Canada’s New Trade Agreement Has Far Reaching EV Implications

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As Steve recently wrote, Canada announced a trade deal with China that will allow a quota of 49,000 EVs at a tariff rate of 6.1%, raising to 70,000 vehicles over five years. This is big news. While the quota volume might look small compared to the Chinese market, it makes up a significant share of the Canadian EV market. Digging into it further, this agreement could have major implications for EVs and the automobile market overall.

Looking at the official announcement, Canada is reserving at least half of the quota by 2030 for vehicles under $35,000 CAD (~$25,000 US). This price cap is essentially the opposite of the price floors that the EU is seeking, which artificially elevate prices. As a result, Chinese companies will be motivated to keep prices low to take advantage of the quota rather than elevating them to avoid attacks from politicians tied to legacy industry. In essence, the majority of Chinese EVs will be sold below the prices of the reintroduced Chevy Bolt and new Nissan Leaf. It is hard to imagine the resurrected Bolt having much of a chance in Canada now.

With China requiring every model in every trim to be sold above cost and operating expenses outside of R&D, they would not be dumping at Chinese prices. And they are capable of selling in export markets at prices similar to China, as BYD recently demonstrated with the Dolphin in South Korea.

Overall, the new introductions could lead to a major market disruption on affordable EVs. The price stipulation will also give an advantage to mainstream EV manufacturers, like BYD and Geely, while limiting premium automakers and Tesla’s Chinese imports. In addition, if consumers get a taste of what they can get from China for less than the least expensive EV available on their market now, they might expand.

With their foot in the door, Chinese manufacturers are likely to expand their footprint. Cars are heavy and localization tends to happen somewhat naturally when a market is established. Manufacturing is becoming heavily automated, and labor cost differences are much less than most people realize. BYD executives were seen touring idled Chrysler plants in Canada in 2024, prior to Katy Perry’s boyfriend shutting down their plans. However, the new agreement could lead to localized production — likely as CKD (complete knock down) to start, with additional localization as supply chains are developed.

In addition, Canada is expanding its trade relationship with Brazil and exploring a free trade agreement. Many will remember that BYD is rapidly ramping up production capacity in Brazil, but GWM and Chery also produce vehicles in the country. In addition, Chinese manufacturers are increasing their presence in Mexico, making up 1 in 5 sales in the country. Mexico’s deepening trade relationship with Canada and the potential increased scale could also provide further motivation. Beyond BEVs, the LATAM factories are also producing PHEVs that are far superior to the models that most North Americans are used to, like those being discontinued by Stellantis. As such, we could see a major increase in both BEV and PHEV sales across the Americas.

There is also a chance that we might be able to see these vehicles on the used market in the US. Canada has a regulatory harmonization agreement with the US. If a vehicle is certified for sale in Canada, it is essentially also certified for the US. That harmonization means that the cars would also be ready to enter our market.

However, the only thing that you can reliably predict on trade with Trump is unreliability and unpredictability. That regulatory harmonization might change. In addition, the USMCA might change, potentially pushing Canada further toward other trading partners.

Overall, this is good for Canada. When Canadians experience better vehicles for less money that also run on electricity, I have a feeling they will want more. When Americans see what their neighbors can have, they might demand it as well. That will help to move people away from fossil fuel dependency. Uncompetitive companies will fall behind and jobs will shift, as tends to happen with disruptive technology. But people will get more value in exchange for the value they create. It is good for EV adoption, especially for affordable EV adoption. And that is good for global progress on clean technology.