Auto, Ag and Energy: Why Canada Needs a Strong Domestic Semiconductor Industry

Published on October 27, 2022

On August 9th, the US CHIPS and Science Act was signed into law, committing $52.7 billion to America’s semiconductor industry. In contrast, earlier this year, Canada announced a $240 million investment into Canada’s semiconductor sector. There is an urgent need to make strategic decisions and investments that will make Canada a global competitor and influence the path of our nation’s economy for years to come.

What gets prioritized? What remains the same? What gets ignored? Decisions made now have the potential to either set Canada on the path to a modernized future economy, or trap us in a status quo that leaves us vulnerable to volatile supply chains and unpredictable foreign economies.

The good news is Canadians share plenty of economic perspectives, regardless of their political leanings:

Affordability is pressing
Sustainability is growing more important by the day
Food security is top-of-mind
A thriving job market is central to a healthy economy

Most of us can agree, more or less, on what makes a modern economy — the challenge is agreeing on how to achieve one.

Many politicians, industry experts, and business leaders in Canada tend to overlook the underlying technology that enables our most critical sectors to flourish: semiconductors. When it comes to these tiny, powerful and omnipresent chips — which are embedded in virtually all modern technology — the past few years have been nothing if not eye-opening. Without a reliable stream of chips and sensors, Canada’s wide-reaching auto sector has failed to keep up with demand. Without the chip-dependent smart technology that improves (and localizes) food outputs, we’ve been left with the ever-inflating prices of imported food. Without a steady supply of chips, we’ve struggled to scale our green infrastructure and meet emissions targets, and the list goes on.

But, the news isn’t all grim. In the last federal budget, Ottawa pledged $45 million to the Innovation, Science and Economic Development Canada (ISED) department to study our country’s chip capabilities, with the majority of the funds coming in the 2024 to 2025 and 2025 to 2026 fiscal years. In February of this year, $150 million was earmarked from the Strategic Innovation Fund for semiconductor manufacturing projects. The wheels are in motion, but are they moving fast enough?

In this article, I’ll break down three of the major sectors that define the Canadian economy: the automotive sector, agriculture sector and energy sector, and explore how a major investment in domestically-produced chip technology today can pay dividends tomorrow.

The Automotive Sector

As one of the world’s top 12 producers of light vehicles, Canada’s automotive industry is a juggernaut. The sector contributes over $16 billion annually to Canada’s GDP, with revenue expected to rise to $40 billion by 2024. More than 117,200 Canadians are directly employed within the sector and an additional 371,400 are employed in aftermarket services and dealerships.

“The unpredictability of chip supply chains will not end with COVID-19.”

But we must remember that auto production, especially when it comes to electrical vehicles (EVs) and newer vehicles with advanced technology, is heavily dependent on sensors and semiconductors. When the world suddenly fell short of chips in the face of unforeseen demand for home-based consumer electronics (due to so many people working and studying at home), the auto sector was the first to feel the impact. In 2021, production dipped to its lowest level since 1967, with 1.1 million vehicles rolling off the line, down from 2 million in 2019.

The unpredictability of chip supply chains will not end with COVID-19. When Russia invaded Ukraine earlier this year, Ukraine — a leading supplier of materials used in chip production, including neon, platinum, and palladium — suddenly halted exports of critical minerals.

“It is no longer enough to assemble the vehicle, we must also produce the “brains” and own the design.”

If we want an auto manufacturing sector robust enough to withstand pandemics, conflicts and other geo-political upheavals, we cannot rely solely on the import of the most technologically advanced pieces of the puzzle. It is no longer enough to assemble the vehicle, we must also produce the “brains” and own the design. This will ultimately create a robust ecosystem to attract a larger share of high-value manufacturing in the next generation of vehicle production. With the automotive industry at an inflection point, Canada has a rare opportunity to reimagine the value chain and level up its position in the sector globally. The announcement of Canada’s first large-scale EV battery plant in the automotive mainstay of Windsor, Ontario, is a perfect example of this kind of forward thinking — and we need a lot more of it.

Companies like Ontario’s own Blumind are also making major breakthroughs when it comes to designing chips that support AI for battery-operated devices – which can become a game-changer for our auto industry as the technology requires far less battery power and customization. ventureLAB’s Hardware Catalyst Initiative is supporting companies like Blumind to build and scale in Canada. It’s the starting block for our homegrown talent to introduce made-in-Canada IPs and to commercialize their chip-based technologies for domestic and international consumption.

The Agriculture Sector

The agriculture and agri-food sector is another massive contributor to the Canadian economy. In 2021, the industry employed 2.1 million people, accounted for 1 in 9 jobs and generated $134.9 billion (approximately 6.8%) of Canada’s GDP.

