Technology Will Define the Future of the Automotive Sector

According to HSBC’s 2022 Sector Snapshot report, the automotive sector is Canada’s second-largest exporter, contributing about $19 billion in GDP and employing more than 125,000 Canadians directly and another 400,000 indirectly. However, much of the sector is concentrated on hardware and parts.

Ford and GM have been manufacturing in Ontario since the 1950s, Honda and Toyota since the 1980s, and Hino Motors since the 2000s. Canada’s automotive sector has a long, rich, and proud history but one that has largely been written in southern Ontario and defined by hardware.

How can Canada diversify and grow its automotive sector for the future economy? 

To grow Canada’s automotive sector, one must first understand its direction. Globally, the automotive industry is evolving as it phases out gas vehicles with limited functionalities. The automotive sector of the future will be defined by the innovation it makes in the four key areas: electric vehicles, connected vehicles, autonomous driving, and software capabilities. The leaders in the automotive space tomorrow will be those that can use technology to deliver:

• Electric vehicles that have high range and low charging time.
• Connected vehicles that seamlessly communicate with everything.
• Autonomous vehicles that provide advanced functionalities.
• Software-capable vehicles that can update over the air and reduce dealership visits.

The opportunity to grow Canada’s automotive sector comes from nurturing and expanding its automotive-technology (auto-tech) sector, and a few Canadian companies are already making advancements in these areas. These include Li-Cycle, which recovers critical material from batteries for a sustainable electric future, Geotab, which is working to provide a connected vehicle experience, and LeddarTech, which is pioneering low-level sensor fusion and perception technology to enable advanced functionalities for advanced driver assistance systems (ADAS) and autonomous driving (AD). Indeed, the Canadian auto-tech sector has tremendous growth opportunities, but there are challenges ahead.

Challenges Facing Tech Innovation in the Automotive Sector

1. Access to Capital

Autotech is a capital-intensive endeavour and a challenge facing Canadian auto-tech is access to capital. Better access to financial resources will allow Canadian auto-tech to scale faster, hire, and create the infrastructure to succeed in delivering world-class products. Unlike its American, Asian, and European counterparts, Canada’s investment community for the auto tech space is significantly smaller and has not yet fully grasped the opportunity. As a result, Canadian firms often need to look elsewhere to raise capital, which can be challenging when competing against larger and better-known companies in the US, for example. This challenge often results in longer investment rounds and lower amounts raised, affecting a company’s time to market and competitive position in the industry.

2. Infrastructure and Regulations for Autotech

As mobility transitions towards automated/assisted driving, a key challenge facing the Canadian automotive sector is the lack of infrastructure and regulations. ADAS and AD have significant financial repercussions for OEMs, and Canadian auto-tech companies, such as LeddarTech, have an opportunity to play a leading role in developing the global AV market. However, Canada’s shift to ADAS and AD is still in its initial stages. For example, vehicle manufacturers in USA and Europe, either by law or by agreement, fit all new vehicles with collision-mitigating ADAS technology that increases consumer adoption of ADAS. However, no such mandate or agreement exists in Canada, and the infrastructure for developing and testing vehicle automation solutions is not widely available nationwide.

3. Lack of Canadian OEMs

The presence of an OEM in a region fosters an ecosystem of automotive Tier 1 and Tier 2 suppliers. Canada’s lack of its own automotive OEM has creates an additional challenge, especially when compared to other countries such as the United States, Germany, China, South Korea and Japan. This trend is reflected in Canada too, where proximity to Detroit (home to Stellantis, Ford, and GM) has benefited Canada’s largest automotive suppliers, such as Magna, Martinrea, and Linamar, but insofar mainly for hardware parts and components.

4. The Canadian Brand

Although critical to the world’s automotive supply chain, Canada is often overlooked as an automotive hub. Magna, Martinrea, and Linamar are key global automotive Tier 1 suppliers. BlackBerry is a major global player in the automotive embedded software space. LG Energy Solutions, Volkswagen and General Motors recently announced investments in Canada as the world transitions to electric vehicles. Despite this, Canada is not top-of-the-mind as an automotive hub which disadvantages smaller businesses competing against their European and American counterparts.

Canada’s Advantages in Automotive Tech

Canada has made some positive steps that have helped the auto-tech community. For example, a friendly immigration policy that has increased the availability of technical talent, access to governmental grants, investment attraction in the electric vehicle supply chain, and federal and provincial investments in a made-in-Canada vehicle, Project Arrow, are some of the positive steps that have helped the auto-tech sector.

