Auto parts content to be 75% domestic by 2025

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As automakers try to solve the riddle of cheap and sustainable electric mobility, they now face the looming challenge of doing so largely with domestic content from mid-2025.

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Companies not only have to think about where they source their parts and materials from, but also whether they can build something that will still meet national content rules.

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“It’s actually starting to affect the designs,” Magna International North America electrification manager Mike Dowsett said.

“We really need to design this product to use USMCA components. Engineers are told not to design something that comes from the other side of the world because we are governed by the USMCA.

USMCA national content rules will require that 75% of vehicle content be classified as being built or sourced in North America. In an effort to increase wage rates in Mexico, provisions of the labor agreement also set minimum hourly rates to qualify as national content to avoid tariffs.

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Mike Dowsett, director of electrification for Magna North America, talks about the Magna eBeam electric axle drive system, shown left, at the 2022 North American International Auto Show in Huntington Place on Wednesday September 14, 2022.
Mike Dowsett, director of electrification for Magna North America, talks about the Magna eBeam electric axle drive system, shown left, at the 2022 North American International Auto Show in Huntington Place on Wednesday September 14, 2022. Photo by Dax Melmer /Windsor Star

An added incentive is the substantial tax breaks and rebates offered by governments for electric vehicles that meet these domestic content rules.

While unaware of Magna’s employment prognoses, Dowsett expects the USMCA rules to lead to increased auto manufacturing in North America.

“Theoretically (manufacturing employment levels in North America) should increase,” Dowsett said. “It’s in the whole interest of the USMCA, isn’t it, to protect jobs? »

Dowsett says the new integrated electric axel Magna has created for use with existing OEM platforms is a prime example of the challenges companies face with national content regulations.

“Almost certainly there are,” Dowsett said when asked if the new axel has Canadian content.

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“With this product, we have to achieve 75% USMCA content and that’s tough.

“Because we still use rare-earth magnets here (which come from China), a lot of that is gone. About 20 percent of it went on the magnets, so everything else must have come from Mexico, the United States, or Canada.

“My buying team only searches in Canada, the United States and Mexico. They can’t go buy it in other parts of the world because we have to get to that 75% figure. »

Cavalier Tool Sales Manager Tim Galbraith is pictured, Thursday November 5, 2020.
Cavalier Tool Sales Manager Tim Galbraith is pictured, Thursday November 5, 2020. Photo by Dax Melmer /Windsor Star

Cavalier Tool and Manufacturing general manager Tim Galbraith said similar preparations are underway across Ontario’s automotive supply chain.

“Our goal is to repatriate as much as possible at a price that allows us to compete with low-cost countries,” Galbraith said.

“Anyone who doesn’t try to get ahead (of national content requirements) is going to fail. If you’re not prepared, you won’t be able to react.

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The Windsor-based company has brought some of its offshore manufacturing in-house.

For example, it has created a new department to produce all of its own stripping boxes and is expanding to Windsor to produce a range of smaller parts that previously came from overseas.

The expansion will eventually result in a double-digit number of new highly skilled jobs to operate the automated machinery.

Galbraith said Cavalier will already be able to meet USMCA National Content Rules.

“Our offshore content is declining rapidly and is likely in the low single digits,” Galbraith said.

“We don’t do this for legal reasons, but for healthy commercial reasons.”

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Galbraith said automating and controlling risks and costs in its supply chain helped the company become more competitive and improve quality.

He noted that customers are now looking more at total costs and supporting the backend than just a cheap price up front.

Galbraith said after losing a major bid last year to an offshore company, the southern US company awarding the contract called Cavalier on Thursday was looking for an updated bid to replace the tooling.

“They said the product quality and support we need to meet our customers’ needs was not there with offshore content,” Galbraith said.

“They said we had to replace it now and we’re going to replace it with Canadian tooling (Cavalier).

“I speak on behalf of the Canadian tool industry as a whole when I say we’re not the cheapest, but with the quality and unit cost when you get your unit out the back door, we’re more down.”

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  1. Prime Minister Justin Trudeau, from right to left, Foreign Affairs Minister Chrystia Freeland, U.S. Trade Representative Robert Lighthizer, United States President Donald Trump, Mexico's Economics Secretary Ildefonso Guajardo Villarreal and President of Mexico Enrique Pena Nieto participate in a signing ceremony for the new United States-Mexico-Canada Agreement in Buenos Aires, Argentina, Friday, November 30, 2018.

    New NAFTA provisions applauded for removing uncertainty in auto sector

  2. A charging port on a Mercedes Benz EQC 400 4Matic electric vehicle at the Toronto International Auto Show on February 13, 2019.

    Ottawa says proposed U.S. tax credit for electric vehicles could hurt auto industry

Galbraith added that the renaissance of manufacturing in southwestern Ontario will also be fueled by the creation of a whole new leg of the automotive supply chain with the construction of the NextStar Energy battery plant in Windsor. .

The plant is a joint venture between LG Energy Solutions and Stellantis.

“Getting the factory and 2,500 jobs is wonderful, but that’s just the seed that’s been planted,” Galbraith said.

“It’s all the factories that feed the battery factory, the spinoffs for other companies and the companies supplying the raw materials, this is the big win for the key players in Southwestern Ontario.

dwaddell@postmedia.com
twitter.com/windstarwaddell

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