Car dealerships seem to be facing very uncertain times. Governments around the world including Canada have committed to significantly reducing Greenhouse Gas emissions in an effort to prevent global warming. As a result, every major auto manufacturer has committed to an Electric Vehicle strategy which is being rolled out to many dealerships that are now in the process of transforming their dealerships to sell and support EV cars. The problem is auto dealerships do not have cars, petrol or electric, to sell due to the global shortage of microchips and EV batteries required in new cars. Will car dealerships have any EVs to sell in the transformed EV dealerships any time soon?
Why do we have a microchip shortage?
The COVID-19 pandemic has had an impact on nearly every industry. As countries around the world faced lockdowns, and people became ill from COVID-19, worldwide manufacturing came to a halt, as did the global supply chain. This destabilized the world’s trade networks and caused shortages in raw materials which prevented efficient and dependable supply chains that existed prior to COVID.
Nearly everything we use from a car to a toaster requires microchips, and since over the past two years the pandemic has disrupted the equilibrium of consumerism and manufacturing, the manufacturing and distribution of much-needed microchips and semiconductors has tipped off balance. Last year, the global automotive industry lost more than $200 billion in sales. This lack of new cars available in the market caused used car sales to skyrocket. Dealerships simply did not have cars to sell. Mainly due to the lack of these highly important microchips, vehicles could not be rolled off the production lines, and the wait time for new vehicle purchases increased up to a year. Despite the automotive industry only using between 5% to 10% of the worlds semiconductor supply annually, auto manufacturers still could not get their hands on microchips, even when labor shortages and supply chain issues got more or less resolved. This was due to most chip manufacturers switching their attention to servicing other industries such as personal electronics. Since the era of 5G phones has recently arrived, requiring more sophisticated microchip technology, microchip factories had to restructure their manufacturing process to accommodate this change. Unfortunately, chips for the auto industry was left behind, as they waited in a long line for their orders to be completed.
Currently, China is the main producer of semiconductor chips in the world, and with the current rise in political tensions between Taiwan, China, and the West, who knows what the future may hold for the stability of the microchip industry in its current state.
How are the microchip shortages being addressed?
You may be thinking, why don’t we simply make these microchips domestically? After all, it would cut out the inconvenience and uncertainty of trans-pacific shipping along with political and diplomatic hurdles, while also ceasing to be dependant on foreign powers and navigating through harsh political landscapes. Unfortunately, its not that simple. Manufacturing semiconductor chips is a very technologically sophisticated process that takes years of setting up factory infrastructure to achieve. In order to produce chips, crystalline silicon wafers must be crystallized over a 14-week period, and the process of making a chip from start to finish requires over 700 calculated steps. Despite these hurdles, the US Federal Government has recently signed the CHIPS and Science Act of 2022 which will allocate nearly $53 Billion to fund the domestic manufacturing of semiconductor chips and will also support research into furthering technologies associated with advanced microchips. The funding will also financially support the push towards more cutting-edge chips with higher compacity for processing and computing power which are more desirable for intensive calculations and computing. The demand for these high-tech chips has been increasing as they are needed for various applications such as AI technology seen more and more in self-driving cars.
What is our government doing from here on in?
In accordance with fighting global climate change, the Canadian government has committed to decarbonizing virtually the entire transportation sector by 2035. By that year, all sales of new light-duty combustion engine vehicles in Canada will stop. Zero emission vehicle (ZEV) sales targets have been set for light-duty vehicles to increase to 395,000 by 2026, 1.2 million by 2030, and 2 million by 2035. This would make about 40% of all light vehicles on the road by 2035 to be ZEV.
In order to achieve these targets, the Canadian Federal Government has been pushing for the expansion of industries related to mining critical minerals in order to produce batteries and other critical elements such as raw materials for semiconductors for various components found in fully electric vehicles. Other countries are scrambling to get their hands on natural minerals to facilitate production of EV batteries, along with other materials to make a variety of necessary components for microchips and electronics. Chinese mining companies are currently taking steps to strike deals with the Taliban government in Afghanistan to mine for Lithium, as Afghanistan has the world’s largest lithium reserves in existence. The EU Commission has also been discussing creating a more self-sufficient microchip manufacturing environment as seen by the European Chips Act, which will help transition to a more digital and green environment.
As Canada possesses vast amounts of untapped natural resources, the Federal government this year has announced the Critical Minerals Strategy, $3.8 Billion in funding over a period of the next 8 years to secure Canada’s position in the supply chain of critical minerals for green technologies. This budget will commit $80 million to public geoscience and exploration programs; double the Mineral Exploration Tax Credit for targeted critical minerals, including nickel, copper, cobalt, rare earths elements and uranium; allocate $1.5 billion to new infrastructure investments in critical mineral regions; allocate $1.5 billion into mineral processing, materials manufacturing, and recycling of key minerals and metal products in the battery and rare earth’s elements supply chain. Furthermore, another $144 million will be allocated to address responsible extraction and processing of critical minerals, and adding an additional $40 million to support northern regulatory processes in reviewing and permitting critical mineral projects. Programs are also being revamped, such as the Centre of Excellence on Critical Minerals for three more years, which will see an addition of $10 million in funding. Lastly, this program will also invest $70 million for global partnerships to promote the Canadian mining industry on the world stage. All these investments serve to expand and grow our domestic Canadian mining economy in order to become more self-sufficient in future years. Canada has virtually all the resources necessary to produce electric vehicles domestically, so it is only a matter of time before we focus our energy to develop the correct infrastructure to accomplish this task.
Government Funding for EV industry in Canada
The Federal Government is firmly committed to reducing Greenhouse Gas Emissions and believes the Critical Mineral funding and Microchip Funding in the US are strategies that will eventually contribute to the steady production of EVs in the short term. Federal rebates for the purchase of new EVs of up to $5,000 will be available until March 31, 2025 or until funds are used up. In additional the Federal Government’s Zero Emission Vehicle Infrastructure Program (ZEVIP) will run until 2027, allocating $680 million to address the infrastructure concerns related to charging EVs throughout Canada. The program is available to all types of businesses, multi-unit residential buildings, and with an emphasis towards auto dealerships which are implementing charging stations on their properties, whether they be for public or private use. The fund will generously cover up to 75% of costs associated with purchasing and installing charging stations, for up to a maximum amount depending on which level charger is being implemented. This includes EV chargers for public use located outside of the dealership building, as well as any chargers located in service bays or on the sales floor for educating the public and potential EV buyers. Today, many car dealerships are expecting to receive an increase in fully electric vehicle fleets, and so the dealerships must now start thinking about the best way to implement the infrastructure to accommodate such a change in technology.
So, will dealerships have EVs to sell any time soon? It would seem that the Canadian and American Federal Governments have put a strong plan in place to help with the production of EVs. From microchips to EV battery manufacturing, North America is developing the infrastructure, and technical know-how to solve these supply shortages. As businesses begin to take advantage of the Federal Government’s generous funding programs, Canada will soon have great potential to become a world leader in both EV manufacturing, as well as being a global supplier of all the necessary critical minerals to transition to a zero-emission world.