The government is looking to purchase a fleet of 12 new submarines either from South Korea or Germany.
Industry Minister Melanie Joly confirmed that either country will have to open an auto assembly plant in Canada in order to win the bid.
Hyundai and Volkswagen are the two automakers that are most likely to assemble vehicles in Canada.
In order to recover auto assembly jobs in Ontario that were lost over the last year or so, the Canadian government is tying auto assembly to its upcoming defense procurement contracts.
Ottawa is in the process of choosing a company to supply it with up to 12 diesel-powered submarines over the next decade, and it has now reduced the list of potential suppliers to just two: Hanwha Ocean Co. of South Korea and Thyssen Krupp Marine Systems of Germany.
In a speech at the Empire Club in Toronto on February 19, Industry Minister Mélanie Joly announced that automakers from either country will have to build an automotive manufacturing plant in Canada for their homeland to secure the $12 billion submarine contract.
Unsurprisingly, Hyundai and Volkswagen, the largest automakers from their respective country, are the companies being pressured into manufacturing their cars in Canada with this deal.
Before investments into the auto sector were tied in, South Korea appeared more likely to win the submarine contract, but it seems Germany is still very much in the running.
Hyundai remains the most likely foreign automaker to build a new assembly plant in Canada at the moment, as it sells much more vehicles in the country than any other automaker which doesn’t currently manufacture cars locally.
South Korea’s Defense and Foreign Ministers will be visiting their counterparts in Ottawa tomorrow.
St. Thomas Battery Cell Gigafactory | Photo: VWFor its part, Volkswagen’s subsidiary PowerCo committed $7 billion to build a new battery cell factory in St. Thomas, Ontario, but it has yet to announce any plans to manufacture complete vehicles in the region.
The Volkswagen Group’s financial situation remains precarious due to dropping sales in China, which could weigh against expanding its manufacturing operations to Canada.
Ottawa’s decision to tie in auto investments to defence spending aims to protect the automotive industry in Ontario, which has been hit hard by the tariffs levied against it by the Trump administration, which has expressed numerous times a desire to kill off Canadian auto manufacturing in favour of U.S. assembly plants.
At the moment, Toyota and Honda are the only foreign automakers that build vehicles in the country, which means the Canadian auto sector remains highly dependent on American automakers.
The business case for a new factory in Canada might not be very appealing to Hyundai and Volkswagen, however, as the Canadian market is too small to absorb a factory’s entire production, and exporting to the United States remains an uncertain prospect, now that the administration is openly hostile to imports of all kind.
The deadline for companies to enter their bid for the submarine contract is currently set to March 12, 2026, which means that time is running out for all parties involved to reach an agreement.
The requirement to include automotive production in this deal could force a longer deadline, but more details are expected soon nonetheless.
Source: Automotive News Canada
