TORONTO — Industry Minister Mélanie Joly said the federal government is exploring whether Canadian-made electric vehicle batteries could be repurposed for defence applications like ships and submarines. Joly also said the government is insisting that Volkswagen and other operators of Canadian EV battery factories use more Canadian steel.

Despite the shifting approach, the government will stand by its investments in EV battery plants and remains committed to boosting EV sales through consumer purchase incentives, she told The Logic on Thursday evening in an interview on the sidelines of the federal cabinet retreat in Toronto.

The pledge of support comes amid criticism from automakers and from Conservative Party leader Pierre Poilievre of a mandate that would have seen automakers pay penalties if EVs don’t comprise 20 per cent of their sales by next year. The government announced Friday morning that the penalties, which have been a pillar of the federal EV strategy, will be paused for next year and placed under review. 

But in the interview Thursday, before that change was formally announced, Joly said Ottawa still believes in an electric future for the auto industry.

“We know that the future of auto is going to be in the form of either EV, plug-in hybrid, etc.,” she said. “We have the critical minerals that we need, we have the manpower, woman power. Basically, we think it’s a competitive edge.” 

The government will stand behind its deals to build a battery supply chain in the country, she said. 

“Battery plants can be important for EVs, but they can be important also for other types of industries, including military type industries. A battery is about storage. That battery can be in an auto, in a submarine, in a ship,” said Joly, who is currently leading work on a defence-focused industrial strategy as Canada prepares to increase spending significantly on the military and security. 

In recent years, Canada’s federal and provincial governments have offered supersized subsidies to companies in an effort to build a domestic EV supply chain. Government subsidies for a battery factory Volkswagen is building in St. Thomas, Ont., could be worth as much as $13 billion, while the Stellantis-LG factory in Windsor, Ont., which will include a battery-making plant, could get up to $15 billion.

Following her review of some funding deals, the federal government has added “requirements over Canadian steel and Canadian aluminum” to the agreement it has with Volkswagen, Joly said.  

 Tegan Versolatto, a spokesperson from Volkswagen’s battery-making subsidiary, PowerCo, said a construction contract it has with the Canadian-owned Steelcon Group of Companies will be part of a larger strategy that “maximizes the use of domestic supply chains and materials, however possible.”

Much of the government financing is in the form of production credits, meaning the companies will only get the money when they create jobs and when assembly lines are turning out batteries, Joly said. She said the federal government has not yet lost any money on failed projects, like the battery factory European startup Northvolt planned to build outside Montreal. The Quebec government stopped financial support for the project this week after the troubled firm failed to provide a satisfactory business plan, but will likely lose at least $270 million it had spent on the venture. 

Joly’s expectations that battery companies commit to buying from local suppliers mirrors a strategy being deployed across several industries. 

“We need to make sure that when it comes to the companies we’re supporting, that also they support our workers,” she said. 

On Thursday, Joly said the federal government would support steelmakers to retool so they could sell to the defence and homebuilding sectors, in addition to their traditional market of U.S. automakers.

Ottawa is also working to ensure firms that have to retool in the face of trade disruptions “have access to a market” for their products, she said. That includes the federal government itself, which could buy from them either for military applications or wider procurement policies to buy Canadian. 

Similar strategies helped create the Canadian aviation, shipping and space industries, Joly said, citing the growth of firms like MDA Space and Davie, which is acquiring other yards as it prepares to build icebreakers for the federal government. Those firms know that “contracts are coming,” she said. “They have a book of business that is helping them be able to now expand.”

Joly said renewed subsidies that help consumers buy EVs, which expired in January, could also help offset some of the increase in vehicle costs caused by tariffs the U.S. has imposed on Canada and other countries.

Asked if Canada can meet its climate goals with fewer EV mandates and incentives, Joly said that the government was in “solutions mode” to ease pressure on automakers who have faced higher expenses due to 25 per cent tariffs on parts and vehicles outside the U.S.-Canada-Mexico free trade agreement. She said she views tariffs as the reason why “things are not really going well” for EVs.

“I think we can find a way to be able to respond to what the industry is asking, while continuing to be very clear in our commitment toward supporting initiatives to fight climate change,” Joly said. “We will be able to come up with a solution on that, and we’ll have more to say very soon.”