Tesla Seems Really Interested In Building A Plant In Canada

For Tesla, demand has never been a problem, how to increase car production is the priority. To that end, the company is planning to build a new factory, and the location of the plant has become the most talked about topic. The latest release of new lobbyist records shows that Tesla seems genuinely interested in building a factory in Canada, with the company having communicated with the Canadian government four times in the past six months.

The most recent records show that in mid-August, Tesla representatives approached François-Philippe Champagne, Canada's minister of innovation, science and economic development (ELED), about the company's reported interest in building a potential industrial facility in Ontario. A few days ago, François-Philippe Champagne toured Tesla's plant in Markham, Ontario, posting on social media after the event that "there is a Canadian element in every Tesla."

Tesla's latest lobbying goals in Canada are: to seek government support to facilitate engagement with provinces on an accelerated approval timeline to improve Canada's competitiveness and ability to attract capital through an accelerated approval timeframe, while working with the government to identify incentives. But here's the rub: In these lobbying documents, Tesla does not specify what it wants to build in a potential "advanced manufacturing" facility in Canada.

While the world is expecting another rocking party at the opening of the Canadian superfactory, Tesla's vagueness, coupled with recent comments from Canadian officials, could indicate that the automaker will make other products in Canada that are just as important to its North American supply chain.

"We are approaching Tesla."

At a meeting last week where Mercedes, VW and Canada signed a memorandum of understanding to secure supplies of key battery minerals, François-Philippe Champagne underscored his message to electric vehicle battery supply chain companies around the world: "Canada is the preferred green supplier." He also hinted in an interview that the relationship with Tesla is strengthening. Tesla is the world's most valuable original equipment manufacturer (OEM) by market capitalization.

When asked about the progress of negotiations with Tesla, François-Philippe Champagne also did not give an ambiguous answer, but made it clear: "We are approaching Tesla." But he went on to say that Canada is not just attracting battery makers to the country, the government is trying to attract as many other parts makers and players in the electric vehicle supply chain as quickly as possible, which means "optimizing" the value chain. We can provide copper foil, electrolyte, magnets, and believe me, there's more," said Pengfei Shang. You know, we're not going to stop there."

When asked for more details about François-Philippe Champagne's announcement, a Canadian government spokesperson said, "Minister François-Philippe Champagne is working to attract a project to enhance the magnet ecosystem."

The magnets used in electric vehicle engines fall into two main categories: induction magnets and permanent magnets. Finding a magnet supplier (or permanent magnet motor manufacturer) in Canada would greatly assist the European EV battery supply chain. Currently, almost all magnets and permanent magnet motors are sourced from Asian suppliers. Ensuring local supply of these essential components is critical to supporting electric vehicle production in North America.

Quietly expanding in Canada

If Tesla does build a factory in Canada, it would mark a change in the company's strategy. Until now, Tesla's investments and interests in Canada have largely been underappreciated by the company, even though it has never stopped expanding its business.

Since 2017, Tesla has consistently funded lithium-ion battery research in labs led by Jeff Dahn, considered the world's leading expert on lithium-ion batteries.

In October 2019, Tesla acquired battery technology company Hibar Systems, which is world-renowned for its ultra-precise technology. Tesla renamed it Hibar Tesla Toronto Automation. then, last November, it opened a second Tesla factory nearby, where it produces battery manufacturing equipment for shipment to giant factories around the world.

In November 2021, Volta Canada, a subsidiary of South Korean copper foil manufacturing company Solus Advanced Material, announced it had been awarded a contract to supply Tesla's Texas plant.

In April, Tesla announced in Toronto that it was looking for a key minerals supply chain policy assistant to focus on global battery minerals and responsible sourcing policies, and in May, Tesla announced that Vale Canada would be supplying it with nickel.

Targeting permanent magnet rare earth resources

While the arrival of Solus fills a hole in Canada's EV battery supply chain and Tesla's, more environmentally friendly access to electrolytes and magnets for EV motors has yet to be addressed.

