Ford’s Oakville electric-car plan hinges on U.S. election, market shift

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The ratification of a new contract at Ford Motor Co. of Canada paves the way for this country’s entry into the electric vehicle sweepstakes, tying the fate of the company’s 67-year-old Oakville, Ont., plant to the emerging market for battery-powered cars.

Details remain sketchy about Ford’s plan to invest $1.8-billion to assemble battery-electric vehicles (BEVs) in Oakville as the automaker completes negotiations on a reported $500-million subsidy package from the Ontario and federal governments.

Much is riding on the move, however, including the jobs of more than 3,000 workers at the plant, which currently builds the gasoline-powered Ford Edge and Lincoln Nautilus. If the retooling is to pay off, the market for BEVs will need to have passed the tipping point before the first battery-powered model rolls off the Oakville assembly line in 2024.

Even if BEVs do take off, it remains unclear whether Ford will be among the beneficiaries. U.S.-based Tesla Inc. leads the market in BEV sales, followed by a handful of Chinese and European players. None of the Detroit Three automakers is in the top 10.

Big changes on the regulatory and technology fronts are still needed before BEVs go mainstream. The Detroit Three will need to up their game if they are to successfully manage a transition away from their bread-and-butter business. They currently rely on sales of gas-guzzling pickups and sport utility vehicles to turn a profit.

While BEVs do not emit greenhouse gases, manufacturing batteries on a massive scale poses environmental challenges that the industry also must address. Battery suppliers “must solve challenges related to sustainability by turning the whole battery value chain, from mining to recycling, into a sustainable and responsible industry,” McKinsey & Co. associate Markus Wilthaner said in a July report.

According to the report, the market for electric vehicle batteries is still ruled by Asian producers. China’s CATL held a 28-per-cent share in 2019, followed by South Korean players.

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Over all, battery-electric and plug-in hybrid electric vehicles (PHEVs) accounted for just 2.5 per cent of global light vehicle sales in 2019. Sales of electric vehicles stalled last year and dropped dramatically in the first quarter of 2020, as governments in the United States and China slashed consumer subsidies and COVID-19 emerged in Asia.

Electric vehicle sales rose only 3 per cent in China in 2019 amid “significant” cuts in subsidies. Sales plummeted 57 per cent in the first three months of 2020. U.S. sales dropped 12 per cent in 2019 after the phase-out of a federal tax credit on electric vehicle purchases. In the first quarter of 2020, U.S. sales were down 33 per cent.

Since the fate of Canada’s auto industry is inextricably tied to U.S. car sales, a major shift toward BEVs needs to happen south of the border in order for Ford to earn a return on its investment in Oakville. Unfortunately, BEVs still remain a niche sector in the U.S., dominated by Tesla and limited to well-heeled early adopters of new technology.

U.S. President Donald Trump’s move to roll back fuel-economy standards for gasoline-powered cars, along with projected low oil prices, could be a major drag on BEVs for the next few years.

Needless to say, much could depend on the outcome of November’s presidential election.

Democratic candidate Joe Biden could reinstate the stricter fuel economy rules if he wins the White House. At the very least, a Biden administration would drop a legal challenge to California’s plans to press ahead with its own tougher regulations.

Amid the devastating wildfires in his state, California Governor Gavin Newsom last week issued an executive order to phase out the sale of gasoline-powered vehicles starting in 2035. Experts were skeptical of the move, saying California’s electricity grid already faces severe capacity constraints and the state recently resorted to blackouts.

The head of the U.S. Environmental Protection Agency, a Trump appointee, questioned “the legality and practicality” of Mr. Newsom’s move in a letter obtained by Reuters.

“California’s record of rolling blackouts – unprecedented in size and scope – coupled with recent requests to neighbouring states for power begs the question of how you expect to run an electric-car fleet that will come with significant increases in electricity demand, when you can’t even keep the lights on today,” EPA chief Andrew Wheeler said.

Mr. Biden’s US$2-trillion climate-change platform stops short of a promise to phase out gasoline-powered cars. His plan, which would require approval by the U.S. Congress, does include a vow to ramp up subsidies for BEV purchases and build 500,000 new EV charging stations.

Still, a lot would need to fall in place before anyone could call Ford’s plan to assemble BEVs in Oakville a safe bet.

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