Navigating cooling demand in Canada’s EV supply chain

Consumers were slower to adopt EVs than initially anticipated, which has companies throughout Canada’s globally renowned EV supply chain seeking optionality, flexibility, and innovative real estate solutions.

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.

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.

Avison Young has been helping clients in the midst of negotiations add greater flexibility to lease contracts, creating the necessary optionality to ramp up or down as Canada’s EV industry develops in the coming years. With a bird's-eye view of the overall space available in the EV market, the firm is positioned to help companies expand into additional space within the same building once demand ticks up, such as in two or three years.

Avison Young can also help site owners with underutilized properties execute site optimization and strategy, which includes severing land parcels and selling a portion of them.

“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.”

Sanjiv Chadha, MCR, SIOR
Principal, Occupier Services

Navigating the industry’s volatility is a challenge unto itself. When faced with right-sizing real estate footprints in tandem with a multitude of other decisions with long-term impacts, it's critical to work with trusted advisors who understand the industry and its pain points and can work as partners to create real-time solutions.