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Journalist Markham Hislop interviews leading energy experts from around the world about the energy transition and climate change.
Welcome to episode 326 of the Energy Talks podcast. I'm Energy and Climate journalist, Markham Hislop. In episode 304, I interviewed Canadian economist, Doctor Chris Bataille, who was in the room when US climate envoy, John Podesta, gave a momentous April 16th speech at the Columbia Global Energy Summit. He announced that the United States was forming a task force to figure out how to punish high embedded carbon imports. According to Doctor.
Markham:Bataille, this was the way to price carbon without a carbon tax or a cap and trade system. Not long after Podesta's speech, President Joe Biden hiked tariffs on China's EVs to a 100% while raising rates on other clean energy technologies to 50% or more. Now the question becomes, what will Canada do? To discuss Canada's options, I'm joined by Flavio Volpe, president of the Automotive Parts Manufacturers Association. So welcome to the interview, Flavio.
Chris:Thanks for having me back on. It's always a, a thoughtful discussion that we have here because you and I both know, this isn't black and white, but sometimes it's really dark gray. And, what should Canada do is, its part in a partnership with the Americans, to make sure that, some of the seeds we planted bear fruit in Fortress North America.
Markham:Okay. I I've got to follow-up in the Fortress North America idea because it's very clear to me that in 3, 4 years ago, the Americans realized, how vulnerable they were to Chinese supply chains. In fact, they say that all the time. They said it back in 2020, and they were gonna take action on that. And essentially, the way it looks like it's shake shaking out is that we're going to have a bloc led by China, and it'll include Russia and a number of the other, you know, other autocratic Eastern for the former Eastern European countries, autocratic kind of countries.
Markham:Yeah. And then there's going to be the rest of us led by the US and to a secondary extent, the EU and Canada is clearly in the US block, right? We're not kidding ourselves, we're not, that that's where our bread and butter lies. And so if I understand correctly, and you can elaborate in a moment, just a moment, we have to team up with the Americans and follow their lead because that's where the markets North America is the market we're gonna serve. Right?
Chris:We are not just part of, team North America. We are, you know, in a in a in a match like this. Everybody's got a position to play. We're the goalies. You know, if we're gonna be in the EV business, and we've gone whole hog in the EV business, the transition of the most important industrial sector in the world, k, from a manufacturing, point of view.
Chris:The the most complex, the 1 that underpins so much of, the the geopolitical might that a nation might have. We said, okay. The US, we're gonna have, energy partnerships with you, and we're gonna have energy security partnerships with you. The these vehicles are gonna be powered by materials that hold energy and get dispatched and deployed as required. And you can go with confidence because we have it in the ground in Canada, and in as much as a as a jurisdiction, provincial mostly and federal, can deploy resources and critical minerals, get approvals, to get stuff quicker and in the right spot, we'll do it.
Chris:And you can go and fight off the Chinese wave because, we're a leading member of your team. You know, the US can go out and beat Connor McDavid. You know, we're gonna make sure that Skinner stands up and stops some shots. And so they've gone out. They've gone out.
Chris:Connor's out there. He's full speed. Drag the rest of the team forward, and, where we're vulnerable is on the counter attack. Don't worry. We're there.
Chris:Now if we say, I'm not sure if we're there. We need to consult. We leave an empty net. You can't go to Cuphead. Doesn't doesn't guarantee you're gonna win a cup with a goalie.
Chris:I can assure you. You're not going anywhere with that 1.
Markham:Okay. That's the that's part of the pro argument. The other is, China really has an EV industry because 20 years ago, maybe 15 years ago, it decided on an aggressive industrial strategy and policy to build that industry. And it provided massive subsidies and other policy supports then. It still provides massive policy and subsidy supports today.
Markham:And China's EV industry has said we are out to kill the internal combustion engine. The BYD chairman said that he spoke the quiet part out loud. And that me and and China has said, as part of their national policy, they want to dominate the automotive industry. So they've declared war. Right?
Markham:This is we're not we're not fooling around, and this is part of Canada has to be part of the response to that. You would argue, would you not?
Chris:Yeah. I think a lot of the public space and the public sphere gets politicized on, especially in a in a in a in a petro country like Canada. You know, this the Chinese piece gets conflated with, well, are we gonna protect the industries of the west? Oil and gas, we're gonna protect this this, the industries of Central Canada making cars and this electrification of it. People don't know how to escape that debate and go into the Chinese debate.
