Federal Chancellor Friedrich Merz (right) and Canadian Prime Minister Mark Carney on the sidelines of the G7 summit in Évian-les-Bains in June 2026
15 October 2026
By Monica Curtis (Pembina Institute), Adam Thorn (Pembina Institute), Trisha Kershaw (adelphi global)
This year, Canada signed multiple MOUs on critical resources and supply chains with partner countries, moving away from the United States (US). And potentially as the European Union’s (EU) first ‘Associate Member’, we see Canada looking to deepen integration with other jurisdictions that are leading the way, like Germany.
After being hit by a new round of tariffs earlier this year, with Ontario hardest hit by tariffs on aluminum, steel, and other auto and vehicle parts, Canadian manufacturers, exporters and workers were left with uncertainty. The Bank of Canada found that 55,000 manufacturing jobs were lost since January. Despite deals under CUSMA, the BBC reports that the latest tariffs have Canada “approaching the [tariff] rate faced by others like the UK and Vietnam.” This level of uncertainty has exposed the risks of concentrated trade between the US and Canada.
With over 70% of Canadian exports going to the US, Prime Minister Mark Carney has committed Canada to expand its export market beyond its southern neighbor. Although Canada’s automotive sector has deep ties to the US, it has become clear that reliance on one dominant market can become a strategic weakness when political decisions disrupt integrated supply chains.
The Canada–Germany joint declaration
Earlier this year, Canada and Germany signed a joint declaration to expand bilateral industrial cooperation in the auto, battery manufacturing and critical minerals sectors. Both countries view the partnership as a means to strengthen their industrial bases, diversify supply chains and further accelerate the production of zero- to low-emission vehicles. The agreement itself has not been released; however, it is stated to include an expansion of trade between the two countries of battery- and hydrogen-based mobility and intensifying dialogue between companies and research institutions, through an Autos and Mobility Joint Cooperation Group.
The announcement did not disclose any specific investment or purchase conditions, and therefore the declaration demonstrates political intent rather than a comprehensive trade agreement. That said, the declaration (in addition to Canada’s growing collaboration with like-minded partners) is a tool under Carney’s auto strategy, which looks to develop auto relations with countries committed to the transition to electric vehicles (EVs). It also symbolizes Canada’s desire to expand a key sector once dominated by its partnership to the US to other allies.
While the key specificities of the agreement are unclear, Germany and Canada can both benefit from industrial cooperation. They already share a large trading history with two-way merchandise trade reaching $30.5 billion CAD (€19.1 billion) between the two in 2024, making Germany Canada’s sixth-largest merchandise trading partner and the largest among European Union (EU) member states. Canada’s critical minerals resources complement Germany’s automotive expertise and battery demand, allowing for two-way investment on mineral extraction, component and vehicle production.
What needs to be done now is to move beyond MOUs and work towards investment and offtake agreements with joint financing between governments and firms. The proposed Autos and Mobility Joint Cooperation Group can be utilized to publish project pipelines and set milestones for financing, permitting and delivery. It is also imperative that safety regulations are standardized across both countries, ensuring easier access for EVs into either market.
An example of existing Canada-Germany industrial cooperation: PowerCo SE and Volkswagen planned battery facility in St. Thomas, Ontario
At the end of 2023, Volkswagen’s battery company PowerCo SE announced that it would open a battery cell gigafactory in St. Thomas, Ontario. Once open, it will be the largest PowerCo gigafactory so far and the company’s first one overseas, and it will be Canada’s biggest EV battery plant. Locally, it will employ up to 3,000 jobs. All this exemplifies how Canada and Germany can cooperate industrially.
EV sales have been slower in North America than in Europe. In Canada, the government cancelled its Electric Vehicle Availability Standard before implementing a new Vehicles Emission Standard (VES), and in the United States, Volkswagen halted production of its electric ID.4 SUV at its Tennessee assembly plant. However, increased partnerships between Canada and other middle powers may make it possible for the St. Thomas plant to supply EV batteries to European and South American markets. Likewise, given Canada’s recent commitment to double electricity supply and calls for the country to also double electrification and energy efficiency, a meaningful VES is not out of the question, and domestic demand would also benefit.
More industrial cooperation like the St. Thomas plant would also help Canada address some of its supply chain gaps. Canada has a long history of producing raw materials and auto manufacturing, but factories, where materials are turned into batteries for EVs, are a more recent investment. And beyond making EVs more available, these factories are also likely to spur further local infrastructure growth. For example, the CEO of the St. Thomas Economic Development Corporation told the Globe and Mail that, "The selection of St. Thomas by PowerCo is truly a catalyst for what is a generational investment in the infrastructure of the city.”
Visualization of the Electric Vehicle Battery Cell Plant in St. Thomas, Ontario (PowerCo/Volkswagen Group)
What the Canadian market can deliver
Canada's auto sector is well positioned to serve global markets as the world shifts to EVs. The sector supports more than half a million jobs, anchors a large manufacturing base in Ontario, and now spans much of the EV supply chain, from critical mineral companies to component manufacturers, battery producers, and automakers. Recent federal investment in Canada's auto manufacturing and charging infrastructure has strengthened that footing.
