Canada is demanding that South Korea build a car factory in exchange for a submarine contract worth more than $20 billion.
The Canadian government shortlisted two bidders in August 2025 for the Canadian Patrol Submarine Project: a South Korean consortium led by Hanwha Ocean and HD Hyundai Heavy Industries, and a German-Norwegian team anchored by ThyssenKrupp Marine Systems.
Both submitted formal proposals by the March 3 deadline.
A preferred bidder is expected to be named as early as June, according to CBC News.
The contract has been described by Canadian officials as the largest defence procurement in Canadian history.
CBC News has put the acquisition cost at more than $20 billion, while the South Korean government figures, which appear to include long-term sustainment, have cited a figure equivalent to $41 billion.
The Industrial Demand
Industry Minister Mélanie Joly has attached a condition to the competition that goes beyond hardware.
In a speech at the Empire Club in Toronto on February 19, Joly confirmed that whichever country wins the submarine contract must facilitate an automotive assembly plant in Canada.
The demand is bilateral: Joly also travelled to Berlin to sign a parallel agreement with Germany seeking a Volkswagen-linked manufacturing commitment.
The auto condition was foreshadowed in late January, when Canada and South Korea signed a memorandum of understanding intended to bring Korean automotive manufacturing and investment to Canada.
It was signed by Joly and South Korean Trade Minister Jung-Kwan Kim during the Korean government delegation’s visit to Ottawa.
Alongside the auto sector, the MOU covers cooperation in AI, steel, cement, nuclear power, and liquefied natural gas.
President Trump imposed a 25% tariff on Canadian vehicles in early 2025, ending duty-free access that had been in place since 1965.
The vast majority of Canadian auto production is exported to the United States, leaving the sector structurally exposed.
Last January, Canada’s economy shed 24,000 jobs, with manufacturing the hardest-hit sector.
General Motors laid off hundreds of workers from an Ontario plant the same week.
Prime Minister Mark Carney framed the strategic shift at the World Economic Forum in Davos in late January, calling on middle-power nations to coordinate after what he described as an irreversible “rupture” to the world order under Trump’s economic and diplomatic policies.
Korea’s Response
Last January, a Korean delegation travelled to Ottawa led by Presidential Chief of Staff Kang Hoon-sik, accompanied by Trade Minister Kim, defence acquisition officials, and executives from Hyundai Motor and the Hanwha consortium.
On January 29, Kang delivered a personal letter from President Lee Jae Myung to Carney. He also met separately with Defence Minister David McGuinty and Finance Minister François-Philippe Champagne.
Joly had told the Korean side that Hyundai needed to commit to building a manufacturing facility in Canada — and had indicated that Germany’s Volkswagen was prepared to offer more.
Hyundai’s Shifting Position
Hyundai has not agreed to build a car plant. But its position has moved.
In late January, the company said it had no current plans to establish vehicle manufacturing operations in Canada.
By early February, it was reviewing “a range of co-operation opportunities” including the hydrogen energy sector, it said in a statement to CBC News.
This week, Hyundai officials were present at the NextStar Energy battery plant opening in Windsor alongside Trade Minister Kim, where they met directly with Joly.
The company has since tabled a concrete counter-offer: three or four hydrogen fuel-cell corridors to support heavy-duty trucks and railways across Canada.
Hyundai briefly operated an assembly plant in Bromont, Quebec between 1989 and 1993.
It was the company’s first overseas manufacturing facility and its only one ever to close, after sales of the Sonata fell short of projections and parts procurement from Korea proved costly.
The South Korean automaker has not assembled vehicles in Canada since.
The Political Pressure
The NextStar Energy grand opening in Windsor on March 5 served as a staging ground for Canada’s most public pressure on Seoul.
The plant — a former joint venture between LG Energy Solution and Stellantis, now pivoted from EV batteries to energy storage systems — is Canada’s first commercial-scale battery manufacturing facility and received up to $5 billion in provincial and federal government support.
Ontario Premier Doug Ford addressed the audience with Trade Minister Kim seated in the front row.
“Anyone who sells 230,000 cars needs to open up a plant here. It’s as simple as that,” Ford said, according to Automotive News Canada. “I highly encourage them to come to Ontario. We will support them.”
Hyundai, Kia, and Genesis combined sold 249,028 vehicles in Canada last year, capturing 13% of the country’s market share, according to the Automotive News.
Hyundai alone outsold Honda and Stellantis — both of which operate multiple assembly plants in Canada — and outsold Volkswagen, which is building a PowerCo EV battery plant in St. Thomas, Ontario.
Joly was at the event and met privately with Kim after the ceremony. Speaking to reporters, she drew the clearest line yet on the auto condition.
“Because the procurement process is in its final mode, I can’t comment,” she said. “But I will be clear: We want a car plant.”
Labour
Unifor President Lana Payne backed the Ford-Joly approach but cautioned that structural conditions are difficult.
“We have to have a system where we are not favouring importers over people who are manufacturing here,” Payne said at the NextStar opening. “If you sell here, you build here.”
Hyundai Canada Chief Executive Steve Flamand, speaking at the Automotive News Canada Congress in Toronto last month, acknowledged the pressure without conceding to it.
“It’s natural for the governments to put pressure on the OEMs. Every OEM looks at their manufacturing footprint, every year,” he said. On whether a Canadian plant was forthcoming: “We’ll see where it goes.”
The June decision will determine which country becomes Canada’s defence partner for the next half-century.
Canada x China
Nearly two months after Canada and China struck a trade deal that drew immediate condemnation from Washington, only the Shenzhen-headquartered automaker BYD has filed for exporting EVs to Ottawa.
An audit of the country’s vehicle import registry, published Friday, showed that almost no Chinese automaker has completed the regulatory steps required to ship passenger cars to the market