Chris:And they also think of China as this source of takeout containers, cheap single use stuff that, you know, the world's outsourced commodity manufacturer. The Chinese are very good at what they do. The vehicles they manufacture are are global quality because, like you said, 20 years ago, they said, I'm gonna partner with General Motors and with, Diamond Chrysler and with Volkswagen, a whole bunch of companies. We're gonna JV. Make some of your cars here.
Chris:Make some of your components here. We'll help facilitate that. We've opened up our market, you know, in the lower end of your of your, your your your vehicle lineup. You've got all these new customers in this emerging middle class, along, the the the Pacific, in, China. And then about 10 years ago, we saw the rise of Chinese brands, their own brands.
Chris:Some of it copied. You know, talked to the head of Porsche about, about, their, their, ripped off McCann, and then now they're ripped off, Taicang. And and then then we saw in the last few years the emergence of BYD. Shanghai Auto, Guangzhou Auto, Beijing Auto. Like, these are global quality cars.
Chris:We taught them how to do it. They gave us a game plan on how to do it cheaply. Here's what cheap means. There was a strike at a BYD plant, reported, 2, 3 weeks ago where the workers said I've never heard of a strike in China, but this is this is widely reported. Workers are upset because they can't do overtime.
Chris:And when they could do overtime, they're gonna make $83100 a year. Now they can only do $5, 000 a year. I always say, ask yourself why this stuff is so cheap. That's 1 month's that's 1 month's wages at a Canadian auto plant. Yeah.
Chris:We should rush out and buy this stuff to undercut ourselves. What's overtime? Well, the the the work week in China in in manufacturing is 6 days, and it's a 12 hour shift. These people are already working more, for much less. And we talk about 20 years ago.
Chris:Well, they they went whole hog into the manufacturer of steels, global quality steels, heavily subsidized, where the chief objective wasn't return on investment because they're not publicly traded. They're not talking to analysts every day and then reporting quarterly. It's about market share. It's I was in the solar business before this. I was I was a developer.
Chris:I wasn't a manufacturer. And we said, oh, well, Ontario is offering this great feed in tariff meeting. I'll give you 42¢ per kilowatt hour that you generated, which is crazy. But because the solar equipment cost so much, the best in the world was German or American or Japanese. It would cost $6 per watt to set up a power plant.
Chris:Your listeners don't need to get a context there. The real context is, well, Ying Li showed up. The Chinese showed up, and they said, oh, I'm gonna work that price down to, like, 60¢ a watt.
Markham:And now it's 11 to 9 to 11¢ a watt.
Chris:It's amazing. So what happened to the what happened to the German and the Japanese and the American, component suppliers? Well, memories, shadows and dust. Now you could turn around and say to people I've had arguments today. Well, this is a free market.
Chris:I thought you were a free marketer. I am a free marketer. Tell me what part of the Chinese approach is free market approach. When you turn around and say, we're gonna generate as much of the of the industrial energy we needed by burning coal here, but by burning coal, we're going to turn around and make clean cars for you over there. Are we hypocrites?
Chris:The reason we're electrifying is, in spite of the fact that it costs so much is because we are seized off here in Canada and the US and in Europe, in places like Japan and Korea. We've got a climate crisis, and we've got to do better. We're gonna solve this by buying the dirtiest polluters products.
Markham:Now tell me about the comments made by Ontario Premier Doug Ford today that, mimicked your editorial that you published a few days ago?
Chris:Doug Ford and, Justin Trudeau becomes a great functioning, partnership on landing investments in EVs, batteries, pledging. They've gone out together and landed 43, 000, 000, 000 in Ontario and then plus a whole bunch in in Quebec. But you know what? When when I talk to him and we talk about on a rather regular basis, we're on the same business here. See, if we're going to plant an apple orchard and the apples, beautiful Macintosh apples are gonna be, on our our kitchen tables next year, the year after, the year after that.
Chris:We shouldn't open the market next door for 5¢ apples from China. Who the hell is gonna wait for our apples? And by the way, we hired a whole bunch of people in that orchard, paid for an irrigation system. We're we're the sun has to shine. We're all we're gonna live through these seasons and then can't bring the stuff in next door.