“The availability of technical talent is a key success factor for the auto-tech sector.”

The availability of technical talent is a key success factor for the auto-tech sector. A top-notch education system and robust immigration programs that attract and retain skilled workers are a boon to the auto-tech community. As per CBRE’s 2022 Tech Talent rankings, the following cities are placed accordingly concerning the quality and availability of technical talent:

• Toronto – 3
• Vancouver – 8
• Ottawa – 13
• Montreal – 15
• Edmonton – 35

The diversified rankings present an opportunity for the Canadian automotive sector to expand beyond the borders of Ontario.

In addition, the region of Waterloo, Ontario, has become an important hub of innovation for the automotive tech sector, supported by the talent graduating from the University of Waterloo and the dedicated Waterloo Centre for Automotive Research (WatCAR). This strategy is a template for other regions across Canada to use local talent and build an ecosystem that drives innovation and disruption in the auto sector.

Access to governmental grants supports auto-tech SMEs to grow. The federal and provincial governments fund programs that promote innovation, growth, and expansion of SMEs to international markets. The federal government’s CanExport program for SMEs as well as Canada–South Korea and Canada–Germany R&D programs empower Canadian auto-tech SMEs to develop partnerships with companies in these regions, resulting in access to new clients, best practices, markets, and knowledge. The Quebec government’s Programme de soutien à la commercialisation et à l’exportation provides grants to Quebec-based companies to win clients in international markets. Auto-tech’s ability to collaborate with partners in automotive powerhouses through governmental assistance opens new doors for the community.

Funded by the federal, Ontario, and Quebec governments, Project Arrow by Automotive Parts Manufacturers Association is Canada’s first zero-emissions autonomous full-built vehicle. This vehicle is designed, engineered, and built through the joint efforts of the Canadian automotive supply sector. This vehicle is planned to tour globally and exhibits the capabilities of the Canadian automotive sector to OEMs and Tier 1s. Demonstrating Canadian capabilities in building electric, autonomous, connected, and software-defined vehicles will build trust and confidence in Canadian automotive technology providers.

“The changing global geo-strategic dynamics, such as semiconductor shortages, have led to a push towards self-reliance in critical minerals and components sourcing.”

Finally, the changing global geo-strategic dynamics, such as semiconductor shortages, have led to a push towards self-reliance in critical minerals and components sourcing. In addition, President Biden’s Inflation Reduction Act gives tax credits to consumers who purchase domestically-made electric vehicles. Canada’s lobbying to consider vehicles manufactured or that source parts from Canada eligible for tax credits should rejuvenate and modernize the automotive supplier sector in the nation as a whole.

How to Diversify and Grow Canada’s Automotive Sector

Electric, connected, autonomous, and software-defined vehicles are the future of automotive. The opportunity for the Canadian automotive sector to grow is through technology, as presented in the sections above. However, there are three essential factors that I believe must be addressed to accelerate Canada’s journey to becoming a more significant player in the world of automotive.

“The private sector can take inspiration from the government and play a more active role in making Canadian auto-tech world-class by improving access to private capital.”

1. Infrastructure: Access to infrastructure is a critical pillar in enabling a world-class auto-tech sector. For example, infrastructure that supports vehicle-to-everything communication and testing of ADAS and AD systems will allow firms to refine and update their products and supercharge Canadian auto-tech companies to deliver unique solutions in the connected, software-defined, and autonomous vehicle space.
2. Capital: For Canadian auto-tech to successfully compete with the best in the world, there must be access to capital and a desire in the financial sector to invest in automotive and Canadian companies. Federal and provincial governments, especially Quebec and Ontario, have taken the lead in supporting Canadian auto-tech through access to funding and grant programs that support innovation and international business development. The private sector can take inspiration from the government and play a more active role in making Canadian auto-tech world-class by improving access to private capital.
3. Human Resources: Technical talent is what made Waterloo one of the auto-tech innovation hubs in the country. Canada is home to some of North America’s best universities and tech talent. Developing programs that focus on automotive applications by leveraging high-quality Canadian tech talent will incubate startups and an ecosystem of Canadian auto-tech that will learn from each other and compete with the best globally.

For over a decade, LeddarTech has been at the forefront of developing automotive technology that has served the mobility, on-road, and off-road markets. Our fusion and perception software solution, LeddarVision™, is competing with the best in the world and is a testament to the capabilities of Canadian talent and expertise that we have what it takes to build a bright future for the automotive sector.

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