In Canada, there are several companies working directly on electrolytes, with Li-Metal and Blue Solutions being two of the most visible Canadian companies in this field. But permanent magnet rare earth resources are the focus of government attention and where Canadian and Tesla interests could collide.

The biggest part of the demand for this rare-earth resource comes from permanent magnets," said Andy Leyland, co-founder of market research firm S C Insights. Permanent magnets are very important in converting electrical energy into mechanical energy, as are electric vehicles. This is probably the biggest growth market."

In 2018, Tesla confirmed that the Model 3 uses permanent magnet synchronous motors. the Models S and Models X use a combination of induction motors (front motors) and permanent magnet motors (rear motors). The electric pickup truck CyberTruck will also be powered by two motors, having an induction motor and a permanent magnet motor, respectively.

There are differences in performance between these two types of motors, but the most significant difference in terms of corporate profitability is in terms of cost. The high-energy permanent magnets used in electric vehicle motors are typically made from the more expensive rare earth elements (REE), the main component of which is neodymium iron boron.

Natural Resources Canada's Rare Earth Resources webpage states "The manufacture of permanent magnets is the largest use of permanent magnet rare earth resources, accounting for 29% of total forecasted demand. While Canada has the world's largest known reserves and resources of permanent magnet rare earths, the production of these rare earths requires complex separation and refining processes."

Currently, the majority of the world's neodymium supply comes from China (60%), with Australia and California also providing a portion. Similarly, the vast majority of neodymium refineries are located in Asia. But under the new U.S. Inflation Reduction Act, electric vehicles are only eligible for purchase subsidies if more than 40 percent of the key minerals are mined and processed in North America.

And there is only one commercial magnetite alloy producer operating in North America today, and that is Electron Energy in Pennsylvania. In addition, there is only one large rare earth mining operation there, the recently reopened Pass Mountain mine in California, which does not have its own dedicated refining facility and currently ships raw ore to Asia for processing.

Thus, the demand and opportunity are clear. Whether it is Tesla or another company, a permanent magnet rare earth resource refining and processing facility in Canada would help fill the supply chain gap in North America.

Andy Leland, co-founder of market research firm S C Insights, said, "Once again, Canada is in a pretty good position because the country has a lot of permanent magnet rare earth projects. But it's important to note that you can't just mine, you also need to build processing facilities and you need to produce permanent magnets. Otherwise, you just ship the ore to Asia and sit back and watch the subsidies get lost."

There are signs that several companies are trying to increase permanent magnet production, but it's still not large enough to meet the demands of the electric vehicle industry - after all, Tesla is just one of several OEMs that have committed to producing millions of electric vehicles a year.

Speeding up approval becomes key

Last week, the Canadian government signed a memorandum of understanding with VW and Mercedes to support their priority access to Canadian raw materials, setting a precedent that other OEMs may be considering following.

In April, Tesla CEO Elon Musk tweeted, "The price of lithium has reached insane levels! Tesla may actually have to go straight into mining and refining on a large scale unless it increases spending costs."

Earlier this month, just before the announcement by Mercedes-Benz-Volkswagen, representatives from Tesla toured Vale Canada's facility in Sudbury, Ontario, multiple people familiar with the matter said. The trip was part of a larger site selection mission by Tesla to find potential manufacturing locations in Ontario and Quebec.

Assuming all other information is confirmed, the deciding factor will be speed. Based on Tesla's stated lobbying goals, the company may want faster approvals, turning a process that used to take years into months. There are already precedents for this outside the auto industry, such as Moderna's new factory in Quebec and Amazon's warehouses and distribution centers across Canada.

Tesla may also be considering whether to build a battery plant or a car assembly plant in Canada. But if Tesla wants to get into refining, Canada could be a very attractive option, especially if Tesla wants to be more directly involved in the production of permanent rare earth elements.

The key is not to have a missing link in the supply chain," said Andy Leland, co-founder of market research firm S C Insights. You know, we've seen this before: you mine the raw materials, then ship them to the other side of the world, and then finally ship the finished product back. Not only does that not make economic sense, it means you lose the initiative in terms of security of supply. "