Chris:And by the way, the stuff that came in next door was done with steroids, so they could get it out there quick. What's the point? So the premier said today, I'm calling on my federal partner to say, hey. By the way, let's make sure that our investments bear fruit, and let's max those tariffs from Washington.
Markham:Okay. That's the pro tariff view. Now I wanna give you I'm gonna devil's advocate here. And give you the and give you the anti tariff point of view. Because I've interviewed a couple of economists about this.
Markham:Economists are not happy about the tariffs by and large. And 1 of the arguments they made is that the domestic automakers are not really competitive and all it does is the tariffs protect them from competition and and delay them making becoming competitive in terms of their, you know, supply chains and costs and cost to the consumer. Your response.
Chris:I mean, it's, it's a luxury to be that nice. Best cars in a row get made by Toyota. K? Toyota makes got the most efficient processes, the most efficient sourcing. The best process is in making the vehicles.
Chris:The vehicles last the longest. The number we apply for Toyota on the planet is in Ontario as judged by JD Power and Associates. Best employees, best orientation and market integrated learning, continuous improvement. Chinese vehicles are being sold in markets that compete with Toyota products at less than Toyota's cost of materials. Toyota isn't fat.
Chris:Toyota production system is a is a word that's used around the world in different industries, Like, Saint Joseph's Hospital in Hamilton, picked up the Toyota production system so they can run out of emergency repair. But Toyota's gotta pay for stuff, and they gotta make stuff, and they gotta do that as a profit. Toyota just look. When the Japanese arrived to Canada, we always said that. We said, oh, well, this is the same as the Japanese.
Chris:Well, the Japanese were market driven players who were better than us. We just learned from them. The Chinese subsidized the production so that they could win the market share, so they could dominate your market for their chief adversaries. The Chinese are not China Inc is not in cars. China Inc, who by the way, say it out loud.
Chris:They're in the business of passing surpassing the American sphere as a global economic power. And so they're buying their way there?
Markham:Yes. I I would I would agree with that. I mean, and this gets back to the idea of trading blocks that I talked about earlier. And, I was interviewing somebody the other day who made the point, don't mistake what China is doing for an economic strategy. This is about national security.
Markham:This is about geopolitics, as much as it is about industry and the economy. And the Americans get that. I remember a speech that I refer to often, Gina Raimondo in 2022. She said, in 2020, the 1st year of the pandemic, it was driven home to us, and we understand it that we are vulnerable. And not just the supply chain, but we are vulnerable geopolitically.
Markham:Our security is threatened by allowing China to become more economically powerful and more industrially powerful than we are. And all of the the raft of legislation, the act, the inflation reduction act, chips and science act came out of that realization.
Chris:It's not controversial. She's right. Pandemic pandemic happens. I'll I'll give it to a little micro story. Pandemic happens.
Chris:We don't have, the PPs we need. We don't have the ventilators that, we need. We're in a health crisis. The entire planet's in a health crisis. Every jurisdiction that has them says, export controls.
Chris:You can't have ours. The automotive supply sector originated the idea with the Ontario government and with the Canadian government. Maybe we can make them. If we have the specs and the volumes and you help us through the certification period, I mean, who needs a door handle when we need an n 95 mask to survive? You know, of course, we all thought we were gonna die in that first 3 months.
Chris:The manufacturers in this country who make auto parts mobilized the greatest industrial pivot in the history of this country. And in those 1st 3 months, the only thing the only goods that that arrived when they were acquired came from Canadian automotive supplier factories. What we learned there is there's a dignity in manufacturing and there is a, vulnerability when you rely on people for your takeout containers and your medical goods. It was true then, very acutely, that, we had overlooked the value of making things. You can't lend against things you don't make, and only so many of us can be video game, coders.
Chris:Strong economies have an industrial capacity, And we are investing in ours, and we've gotta defend them against, like you said, the Chinese who declared that they wanna beat us.
Markham:Back to the anti tariff argument, here's another part of it. Higher prices for consumers will, retard the, progress of the energy transition. Your response.
Chris:I laugh when I hear these arguments. You know, I've spent a career chasing, renewable technologies and investors, electrified supply chains and investors. 1 thing I do know in all of those things is that, the pro form a has to work. These companies are not charities. They have to show a profit, and they have to show that to lenders or they can't raise money.
