive investment and could not say when they would reactivate such plans. Hiring has stopped, pay rises delayed and equipment purchases have been delayed or postponed.
The Canadian government has said it will do all it can to protect Canadian jobs and will develop a new industrial strategy focused on exports beyond the US. How long such a strategy will take to develop and be seen to work is another matter. In the meantime the Canadian auto sector is in a state of semi-suspended animation; and, while this stasis continues, the major Canadian components supplier, Linamar, which had announced investment in Canada earlier in the year, said in early October that it would spend US$300m (C$420m) to buy Aludyne’s North American operations – this adds 12 production locations in the US and one more in Mexico but none in Canada. Observers may well ask if this is a sign of things to come?