Just as we’re at an inflection point in the auto industry, so too are we at a critical juncture in Canada’s agricultural industry. The sector is poised to modernize at a breakneck pace due to advances in robotics and automation, and this should be welcomed as population increases and sustainability demands place added pressures on the industry. The advanced manufacturing technology required to enhance the agricultural sector is wholly reliant on chips and semiconductors — which is why these next 10 years are of such consequence. There simply is no evolution of Canada’s agricultural sector without bold investments in chip technology and public-private alignment on the urgent need for semiconductor independence.

“By focusing on developing the technology that will modernize and scale our agricultural outputs, we will strengthen our food security.”

As inflation hits record highs, Canadians are feeling the effects of paying more – in some cases, double what they paid just a year ago at the grocery store. A sustainable agricultural industry is a localized one. By focusing on developing the technology that will modernize and scale our agricultural outputs, we will strengthen our food security. With a growing global population, a secure food system in Canada not only improves access to healthy food, it decreases the need for international shipping, which is better for our budgets and our planet.

The term “farm-to-table” has gained popularity in recent years, although it has often been reserved for local operations and small restaurants. However, with advancements in technology, it’s possible to scale a farm-to-table approach to agriculture, despite Canada’s long winters. We are seeing this play out with Hamilton-based company, Urban Stalk, which is using leading-edge chip technology to bring vertical farming to urban centres. Through precision-based agriculture, micro-controlled environmental production, IoT and automation, the company is changing how Canadians gain access to local and nutritious foods.

“An equitable, efficient and scalable agriculture sector in Canada needs reliable access to a steady stream of chips.”

A secure food system is one that emphasizes the technology that underpins it. An equitable, efficient and scalable agriculture sector in Canada needs reliable access to a steady stream of chips. Understanding this will be imperative in building Canada’s modern future of food.

The Energy and Cleantech Sector

This leads us to the greening of our economy. The transition to a cleaner and more prosperous economy starts and ends with semiconductors. It’s simply not feasible for us to be leaders in clean technology on the global stage without a secure semiconductor supply chain.

“If Canada is serious about meeting aggressive climate change commitments, we need to be equally as serious about building and supporting a domestic semiconductor industry.”

Canada has committed to net-zero emissions by 2050, but without doubling down on chip-based technology, we will never get there. Our emissions targets will only be achieved through advancements in renewable energy sources, such as solar and wind, as well as the modernization of oil and gas production, which includes a heavy emphasis on carbon capture. At the risk of sounding like a broken record, building the heavy machinery characteristic of the renewable energy space is based squarely on the foundational technology that enables it: semiconductors. Victoria, B.C.-based Solaires Enterprises Inc. is doing just that. They are using advancements in chip technology to develop transparent, next-generation solar cell products that will accelerate our transition to a green economy.

If Canada is serious about meeting aggressive climate change commitments, we need to be equally as serious about building and supporting a domestic semiconductor industry. Like it or not, these two bold objectives go hand-in-hand.

The Way Forward

For Canada to build upon its legacy as a global leader in the automotive, agriculture and energy sectors, we must lead the modernization of each of these sectors on the global stage. We cannot rest on our laurels and we cannot afford to remain dependent on the semiconductor fabrication plants of foreign economies.

One of the major arguments against developing Canada’s national chip manufacturing capacity is the belief that $50 billion is required to build a semiconductor fabrication plant (also known as a “fab”). Indeed, this is true for the most advanced technologies. However, there are other paths to success. The cost of a fab focused on the needs of specific industries could be in the ballpark of $100-200 million and could make a major impact when it comes to supporting our auto, agriculture and energy sectors. We do not need to become a global supplier of chips in order to make a transformative impact domestically.

“Every semiconductor job leads to 5.7 other jobs in other parts of the economy.”

Canada must mobilize more investment into our domestic semiconductor sector. Doing so will drive meaningful action to scale our domestic companies, while also attracting international design and manufacturing firms due to our stable infrastructure. Increased investment in Canada’s domestic semiconductor sector will help us employ and retain top-tier manufacturing and engineering talent — signalling Canada’s position as an indispensable player of the integrated global supply chain. The global semiconductor industry helps create $7 trillion (US) in global economic activity. A made-in-Canada semiconductor industry may not turn us into a semiconductor powerhouser overnight; but that’s not necessarily the point. Every semiconductor job leads to 5.7 other jobs in other parts of the economy. Every chip produced in Canada brings us one step closer to a modern, resilient and sustainable economy.

Semiconductors are at the critical intersection of Canada’s most advanced research in artificial intelligence (AI) and materials. This endeavour will require a highly educated and skilled STEM-based talent pool and enable the modernization of the traditional economic engines of this country.