Canada is the only country in the Western Hemisphere with an end-to-end supply chain for electric vehicles (EV). Its EV manufacturing industry is the envy of the world. However, a cooling demand for EVs, caused by slower-than-expected consumer adoption, is disrupting the industry. Suppliers are now navigating a new headache: how to adjust their real estate footprints while still being prepared when demand inevitably ticks back up.
Similarly to the non-EV auto industry, the fledgling EV industry requires long-term investments and multi-year advanced planning. But for EVs, it’s harder to predict consumer preferences and regulatory changes. There’s also less robust infrastructure in the form of battery charging stations that keep electric vehicles running over long distances, increasing the level of risk taken on by industry participants when making long-term investments.
Canada benefits from a plethora of advantages, which have secured the country’s dominant place in the global EV supply chain. It possesses rich stores of natural resources needed from beginning to end of the EV lifecycle, including reserves of cobalt, graphite, lithium, and nickel, as well as sustainable hydroelectric power. The country boasts an educated workforce, a culture of preserving and restoring its environment, and the political will to offer incentives specifically earmarked to support the EV industry. Canada also enjoys the advantage of geographic proximity to the United States, including the U.S. “Battery Belt.”
Elected officials in the U.S. and Canada reacted to early consumer enthusiasm about EVs with a rapid rollout of financial incentives for manufacturers. However, several factors, such as consumers’ “range apprehension” or concern about access to EV charging stations due to a lack of infrastructure, as well as generational differences, have meant forecasts about EV adoption have proved overly optimistic– for now.
Individual car owners and households are the driving force behind slower-than-expected EV adoption. In contrast, large corporations and government entities with fleets of vehicles have been early EV adopters, as this transition is a key component enabling them to execute their ESG and decarbonization commitments.
“Corporate and governmental ESG commitments trickle down to large procurement and purchasing decisions that have resulted in entire fleets of electric vehicles. However, in an industry as volatile as the EV industry, you tend to miss projections. The industry assumed the adoption rate would be higher than it is right now. They’re adjusting to that, and we’re starting to see the ramifications,” said Brandy Burdeniuk, Director of ESG, North America, Avison Young.
Manufacturers expect EV demand to continue growing, albeit slower than initially expected. In the meantime, they are planning a ramp-up in demand for hybrid cars and a long tail, during which consumers will continue to use combustion cars as part of the broader energy transition.
As a result, some EV manufacturing occupiers of real estate and land, from the EV battery suppliers to the recycling plants, and every EV supply chain company in between, are currently faced with an underutilization challenge.
“We are hearing from suppliers and seeing from the Original Equipment Manufacturers (OEMs) that they are revising their strategies for EVs and pivoting more towards hybrid and gas combustion engines. There’s a trickle-down effect throughout the supply chain,” said Sanjiv Chadha, Principal, Occupier Services, Avison Young.
“The manufacturing sector is undergoing significant changes. Many industrial facilities are being repurposed to accommodate new technologies. However, adjusting production capabilities comes with considerable risks, challenges and uncertainties in today’s dynamic market environment. Right now, we are working with companies who are reassessing their real estate portfolios, considering partial divestments or rightsizing of their properties.”
(Content provided by Avison Young)
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