Global demand has turned decisively toward electrified transportation. Global EV sales are expected to reach 23 million this year, close to a third of all new cars sold, with Europe among the fastest growing markets. Canada can supply this demand by building on its industrial base and establishing key economic partnerships.
Companies based in Canada have access to the deeply integrated US market, and, increasingly, to other markets as Canada works to diversify its trading partners. The current trade war has shown the cost and vulnerability of over-reliance on a single export market, which is why broadening Canada's partnerships, while keeping US access, can strengthen and stabilize the sector.
That work is already underway. Canada's strategic partnerships with China and the Republic of Korea to catalyze new investment and industrial collaboration are constructive first steps. Future partnerships should continue in the same direction.
Europe is a natural next step. Canada has the inputs a competitive EV industry needs: access to clean electricity, critical minerals, a skilled workforce, financing, and charging infrastructure. Some reports suggest batteries could be produced more cheaply in Ontario than in Europe. This, along with Canada's capacity to meet European emissions and product standards, makes pairing Canadian supply with European demand a sound industrial strategy for both parties.
What Canada can deliver, however, depends on demand at home. Manufacturers build supply chains where they see a stable, growing market. Predictable, forward-looking policies, like a vehicle emissions standard, can provide that certainty. A standard with a similar level of ambition to Europe’s would signal a shared commitment to electrification and help spur domestic demand by bringing more affordable EVs to Canadian consumers. The Pembina Institute found that with a strong VES, domestic EVs sales can reach nearly 75% of total vehicles sales by 2035. That target can ensure a domestic demand sufficient to support the development of domestic supply chains. Market integration between Canada and Europe in the critical minerals and auto sectors would lead to an expansion of trade and investment across the auto and critical minerals sectors, spurring job growth and expanding Canada and the EU’s EV markets.
Middle powers cooperation in face of rising trade tensions
As auto nations, Germany and Canada are natural industrial partners.
Beyond bolstering the burgeoning EV market, Canadian-German cooperation opens wider opportunities. They can combine further complementary assets: Canada’s resources, clean energy potential, land, skilled workforce and North American access with Germany’s industrial capabilities, engineering base, standards expertise and position in the European market. In August, the two countries announced a joint declaration on critical minerals cooperation, with the intent to help both countries with not only the energy transition, but also national security goals.
Some of the goals for industrial cooperation include more co-investments like the St. Thomas gigafactory, more joint research into new technology, and crucially, policy alignment on sustainable and responsible processes. Germany has also decided to include hydrogen for its energy transition, a resource of which Canada hopes to offer a secure supply through a transatlantic hydrogen corridor as advanced in a Hydrogen Alliance Memorandum of Understanding between the countries in 2025.
Recently, Prime Minister Mark Carney spoke at the European Parliament about how Canada and the EU can work together. His speech highlighted how Canada can provide critical minerals and energy to Europe, signifying the country’s move to protect its supply chains by avoiding reliance on any single source country.
Between MOUs and joint declarations, cooperation and coordination are important first steps for both Canada and Germany to achieve their decarbonization goals and build resilience to geopolitical uncertainty. Now, both countries must move beyond political signals.
Making the partnership operational: Practical agenda for implementing Canada-Germany partnership
Moving beyond the declaration and making mutually beneficial partnership operational means having a clear set of priorities and measurable outputs. For example, the Autos and Mobility Joint Cooperation Group, envisioned in the declaration, can establish a standing EV and Batteries Working Group which will consist of representatives from government, the auto sector, battery firms and civil society groups. The group’s first priority should be to map out key supply chains, identifying investable projects from mineral extraction to battery production to vehicle recycling. A key focus on permitting processes and community and rights-holder engagement should be made, ensuring that Indigenous communities are consulted in the process.
The alignment of standards is key to removing duplication of work here. As identified by Natural Resources Canada in the separate 2025 Critical Minerals declaration with Germany, the standardization of regulatory aspects such as battery testing and safety data, carbon footprint reporting, mineral traceability and responsible sourcing are important for long-term trade conditions.
Another task of the Autos and Mobility Joint Cooperation Group should be to create structured exchanges between Canadian and German companies, colleges and training providers. A skills and research track could connect both sides through joint research, apprenticeship exchanges and curriculum sharing. These programs can aid in green skills development for the current and future auto workforce.
Lastly, both governments must develop a joint-financing toolkit combining public and private investment and risk management instruments. The Canadian government should continue converting more MOUs into binding offtake agreements to ensure more projects like the St. Thomas gigafactory are implemented.
Canada-Germany cooperation can become a vehicle for clean industrial transformation.
Canada’s supply of critical minerals, industrial capacity and access to markets can complement Germany and Europe’s growing demand for EVs, batteries and hydrogen. Stronger partnership in this area would also serve as an engine for clean transformation across North America as a whole, ensuring more resilient supply chains and stronger markets for American firms as well. For Europe, partnership with Canada would strengthen its supply security and a burgeoning EV market aids in emissions-reduction goals.
By treating the industrial declaration as a platform for implementation, not a symbolic endpoint, Canada and Germany have the first step towards economic cooperation that also addresses global climate imperatives. Linking investment with standardization, knowledge sharing and market access, can create value beyond the automotive sector and demonstrate how middle powers can shape a more resilient and diversified clean economy.
Monica Curtis
Adam Thorn
