Two federal trade measures targeting zero-emission vehicles imported to Canada from China are now in effect, forcing some automakers to shuffle their global production plans or come to terms with the new economic calculus.
Electric- and hybrid-vehicle imports from China face a 106.1-per-cent surtax at Canadian customs starting Oct. 1, up from just a 6.1-per-cent import tariff previously. The controversial federal move aligns Canadian policy with the United States, which enacted a 102.5-per-cent tariff on China-made EVs Sept. 27.
In addition, five China-built models or variants that previously qualified for Ottawa’s Incentives for Zero-Emission Vehicles (iZEV) program will no longer be eligible for federal consumer rebates of up to $5,000. The program is now open only to vehicles assembled locally, or in countries with which Canada has a free-trade agreement.
Tesla, Volvo and Polestar are the three brands affected immediately.
Tesla has been shipping low-end variants of the Model 3 and Model Y built at its sprawling Shanghai plant to Canada for about 18 months. Neither will qualify for federal rebates as of Oct. 1 and Tesla will face punishing tariffs on its imports if it does not change tack.
The company does not break out sales data by country or trim, but according to federal records obtained by Automotive News Canada through an access to information request, Tesla imported more than 30,000 Model 3s and Model Ys built in China in 2023 that qualified for federal incentives. Other Model 3 and Model Y variants imported to Canada, typically costlier ones, are built at Tesla’s plants in California and Texas.
The automaker did not respond to a request for comment about its response to the tariffs.
But the surtax coming into effect will likely see Tesla shift production for Canada back to the United States, said Sam Fiorani, vice-president of global vehicle forecasting at U.S.-based consulting firm AutoForecast Solutions.
The company has been taking advantage of its Shanghai plant’s excess capacity, lower relative costs and ready access to lithium-iron phosphate (LFP) batteries with the Canadian imports, he said in an email. Shifting to assembly sites in California and Texas will hurt the company’s profitability on the low-cost variants, Fiorani added, but the alternative is to drop them from the market.
“U.S.-made Tesla models with LFP batteries will likely find their way into Canada to replace the Shanghai-made models.”
VOLVO PLANNED AHEAD
Volvo Cars Canada imports its new EX30, its XC60 plug-in and “a very limited number” of S90 sedans from China.
The company, which is controlled by China-based automaker Geely, has built up inventory for all three vehicles for the balance of 2024 ahead of the tariff implementation date, according to spokesperson Jennifer Okoeguale. She would not disclose the specific number of vehicles imported, but said they have arrived in Canada, and some have already been transferred to dealers.
The importation of the vehicles ahead of Oct. 1 will allow the vehicles to bypass the tariffs that are applied by the Canada Border Services Agency upon arrival, according to Finance Canada. They will also remain eligible for federal incentives, as will other China-made vehicles that arrived in Canada or were “in transit” before the start of October, according to Transport Canada.
For 2025, Volvo plans to shift production of the EX30 and XC60 to other global plants, partly in response to Ottawa’s crackdown on China-made vehicles. Okoeguale said Volvo Canada will begin sourcing the XC60 from Torslanda, Sweden in the first quarter of 2025, while production of the EX30 will shift to Ghent, Belgium in the first half of the year.
POLESTAR POSSIBILITIES
Future prospects for the Polestar 2 in Canada appear less certain.
Company spokesperson Michael Ofiara said a “select number” of Polestar 2 fastbacks will remain in stock, but that the Polestar 3 and 4 “will be the priority in the North American market.”
This marks a significant change for the brand, that sold more than 1,000 Polestar 2s — and no other vehicles — in Canada through the first half of this year, according to the Automotive News Research & Data Center.
“We are currently evaluating the announcement of tariff increases from the Trudeau administration,” Ofiara said in an email. “As a global company … operating across 27 markets, we believe that free trade is essential to speed up the transition to more sustainable mobility through increased EV adoption.”
The all-electric brand, which is headquartered in Sweden, but ultimately owned by Geely, began production of its Polestar 3 crossover in South Carolina in August. It plans to assemble the upcoming Polestar 4 destined for the North American market in Busan, South Korea starting in mid-2025, Ofiara said.
FORD AFFECTED?
Ford luxury brand Lincoln could also be affected by the import tariffs.
Production of the Lincoln Nautilus, which was built in Oakville, Ont. up until December 2023, shifted to China for the 2024 model year. The crossover is offered with a hybrid option for both 2024 and 2025, while the federal tariffs cover hybrid vehicles “with both spark-ignition internal combustion piston engine and electric motor as motors for propulsion.”
Ford of Canada did not respond to multiple requests for comment about future imports of the Lincoln Nautilus hybrid.
In addition to the short-term ramifications for the small number of vehicle makers importing EVs and hybrids from China, the tariffs that Ottawa said are designed to “protect Canada’s workers from China’s unfair trade policies” could prevent other automakers that build vehicles in the Asian country from targeting Canada.
At least one China-based automaker is already eying the market.
Over the summer, federal records showed lobbyists acting on behalf of BYD registered with Ottawa to “advise on matters related to the expected market entry of BYD into Canada for the sale of passenger electric vehicles."
BYD did not respond to a request for comment about whether it is reconsidering its plans following the implementation of the tariffs.
