Doubts about the demand for electric vehicles in the U.S. is creating new questions around the development of the Canadian lithium-ion battery industry, says Jon Wojnicki, a partner at EY Canada.
“The Canadian battery landscape has sort of gone soft. People have made the announcements, they say they’re moving forward, but I’ve got to believe there’s a lot of soul searching going on, because these are big, multi billion-dollar investments.”
While Wojnicki says overall lithium-ion battery production and use of EVs in North America is a good growth story, there’s a cloudier outlook due to uncertainty around the enthusiasm and incentives for the industry during the administration of U.S. President Donald Trump.
The Canadian industry faced a setback last year when Swedish battery manufacturer Northvolt AB filed for Chapter 11 protection in the U.S. last November. The firm was planning to build a $7 billion factory in Quebec with financial support from several Canadian pension funds.
The bankruptcy caused the Ontario Municipal Employees’ Retirement System and the Investment Management Corp. of Ontario to write down investments of US$325 and $400 million, respectively. The Canada Pension Plan Investment Board and the Caisse de dépôt et placement du Québec also made financial contributions to the Swedish firm.
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Wojnicki says Canadian institutional investors could offer more financial support to the infrastructure needs for the Canadian lithium landscape. However, he notes these investors typically don’t invest in mining companies at early stages.
“The Canadian pension plan investors may have to take a long-term perspective and figure out how many steps in the value chain they should play in to get the right amount of volatility management and where in the capital stack they should play, whether it’s debt or mezzanine financing or off-take financing or risk equity.”
Lukasz Bednarski, principal research analyst and a battery raw materials analyst at S&P Global Inc., says the development of the battery supply chain in North America is in its early stages despite receiving support from the Investment Reduction Act in the U.S. The legislation is now under question with Trump at the helm, he notes.
“Before there were a lot of major companies [that] were interested to come to the U.S. to build the supply chain there. But nowadays they may hesitate with this uncertainty.”
On a global scale, battery makers across China, Korea and Japan are meeting the increasing demand for these technological tools. Indeed, he adds China continues to increase its EV market penetration dramatically by producing vehicles with integrated value chains.
According to a report by the Financial Times, European battery companies are now scaling back their plans and looking for deals with their Asian counterparts following the collapse of Northvolt.
“Northvolt is now a cautionary tale for other start-ups who are key to achieving the EU’s strategic goal of breaking its reliance on China for batteries as customers shift to electric vehicles, but remain years behind Chinese and Korean competitors.”
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