Are there opportunities for Canadian SMEs in the automotive battery supply chain?
The energy transition is one of the greatest challenges of this century, but it is also an opportunity for businesses that want to take an active role in bringing about this transition.
Governments across the globe have set carbon reduction targets that will move consumers to increasingly rely on clean technologies such as electric vehicles. As a result, the production of clean technologies and their inputs will have to increase significantly to meet demand.
The International Energy Agency predicts that the world will need five times more lithium-ion batteries in 2030 than in 2022 to satisfy the demand for electric vehicles, based on current policies. Planned investments in battery production capacity currently go beyond the expected demand. However, this does not account for the investments needed in the battery supply chain, such as mining for critical minerals or charging infrastructure.
Canada is already participating in the energy transition. Since 2020, the Federal Government has invested over $34 billion in the battery and automotive supply chain. It is also preparing plans to speed up the approval process for major projects which should help attract critical investment for a more sustainable energy landscape.
These investments will create major opportunities. So how can Canadian entrepreneurs capture them?
Elements of the battery supply chain
The battery supply chain involves multiple steps from extracting raw materials to recycling the battery at the end of its life, without forgetting the related goods and services (Figure 1).
There are four main parts of the supply chain:
1. Upstream: Exploration and extraction of raw materials
The battery supply chain begins with mining exploration and extraction of raw materials. Canada has a wealth of metals and minerals that are used to make batteries. These include:
- cobalt
- graphite
- lithium
- nickel
2. Midstream: Production of battery components
Raw materials are processed and refined. They are then transformed to produce battery components, like:
- cathodes
- anodes
- battery cells
3. Downstream: Battery assembly and integration into vehicles
Battery manufacturers assemble cells into modules and then pack them together. Automakers will later integrate these battery packs into vehicles.
4. End of life: Battery recycling
The battery is recycled. Up to 90% of a lithium-ion battery can be recycled.1 There are currently four battery recycling plants in Canada.
Figure 1: Battery supply chain and related goods and services
Source: Clean Energy Canada, Turning Talk into Action: Building Canada’s Battery Supply Chain (May 2021)
The battery supply chain in Canada
Canada already has 160 businesses in the zero-emission vehicle supply chain (Figure 2). This includes 47 emerging businesses. Most of these 160 businesses focus on electric vehicles. Together, they invested more than $37 billion as of 2023.
Upstream businesses are present throughout Canada. But Ontario and Quebec host over 75% of midstream and downstream businesses. British Columbia also has a number of companies in those segments, particularly in fuel cell components and systems.
But Canada isn’t the only player in this field and other countries have already built capacity. China already accounts for 74% of global battery production capacity and is expected to maintain its lead over the next years. Europe also has many planned investments and could make more batteries than North America by 2030, according to McKinsey.2 European Union battery makers met half of European demand in 2022. The continent could have enough battery production capacity to become self-sufficient by 2027, if all the proposed projects go ahead.3 Candian SMEs need to act now to take advantage of current opportunities in the market.
Figure 2: Map of zero-emission vehicle supply chain in Canada
Source: Accelerate Alliance Group, ZEV supply chain in Canada. https://map.acceleratezev.ca/
Upstream = Mining; Midstream = Material processing, Battery materials; Downstream = Vehicle parts, vehicle assembly, battery cells and packing, battery components, fuel cell components and systems; End of life = Recycling, Related sectors = Advanced manufacturing, software, charging systems.
Opportunities in the battery supply chain for Canadian SMEs
The electric vehicle supply chain is growing, creating a number of opportunities for businesses in the sector.
