The cost of driving electric is edging closer to reality for more consumers, as prices for electric vehicles (EVs) approach a “tipping point” where they could be cheaper to own over their lifespan than gasoline-powered cars and trucks. This shift is being fueled by substantial government subsidies in both Canada and the United States, but manufacturers are also grappling with supply chain complexities and a renewed focus on domestic production.
Stephen King, vice-president of strategy and investor relations at Winnipeg-based NFI Group Inc., highlighted the growing momentum behind EV adoption. “We’ve definitely seen the political will, and the political commitment there to help customers support the transition to EV,” King said this week at a clean technology conference in Montreal organized by National Bank. “Federal funding is critical for a lot of customers, and we’re in an environment right now where funding has never been higher, so now demand has never been higher.”
Both Canada and the U.S. Are incentivizing the move to electric transportation. Canada’s 2022 budget allocated $1.7 billion towards a program offering incentives for zero-emission vehicles. Across the border, the U.S. Inflation Reduction Act aims to invest US$369 billion in clean energy and climate programs, including expanded tax credits for electric vehicles.
However, accessing these funds isn’t straightforward. NFI, a major bus manufacturer, faces requirements that 70 per cent of its bus components be made in the U.S. To qualify for subsidies, according to King. This “made in America” provision, alongside ongoing disruptions to global supply chains, is creating hurdles for EV manufacturers looking to fully capitalize on government support.
Supply Chain Struggles and a Return to Vertical Integration
The past 18 months have been particularly challenging for NFI, with difficulties sourcing essential components. “At one point, we had trouble finding everything from fibreglass, to metal, to even bus seats,” King explained. Even as there are signs of improvement – Statistics Canada reported a record $46.8 billion in company stockpiles in the third quarter – manufacturers are rethinking their reliance on complex, global supply networks.
Nicolas Brunet, chief financial officer of The Lion Electric Co., another bus manufacturer, noted the drawbacks of outsourcing. “You finish up paying a significant amount of margins to a third party to whom you’re really captive, as a client,” he said at the same conference. This realization is driving a trend towards vertical integration – bringing more of the manufacturing process in-house.
Lion Electric is already taking steps in this direction, having begun its own production of battery packs and modules. Brunet stated this move “significantly de-risks the procurement aspect.” This strategy echoes a historical approach pioneered by industrial titans like Andrew Carnegie, who controlled every stage of steel production, from mining raw materials to manufacturing the finished product. Historical accounts detail how Carnegie owned the iron mines, coal mines, railroads, and steel factories, ensuring a consistent and reliable supply chain.
The benefits of vertical integration extend beyond supply chain security. Sam Bruneau, chief executive of Taiga Motors Corp., a maker of electric snowmobiles and personal watercraft, explained that his company adopted this approach from the outset. Taiga, entering the market as a first mover, was forced to design and produce all components internally over a seven-year research and development period. “We’ve done everything from a clean sheet,” Bruneau said. “We’ve designed, engineered, and produced everything in-house.” He added that this approach allows for faster innovation, with improvements implemented on a monthly basis, compared to the two-to-three-year development cycles often associated with third-party suppliers.
NFI Group is also exploring a hybrid approach, beginning to assemble some components in-house, including battery cells, modules, and management systems. King stated this allows the company to remain flexible and “move with the market.”
Looking Ahead: Supply Chains and Consumer Adoption
Despite the progress, challenges remain. King anticipates that supply chain disruptions will continue to impact the industry throughout 2023, but believes companies will emerge stronger as a result. “We’re not out, collectively, of this supply chain crisis. I believe we’ll still see the effects of it throughout 2023,” King said, “but I believe we’ll come out of this a much stronger company from a supply chain and business-process standpoint.”
Beyond logistical hurdles, manufacturers recognize that shifting consumer perceptions is crucial. Brunet of Lion Electric identified the biggest obstacle as overcoming the “status quo.” “I would say that our biggest competition is, by far, ‘status quo’,” he said. “Change is always difficult, in any context.”
The convergence of government incentives, a renewed focus on supply chain resilience, and a growing awareness of the long-term cost benefits of electric vehicles suggests that the transition to electric mobility is gaining momentum. The next key development will be the full implementation of the U.S. Inflation Reduction Act and its impact on cross-border supply chains, as manufacturers navigate the requirements for accessing those substantial subsidies.
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