Patrick Leblond and Liam Ibbott: A few EV models imported from China is hardly a threat to Canada’s automotive industry in the short and medium term
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China’s electric vehicle (EV) manufacturers have been at the heart of Canadians’ discussions surrounding recent federal government announcements about EVs in Canada, but are they worth all the attention?
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It all began with a preliminary agreement-in-principle between Canada and China during Prime Minister Mark Carney’s visit to Beijing in mid-January.
Under this “deal” (to use Donald Trump’s terminology), Canada plans to allow up to 49,000 EVs to be imported from China at a tariff rate of 6.1 per cent, increasing to 70,000 over a five-year period. In exchange, China agreed to reduce its tariff levels on key Canadian products such as canola seeds, peas, lobsters and crabs.
The new tariff rate on Chinese EVs is the same that Canada applied before adopting a tariff rate of 100 per cent on Chinese-made EVs on Oct. 1, 2024, in response to pressure from the United States.
The federal government anticipates that more than half of the imported EVs from China will cost less than $35,000 in five years, which would help Canadian consumers who can’t afford a new car anymore, given that the average price of a new car in Canada is $63,665.
In response, industry and labour leaders and Ontario Premier Doug Ford have complained that the deal will lead to job losses by undercutting domestically produced cars and parts. The industry is already facing struggles because of renewed U.S. protectionism under Trump 2.0.
Then, last week, Carney announced his government will scrap the EV sales mandate, which requires 60 per cent of all new cars in Canada to be zero-emission vehicles (ZEVs) by 2030 and 100 per cent by 2035.
Instead, it will adopt more stringent emissions standards for vehicles and reintroduce incentives to purchase ZEVs, but only for those built in Canada or in countries with which Canada has a free-trade agreement, thereby excluding imports from China.
With this new strategy, which also includes tax incentives, the federal government expects significant investments by automotive manufacturers, including Chinese ones, to produce ZEVs in Canada.
So, who’s right? The federal government, which sees Chinese EV manufacturers as strategic partners, or those who see competition from China as detrimental to Canada’s auto industry?
In the short term, the deal with China doesn’t mean much since 49,000 vehicles only represents about three per cent of vehicles sold in Canada. Moreover, it’s far from obvious that the quota will be rapidly filled.
In the year before it imposed a 100 per cent tariff on Chinese EVs (October 2023 to September 2024), Canada imported 31,658 EVs from China, and this was before the federal government paused its incentive program.
It is also important to consider the kind of cars Canadians like. They are abandoning passenger cars in favour of SUVs, light trucks and minivans, which are the vehicles assembled in Canada for the most part. The sale of passenger cars has declined by more than half between 2018 and 2024.
The key question is, therefore, whether Chinese EV manufacturers offer relatively cheap SUVs and light trucks for the Canadian market since these are the types of vehicles that could threaten Canada’s car industry in the short and medium term.
Using the Australian market as a reference, we have been able to identify five Chinese EV SUVs priced at $35,000 or below — BYD Auto Co. Ltd.’s Atto 2, Chery Automobile Co. Ltd.’s Omoda 5 and Jaecoo J5, Zhejiang Leapmotor Technology Co. Ltd.’s B10 and MG Motor’s S5 — that could potentially be available in Canada.
Otherwise, we can expect higher-end, more expensive Chinese EVs to enter the Canadian market, a segment that is already exclusively filled by imports.
A few EV models imported from China, representing around one per cent of the Canadian market (if we only consider cheaper models), is hardly a threat to Canada’s automotive industry in the short and medium term.
What about the long term? Will Chinese manufacturers invest to build EVs in Canada, as promised by Carney? If they do, what will happen to Canada’s existing auto industry?
Based on the above analysis, Canada doesn’t look like a promising market to build EVs. At a minimum, the demand for EVs would have to significantly increase, which is only possible with higher gasoline prices and renewed consumer and producer incentives like they have in Europe. The incentives announced last week are unlikely to be enough, especially since the rebates are expected to decline yearly to $2,000 by 2030 from a maximum of $5,000.
But even with a much higher demand for EVs, the Canadian market remains too small for more production here. Like existing vehicle-assembly plants, it only makes sense if free (or cheap) access to the U.S. market is guaranteed.
Only the Canada-U.S.-Mexico Agreement (CUSMA) can provide that access, but it’s not guaranteed. CUSMA’s rules can easily be broken, as Trump has shown us, and that’s not considering existing antagonism towards EVs in the U.S., which makes it a much less attractive market than before.
If, somehow, Chinese EV makers could be convinced to invest in Canada, it’s not clear there would be large benefits for the Canadian economy.
In terms of jobs, plants would likely rely predominantly on robotics and automation. For innovation and knowledge transfer, Eastern Europe’s experience suggests Chinese EV manufacturers don’t make much use of local parts producers because of a lack of experienced suppliers for EVs and the lower volume of parts needed to build battery EVs.
If the ultimate logic of having an automotive manufacturing industry in Canada is national security, ensuring a domestic industrial base that could support defence needs, then inviting and likely paying for Chinese EV manufacturers to produce vehicles here doesn’t make sense.
So, Canadians should keep calm and carry on about China’s EV manufacturers. If they end up investing in Canada, it will be because we’ll make it worth their while. If so, then we should really think about what we are getting in return.
Patrick Leblond is a senior fellow at the Centre for International Governance Innovation and holds the CN-Paul M. Tellier Chair in Business and Public Policy at the University of Ottawa. Liam Ibbott is a master’s student in Public and International Affairs at the University of Ottawa.
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