Some of the opportunities for SMEs in Canada in the electric battery sector are:
| Upstream | Canada is the only country in the Americas with all the minerals needed to manufacture EV batteries, such as nickel, cobalt, graphite and lithium. Entrepreneurs can invest in sustainable and ethical extraction and processing of these materials to meet the growing demand from battery manufacturers. |
| Midstream | Canada can expand its domestic refining and processing capacity to produce high-quality battery materials, such as cathodes, anodes and electrolytes. This would help capture additional value created in the supply chain. SMEs can leverage Canada’s industry expertise and trade agreements to enter this market. |
| Downstream | The battery cell and packing industry disclosed over $20 billion in investment in Canada as of 2023.4 Major battery cell manufacturers are investing in Quebec and Ontario, with some set to start producing as early as mid-2024. SMEs who can partner with these global companies could unlock major growth. |
| End of life | Canada is already a leader in battery recycling technology, with innovative companies. Companies such as Lithion Recycling, which can recover and recycle up to 95% of the materials in an EV battery. SMEs can tap into this stable source of recycled materials for new batteries, which are as pure as freshly mined minerals. |
Challenges to the electric battery industry in Canada
Unfortunately, Canada still has a lot to do to become a global player in the battery sector. Canada is not yet making battery cells, modules or packs at scale. We also lack the processing and refining capacity to make battery-grade materials.
Clean Energy Canada identified the main challenges Canada must solve to develop its battery supply chain which offers some insights on potential opportunities for businesses in this sector.
- Emerging businesses in the sector, particularly in electric passenger vehicle manufacturing, battery material refining and processing, and electric vehicle battery manufacturing need to move beyond research and development in order to commercialize their new products or services. BDC-supported Green Graphite Technologies is an example of a business that is in the commercialization phase. Its goal is to create a more cost-effective and environmentally sustainable process for the transformation of natural flake graphite. This innovation could make them an attractive option in a market dominated by China, which uses a very polluting process.
- Businesses in the supply chain need to grow and compete internationally. To do this, they will need to lower their costs through efficiency and technology. It could be hard for Canadian businesses to compete solely on costs with China. But they can also compete on other aspects, such as environmental, social and governance (ESG) factors, lifecycle greenhouse gas emissions and shorter sales cycle.
- The Canadian market is relatively small. It makes it challenging for domestic manufacturers to achieve the necessary economies of scale to be cost-competitive. Canadian companies need to export and reach bigger markets, particularly for battery and electric vehicle manufacturers. EDC can be a good partner for businesses in this sphere.
- The cost and uncertainty of technological progress and the regulatory environment make it harder for businesses to participate in the automotive battery supply chain. Businesses need to find creative solutions to de-risk their investments. For example, partnerships with players at other stages of the supply chain can help secure and align supply of critical inputs and demand of downstream users.
Support for Canadian entrepreneurs
As Canada’s development bank, we aim to help business owners build more sustainable businesses and support them through the energy transition. We are active in the cleantech space and committed to being net zero in our operations by 2028.
If you are active in this space, don’t hesitate to contact one of our two investment funds operating in the clean tech sector:
- Launched in 2022, BDC’s Climate Tech Fund is focused on technologies that can materially mitigate greenhouse gas (GHG) emissions. With a total commitment of $1 billion since launch, it is one of the largest, most active investors of its kind in Canada.
- A new $150-million Sustainability Venture Fund was launched in 2023 to finance scalable businesses with capital- and asset-light business models that are developing sustainability-enhancing technology with the potential to deliver indirect GHG emission reductions.
We can also help you access debt financing and help you build a more competitive business with advice that’s tailored for the realities of small and medium-sized companies. And we can connect you with other players in the ecosystem who have your best interest at heart.
Canada has extraordinary innovators who build extraordinary companies. We are seeing major opportunities in the energy transition and in the cleantech ecosystem. We are committed to ensuring innovators like you can continue developing technologies and companies that will accelerate our drive to net zero and ensure a safe, prosperous future for generations to come.
1 J.D. Power, Are Electric Car Batteries Recyclable? (February 2023).
2 McKinsey, Battery 2030: Resilient, sustainable, and circular (January 2023).
3 EV Markets Reports, Europe’s Battery Supply to Ramp Up by 2030. https://evmarketsreports.com/europes-battery-supply-to-ramp-up-by-2030/.
4 Accelerate Alliance Group, ZEV supply chain in Canada