Canada rejected battery maker Electrovaya for a loan so it opened a factory in the U.S. Did Ottawa unwittingly do it a big favour?

Open this photo in gallery:

When the Canadian government rejected Electrovaya Inc.’s 2021 request for financing to build a lithium-ion battery plant in Ontario, the leadership of the Mississauga-based technology pioneer was disappointed, but moved on.

The company instead secured a site in southwestern New York state and received US$50.8-million in loans from the U.S. government and millions more in subsidies from the state. The 137,000-square-foot plant, which begins operations this spring, will create 250 stateside jobs. Electrovaya is keeping its smaller Mississauga facility and 100-strong complement of Canadian employees, and will assemble products for overseas markets from there.

Then, just a year after the company’s funding request was rejected, Ottawa began committing tens of billions of dollars to foreign companies to set up EV battery plants in Canada. Electrovaya’s leaders were taken aback. Why was Canada funding them but not a domestic innovator in the same field?

“I look at that as a bit of folly, especially since Canadian companies have received little of those types of incentives to set up and scale manufacturing here,” Electrovaya chief executive Rajshekar DasGupta said in a December interview. “We were feeling unloved.”

It turns out the Canadian government may have unwittingly done Electrovaya a big favour.

Thanks to the trade war launched by U.S. President Donald Trump, products made at that New York factory, primarily destined for the American market, won’t be subject to the same tariffs that might apply if the plant was in Canada – subject to how the dispute evolves.

And Ottawa’s efforts to participate in global supply chains for EVs is looking like a shakier bet, after last week’s bankruptcy filing by Northvolt AB – one of the foreign battery makers the government agreed to subsidize – as well as the Trump administration’s push for automakers to shift production to the United States from Canada. Mr. Trump is also cooler on EVs than his predecessor Joe Biden – except those made by Tesla.

Electrovaya, meanwhile, is unaffected by political wrangling over EVs. It serves a different market: supplying batteries used in electrified forklifts that zip around warehouses and other material-handling vehicles. Walmart, Jabil, Target and Toyota are clients. Electrovaya foresees revenues increasing to US$60-million this year and US$100-million-plus next year, up from US$44.6-million in fiscal 2024.

“We’re going after markets which haven’t been susceptible to incentives. That has protected us from government policy changes,” Mr. DasGupta said earlier this month. “Ultimately this has worked out to our benefit.” If Electrovaya had built a Canadian factory “our anxiety would be much higher.”

Electrovaya was founded 29 years ago by Mr. DasGupta’s father Sankar DasGupta, a material scientist, and physicist James Jacobs, the son of legendary municipal affairs activist Jane Jacobs (Mr. DasGupta took over as CEO from his father in June, 2022).

The pair were lithium-ion battery pioneers: Electrovaya today uses a proprietary ceramic separator technology that keeps its batteries from igniting if they overheat – unlike rival products that use polymer separators – and chemistry that gives the product better energy density, a longer operating life and faster charging capabilities.

Electrovaya and its stock have experienced a series of ups and downs since going public on the Toronto Stock Exchange in 2000. The company developed batteries for early EVs and secured partnerships with General Motors, NASA and Microsoft. But a U.S. government-funded venture with Chrysler ended in 2012 after its EV batteries overheated when pushed to provide “reverse charging” to the grid from experimental Dodge Rams.

Four years later the company bought Europe’s largest lithium-ion battery plant, located in Germany, and negotiated contracts worth almost US$300-million to supply batteries for residential energy storage on the continent. Revenues in its 2016 fiscal year were US$19.5-million, up from U$7.4-million two years earlier.

But the Daimler EV car the German plant supplied sold poorly. The underused facility hemorrhaged money and Electrovaya put it into voluntary insolvency in 2018. Revenues dropped to less than US$5-million that year. The stock sank below $1.

The European retreat, however, saved the company. Electrovaya pivoted to selling to warehouse operators to power their load-carrying vehicles, where it was winning orders. It also outsourced some of its production. Battery cells were assembled in China, while commercially sensitive, intellectual property-protected components were made in Japan. They were shipped to Ontario, where the final assembly took place.

After the first Trump administration slapped tariffs on China, Electrovaya management thought it was best to onshore production. Canada didn’t look like a risky place to make products destined for the U.S. at the time, so it looked at options in both countries.

When Electrovaya applied for funding from Canada, it was a small, unprofitable technology vendor making a big bet. It had generated less than US$15-million in revenue the previous year, had US$2.5-million in cash and had just withdrawn its financial guidance owing to pandemic-related uncertainty. It was no longer focused on making batteries for road vehicles.

In his rejection letter to Electrovaya, Jean-Philippe Lapointe, director-general of the government’s Strategic Innovation Fund (SIF) gave no reason for the decision, saying only the unit funds “projects that will most impact Canada’s innovation performance while providing economic, innovation and public benefits to Canadians,” adding the application “will not receive further consideration.”

The company had no trouble securing support south of the border. The U.S. government’s Export-Import Bank funded Electrovaya through an initiative launched by the Biden administration to incentivize domestic manufacturing. When Electroyava announced its site in Jamestown, N.Y., in October of 2022 it was greeted with fanfare from Governor Kathy Hochul, who stated: “The race is on to capture the high-paying jobs that come with cleantech, and there is no place like New York for these manufacturers to grow, operate, and thrive.”

Meanwhile, Electrovaya’s decision to build in the U.S. for American markets makes it one of the few lithium-ion battery makers to do so, Raymond James analyst Daniel Magder said in a note last month. Tariffs “may impact the company in the short term, but provide a competitive edge in the long term,” he wrote. With its new factory, “Electrovaya is well on its way to completing its tariff mitigation strategy, regardless of U.S. policy outcomes.”

Said Mr. DasGupta: “We do want to increase our presence in the U.S. anyway. Geopolitics aside, it was the correct decision – tariffs or no tariffs.”