Chris:And they gotta show that to markets or they're not gonna be in business. And we are competing against the only entity that doesn't have to do any of that. And yet we say, well, in fairness, this is you know, consumers will have to pay more. But right now, a vehicle is a discretionary purchase. You don't have access to the Chinese, vehicle right now.
Chris:What you have is a place this country, we have a g 7 economy, but we're all struggling a little bit. The cost of money is a little bit higher. There's a whole bunch of things that are happening right here. People are not rushing out to buy cars. I know because I see the stats.
Chris:They're not gonna rush out to buy cars because the Chinese have arrived, but, if they arrive in the way in which they did in Europe, let's fund the market and figure this out. And we undercut the revenue that goes to Canadian industry and the Canadian tax base, to Canadian schools, to Canadian workers for their opportunities. I assure you, whatever itch you're gonna scratch for the 1st 3 or 4 years, it's going to be a big gap that you're gonna have to address, 10 years from now when, we have Chinese cars, which, by the way, will be connected autonomous, 400, 800, 1200 volt systems, that, you know, we worry about what TikTok is. The the the how TikTok gets into, Canadian owned homes and eyes or whatever. TikTok is an app.
Chris:This is a car with more computing technology, the space station.
Markham:Okay. Here, the question arises. Can the legacy automakers make the pivot to produce at a cost and quality that's competitive with the the Chinese automakers. And I I wanted to you made a point earlier about how Canadians really have a distorted view of of the Chinese economy and of China. They think of them as, you know, makers of cheap plastic, you know, 1 off kind of goods.
Markham:The stuff, you know, Walmart shelves.
Chris:Yeah.
Markham:And China is so much more sophisticated now in its industry and its technology and its innovation ecosystem than than it was in the past. I mean, it is a remember the last interview we did and I read you the quote from Carlos Tavares about how competitive the Chinese automakers were, right? And that they are a formidable competitor. And dismissing them as I hear the snail bird all the time when I bring up the effect that the Chinese EVs and or the EVs in general will have on oil demand. And they go, they make it with stuff with coal.
Markham:What do we care? You know, they dismiss them. And I think dismissiveness is an impediment. That is something we have to guard against. We need to see China as a real threat and competitor.
Markham:And what's your response?
Chris:Chinese are on the moon. Chinese landed, lander on the moon, and it's functioning and sending pictures back, and they're doing tests. And, that's not easy. The Indians crashed. The Japanese crashed.
Chris:They're on the moon. We're worried about whether they could sell a car in Victoria. We'll do it tomorrow. And dismissing your adversary was foolish in the cold war. It was foolish in World War 2.
Chris:And I hate to talk about these things in terms of war, but the Chinese aren't trying to be like the Italians or the big supercar makers in the world. We wanna make the best tailored suits. You better make sure that if you claim that that pasta is made in Italy, that the grain is removed. The Chinese want to be the most dominant global power. They do it instead of with gunboats, they do it with, belt and road initiative, 50, 000, 000, 000 and a $100, 000, 000, 000 led for infrastructure in all these little countries that we've ignored that will vote against us in the UN.
Chris:And, if you understand and you read and you study the current Chinese, political culture, it is a, a disciplined approach to beating the West. They don't share our values. They don't care about what you care about in Edmonton or New York or Miami or Los Angeles. What they do care about is whatever prosperity you might have because you dominated the the global economy because it did it first and you won a few wars. They feel that's due to them.
Chris:And if you wanna hand it over, then declare that. And don't wrap yourself in a flag and say, I'm looking after Canadian interests. I, you know, I have a I have a bone to pick with some of the environmentalists who were who were my friends when we built the aero and now call it a vanity project, and they go, you're trying to block Chinese EVs that are going to, you know, help the the climate. Like, can you just please stand up and wave the Chinese flag so that I know what side you're on? Because I say everything on the record, and I worry about the opportunity that my children will have in the world that my grandfather and my grandmother built.
Chris:And if you're not, then there's really not a lot to debate.
Markham:Okay. So you talk to Doug Ford, on a regular basis, and and no doubt you talk to, folks in the federal government on a regular basis. And you talk to the auto manufacturers themselves, the Toyotas and Hondas and GMs and Fords. You're plugged into this stuff. So what are people's what are the decision makers and the thought leaders?
Markham:Where are we where are they at?
