South Korean bidder to build military vehicles in Canada if it wins submarine contract

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The South Korean company vying to win the contract to build Canada’s next submarine fleet is promising, if selected, to build industrial and military vehicles in this country with Canadian auto parts and workers.

Hanhwa Ocean announced a joint venture Wednesday with Canada’s Automotive Parts Manufacturers’ Association (APMA) to build a new entity that would produce the promised vehicles.

The pledge by Hanwha is an effort to sweeten its bid for the submarine contract. Revised bids had a Wednesday deadline after the Canadian government recently extended the bidding process to encourage bidders to enrich their offers.

The only two companies left in the competition to build up to 12 submarines for Canada are South Korea’s Hanwha and Germany’s TKMS.

Ottawa gives South Korean, German submarine builders opportunity to revise bids

Canada’s auto sector, heavily reliant on exports to the United States, faces an uncertain future after U.S. President Donald Trump imposed a 25-per-cent tariff on foreign-assembled vehicles last year with a carve-out for parts made in the U.S. Mr. Trump has said the United States does not need Canadian-made cars.

Prime Minister Mark Carney’s government had asked submarine bidders to pledge vehicle manufacturing as part of their bids. This new Hanwha offer is an effort to meet that request.

APMA president Flavio Volpe said in a statement that the joint venture would “deliver on the Prime Minister’s challenge to Canada’s automotive sector to help drive the country’s unprecedented commitment to national defence.“

“Today’s agreement is a historic commitment to shaping the future of Canada’s defence industry together. Perfectly aligned with the Government of Canada’s ‘Build in Canada’ principle and Defence Industrial Strategy (DIS), this is more than a submarine contract – it is Hanwha’s promise to strengthen Canada’s industrial capacity and economic sovereignty.”

Steve Jeong, head of the Naval Ship Global Business at Hanwha Ocean, said he thinks this proposal is aligned with the Canadian government’s build-in-Canada principle and defence industrial strategy.

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He called it “Hanwha’s promise to strengthen Canada’s industrial capacity and economic sovereignty.”

TKMS said it could not comment in detail because the Wednesday deadline to resubmit bids had not ended.

But spokesperson Nils Beyer said the TKMS proposal “is built on a strong government-to-government partnership between Germany and Canada, combined with long-term industrial collaboration that supports sustainable economic and security outcomes.”

He said the TKMS proposal includes co-operation with Bombardier Inc., investments in raw materials and a partnership that “extends beyond traditional procurement models” to support “Canada’s long-term sovereignty and capability objects.”

Mr. Volpe, asked whether he would also collaborate with TKMS, said he hasn’t heard from the Germans.

The Prime Minister’s response to increasing U.S. protectionism under Mr. Trump has been to try to diversify trade with other countries but also to spend more defence dollars at home.

Under the promise by Hanwha, the vehicles would be produced in Canada by Canadian workers with domestically sourced parts and materials, including Canadian steel and aluminum.

The company promised this venture would sustain tens of thousands of automotive-sector jobs for Canadians while establishing a domestic production capability to supply non-commercial industrial vehicles, including military vehicles, in Canada and globally.

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The vehicles could include Hanwha equipment such as its K9 Thunder self-propelled howitzer and K10 Ammunition Resupply Vehicle, its Redback Infantry Fighting Vehicle, its Chunmoo Multiple Launch Rocket System and uncrewed ground vehicles.

Hanwha said the goal for it and APMA is a “sovereign Canadian automotive business unit” that focuses exclusively on the design and production in Canada of non-commercial industrial vehicles, including heavy-axle and special purpose vehicles, for use by the Canadian Armed Forces, federal, provincial and municipal government departments and agencies, emergency services, and Arctic and Crown resource-sector operations.

This joint venture between APMA and Hanwha would feature Canadian-majority ownership and board membership, and the CEO would be Canadian, the South Korean company announced Wednesday.

Hanwha’s offer to Canada is the KSS-III Batch-II submarine, while TKMS, as part of a joint German-Norwegian project, is offering the 212CD. Both are diesel-electric submarines.

The stakes are high. Canada could end up spending tens of billions of dollars for the 12 submarines it intends to buy over their life cycle.

Industrial benefits are a key component of many defence contract bids. Canada expects suppliers to spend significant dollars in this country while fulfilling a contract.

Defence analysts have said the total value of the submarine contract could be $60-billion to $120-billion over the vessels’ full life cycle, including $24-billion to $30-billion for the acquisition itself.

Ottawa’s extension earlier this month of the bidding process was an acknowledgment that the government wasn’t satisfied with the economic and industrial benefits promised in the initial bids, submitted ahead of a March 2 deadline by Hanwha and TKMS.

The Canadian government notified the two bidders that they were being granted about 20 more days to revise their bids, with this “amendment period” ending on April 29.