Thank you, Madam Chair and members of the committee, for the opportunity to speak to you today on behalf of the 15 members of the Global Automakers of Canada.
Our manufacturing members Honda and Toyota represent 55% of Canadian light duty vehicle production through September 2022, while all members, as the exclusive Canadian distributors of some of the world's largest global automakers, were responsible for 62% of Canadian sales in 2021.
I appreciate the opportunity to add my comments to the comments of those who have already appeared before the committee with respect to the impact the U.S. Inflation Reduction Act potentially could have on the automotive industry in Canada.
Canada's automotive manufacturing sector is at a crossroads. We can compete and win against the best in the world, but as others have noticed, the United States has introduced some truly massive subsidies in the Inflation Reduction Act that will pull manufacturing's clean-tech investment away from Canada.
The clean technology manufacturing credit, known as “45X” under the IRA, could amount to as much $3,600 to $6,300 per vehicle battery, as you've already heard, a spectactularly large subsidy that goes directly to the battery manufacturer. The Government of Canada urgently needs to match or exceed the subsidy in order to avoid all battery production investment being diverted or relocated to the United States.
The second critical challenge is the advanced energy project credit, known as “48C”, which offers a tax credit of up to 30% on investments into the production facilities across a wide range of clean energy technologies, including facilities that produce components of electric vehicles. This vastly exceeds the investment credits offered by Canada. Again, it is critical that the government look at whether we can match or exceed these credits.
On the incentive side, we're pleased that the IRA provides certainty that Canadian electric vehicles will qualify for the $7,500 U.S. EV incentive, provided North American critical minerals provisions are met and battery components are manufactured and assembled in North America. However, these North American restrictions mean, at least in the short term, that far fewer models—only 25 of 70 EV models—will qualify for the EV incentives in the United States, owing to the fact that the mining of critical minerals and North American battery production are both in their nascent development stages.
Purchase incentives, whether in Canada or the United States, remain important drivers of EV adoption and, as such, these complicated restrictions on EV incentives are likely to slow EV adoption in the United States, potentially slowing the sale of EVs built in Canada and destined for the United States, given that 85% of our vehicle production ends up in the United States.
We are recommending that Canada double the federal EV incentive to match what is being offered in the U.S., but without imposing the restrictions that the IRA has included. Quite simply, EV mandates in Canada are so aggressive that our only hope of achieving them is with generous incentives to encourage consumer adoption.
Looking at the big picture, the U.S. is pursuing an aggressive industrial policy to maximize employment and investment in the auto sector and is willing to spend large amounts in order to do so: $20 billion in loans to build clean vehicle manufacturing facilities; $30 billion in production tax credits to, among other things, accelerate critical minerals processing and batteries; and $2 billion in grants to retool existing automotive facilities to manufacture clean vehicles.
We were encouraged to see in the fall economic statement that our government is promising a robust response to this challenge. We are urging the government to go well beyond the launch of the Canada growth fund and forthcoming investments in Canada's advanced manufacturing competitiveness.
Canada cannot let this generational reinvestment in the automotive industry pass it by. We need urgent action by the government to provide a level playing field and to protect Canadian workers. In our pre-budget submission, we will be tabling detailed recommendations as to how the government can work to mitigate the investment drain into the United States arising from the provisions of the IRA.
Madam Chair and members, thank you for the time. I look forward to answering any questions you may have.