Chris:Federal government is actively consulting different segments of, the industry. The Americans have declared what they're going to do. They did it publicly. They're expecting us to get there. The Americans don't have the critical mineral part of the business that we do.
Chris:They don't have the tooling cluster that we have that's been chipped away by the Chinese over the years. I expect and I counsel the federal government to make sure that you speak to these different segments and understand that the Chinese may answer us differently than they answer the Americans and understand that. I have no doubt Canada is going to match the Americans. Doug Ford is the provincial premier. He doesn't have a jurisdiction over foreign affairs, and so part of that comes with some anxiety.
Chris:You sit in downtown Toronto at Queen's Park and say, come on, guys. I can't make this happen, but really you should make this happen. I think in part what Doug Ford did today was to give the feds some cover, which is this is the this is the promise that's that's most affected. I'm gonna tell you that you can and should do it. Just go ahead and do it.
Chris:The industry players are saying mostly that, but they're also saying, look, it's dark gray. It's not black and white. We can't make if you go and outright ban Chinese products, automotive products, we can't make a car today because so much of the electronic componentry is made in no other place than that. But the Chinese have an overcapacity. They've got to export 6, 000, 000 cars this year.
Chris:They need access to our markets. Don't ban their vehicles. Tear the hell out of them. K? Find other instruments.
Chris:They could still make it in just like we can still go and get those components. And then lastly, some of those players like your favorite Tesla have taken advantage of their their impressive footprint in Shanghai to say, oh, the federal government in Canada gives a $5, 000 purchase incentive to any EV, that is under $55, 000. Maybe we can send model wise from Shanghai instead of from Texas, to get that person sent to Canada. We need to be smarter. Tesla has helped to improve, the market and improve the industry.
Chris:But in this moment, they're not our friends. And they can supply the Canadian market from Texas, if we change that, and we must change that, to match what the Americans are saying. We're saying, look, you can sell anything you want here. It's gonna be a tariff, but you're not gonna get a purchase incentive from us if you made it in Shanghai. We gotta do the same.
Markham:Given where you sit in this debate, Flavio, give me a little bit of a timeline over the next 6 to 12 months. How do you think this is going to, unfold?
Chris:Let's say in the next month or so, or maybe sooner, but let's call it the next month or so. Feds are gonna unveil their package. The the, Americans are gonna go through an election that is either gonna make the new president the old president or make the current president the new president. And they're gonna fight over each other on how much of a problem China is. The USMCA is comes up for renewal in 2026, so it means 2025 will be ripped on that.
Chris:You're gonna hear a lot of statements from whoever is in office in Washington that you're either with us or against us. And so we're gonna have a a an escalating, trade war with the Chinese on a bunch of different things. Cars will be at the front of it, but the the word we're gonna hear a lot about is security. We're gonna hear, like, use, like, the John Podesta piece you started with. What's the embedded carpet?
Chris:And you're gonna hear things like, well, electric cards are connected cards. They're gonna connect to federal infrastructure. Should you be able to connect to federal infrastructure if you there's no transparency in the software that's in the vehicle? They're gonna we're gonna find a 100 different ways, to rebalance the equation here. And, really, really smart people, smarter than you and me, are gonna be required to translate and bring the temperature down.
Markham:Okay. Flavio, 1 of the, I I've been part of this industrial policy debate for a couple of years now, And it's been pointed out to me by, experts, people like Doctor. Bentley Allen from Johns Hopkins, that Canada had kind of lost its institutional capacity to do industrial policy. And this is at the end of the day, there's the green growth fund, the clean growth fund, and there's the big obvious things. And then there's all the little things that you just mentioned, that go on behind the scene.
Markham:Are are we ready to do what needs to be done to implement the kind of industrial policy to keep up with the Americans?
Chris:That's a good question, and and III know that you've debated this a lot. You know, sometimes it it comes down to, like, do you have the horsepower to keep up with the big boys, and should you be? Should you pick your spots? The argument here is if we take AAA higher than a national look at this, a continental look or a or a look amongst our allies across the Atlantic and then down in the Pacific. I'm looking at Japan and and South Korea.
Chris:Can we play a position here? We can't keep up with the US, and we can't keep up with China. But if you're the goalie, should you get new sticks and pads? Should you learn different styles? If that's the commitment that you're making, it's almost a little bit like our our our, commitment to defense spending in NATO.
Chris:Okay. Just do your 2 points. I I think we need to find what our 2 points are in this space. Our 2 points are getting those critical minerals into battery cells, into market as fast as possible. And that's gonna that's a you have to relook and rethink your your your permitting process.
Chris:And then on the other end, these are gonna platform incredible applied technologies. 400, 800, 1200 volt, platforms. We're we're worried about TikTok. We're gonna be worried about so much more from China, but we have answers here. We have an incredible, clusters, some of them physical and some of them virtual across the country in in, AI and machine learning and then, like, just really just applied technologies and sciences in places like, Kitchener Waterloo, Ottawa, Edmonton, Montreal.
Chris:And so those are our 2 points. Should we have industrial policy in those 2 places? I saw the feds put $2, 000, 000, 000 into AI on a Saturday morning a couple weeks ago. I thought, probably should have done that on a Wednesday. People would have noticed.
Chris:We haven't yet figured out how we're gonna get our critical minerals into batteries. Or even the Chinese can show up, and I thinking. We need to do that not just for us. We need to do that for the Americans, the Germans, the Japanese, the Italians, and French, who make cars that we want, to have access to.
Markham:Let's take this, conversation at back to the 35, 000 foot level. And, I've argued in columns that in fact, what we're seeing now in clean energy technologies and we can find that very broadly to include electric vehicles and wind and solar and batteries and all of that stuff. It is really, it's the next industrial revolution, that and digital, the 2 of them combined. And there are occasional inflection points in history where you get to to be bold and you get to step up and you get to say we're going to play, we're going to be a bigger player in this sandbox than we were previously, and we're gonna seize the opportunities that we see before us. We can't seize them all.
Markham:We're not China. We're not the US. Great. That's fine. But we're gonna seize more than we had.
Markham:And it's that boldness of vision I see in the Americans. Reading those speeches is just astonishing and the way they they once they made a decision, way they go. And in Canada, I don't see that boldness of vision. And I'd like to see that boldness of vision. And what's your take on that?
Chris:You know, you've got, this is the big leagues. This is the big leagues. And there's there's the LA Dodgers, and there's the New York Yankees, and that could be China and the US.
Markham:Oh my god. Are you saying that Canada is the Toronto Blue Jays?
Chris:Oh, I hope not. Let's say that Canada is the Cleveland Indians where long stretches of of, competitive irrelevance, and then every once in a while, you line it up right And and it gets baseball in some ways which make both the Yankees and the Dodgers nervous. We can't always be at the forefront and, making bold statements because we don't have the horsepower. 41, 000, 000 people stretched across a massive, a massive geography. But people should know who we are, and in some of those some of those things we can be much bolder than the others.
Chris:You know, we where we miss things for example is AI starts here. Not that long ago. But it's so incredible. AI is a is a revolutionary, extraordinarily disruptive technology. It's so powerful.
Chris:The biggest players take it up. We gotta find a way to keep that keep those things for longer, throw more resources at them earlier, and be bolder so that we stay in the game a long time. This is like developing that fantastic rookie, but not being able to pay them by the time they're a free agent. And, yeah, we're still good players there. We might be number 10.
Chris:Machine learning, the the the the same thing. We we have, we have a democracy which is kinda weird, you know. We have a democracy with a leading party. The party in power right now is, depending on who you talk to, 15 to 20 points behind. Very difficult for them to be bold facing an election a year from now.
Chris:And the guys and girls who are the government in waiting, you know, maybe you're careful when you're up 20 points not to say anything too bold and controversial because you wanna win. But, you know, we've we've, you know if you ask the Dutch how important the, Canadians being bold, is, they'll say, well, you saved us in World War 2. That's a part of the world that knows, what we can do. Banting and Best helped out a few people around the world. We can do it.
Chris:We just it's not our culture. We I, you know, I try to be bold. I hope that people see and hear that. I'm inspired by a lot of Canadians to do that, but it's a trick.
Markham:Well, on that note, we'll I guess we'll wait and see just how bold, Canadians are and how bold our leadership is. Flavio, pleasure as always, man. And, we look forward to our next chat.
Chris:Love to be on. We have it in us. We have it in us. We just have to agree in 1 moment at 1 time that, we're facing a real threat. Just watch out.