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On December 19, Canada officially released its Zero Emission Vehicle (ZEV) sales mandate for 2035, requiring 100% of all new light-duty vehicles sold to be zero-emission. Starting in 2026, EVs must account for at least 20% of new car sales, climbing to 60% by 2030, and reaching 100% by 2035. Failure to comply may lead to hefty fines.
This plan requires EV sales in Canada to double within the next three years. According to Environment and Climate Change Canada, EVs accounted for 12.5% of new car sales in Q3 2023, up from 10% in Q2.
To support adoption, the Canadian government has pledged CAD $2 billion to assist EV buyers, including an existing CAD $5,000 rebate for new electric vehicle purchases, with provinces offering additional incentives. The goal is to make EVs competitively priced against internal combustion engine (ICE) vehicles.
Industry Backlash and the "Bridal Gown" Theory: Following the plan's release, the Canadian automotive sector raised concerns. Critics pointed to insufficient charging infrastructure, high EV prices, and a policy flaw: Canada's subsidies are not tied to local assembly or battery sourcing. This stands in contrast to U.S. restrictions under the Inflation Reduction Act.
This policy has led to speculation that Canada is effectively sewing a "bridal gown" for Chinese EV manufacturers. In May, Tesla's China-made Model 3 and Model Y qualified for Canadian rebates. According to iZEV data, one in five subsidized EVs sold in Canada since April 2023 has been a China-built Model Y.
In addition to Tesla, Chinese-made Polestar and Volvo EVs are also eligible for Canadian incentives. May 2023 marked a record high in EV imports from China to Canada: 6,214 vehicles worth USD $250 million. From January to October 2023, Canadian imports of Chinese EVs jumped over 2700%, from CAD $66.1 million to CAD $1.8 billion.
This surge has alarmed local parts makers. Canada's Automotive Parts Manufacturers' Association is urging the government to align more closely with U.S. rules to avoid being undercut by Chinese competition.
Root Cause: Industrial Weakness Canada's auto sector has long relied on U.S. brands like Ford, GM, and Chrysler. While it ranks 11th globally in production, Canada lacks its own auto brands. The shift to EVs has further strained its traditional advantages in ICE vehicle manufacturing.
To stay competitive, Canada must move beyond basic manufacturing and strengthen its EV value chain. Blocking Chinese EVs may offer short-term protection, but it won't solve structural weaknesses.
Signs of Transition: Canada is investing in domestic capacity, offering billions in subsidies to battery plants by Stellantis, LG, and Volkswagen, and incentivizing Japanese firms to build mineral-to-battery supply chains.
EV industry shifts from the U.S. to Canada are being spurred by IRA regulations. As a result, more EV and battery manufacturing projects are expected in Canada in coming years.
Market Potential: EV sales in Canada have more than tripled in three years, from 38,425 units in the first 9 months of 2020 to 132,783 units in the same period in 2023. According to Statista, Canada’s EV market revenue is expected to reach USD $7.1 billion in 2023, growing at a CAGR of 15.49% to USD $14.7 billion by 2028.
But price remains a major hurdle. The average EV price in 2023 is nearly USD $59,100. Only 56% of surveyed consumers expressed interest in EVs in 2023, down from 68% in 2022.
Long wait times are another issue. Volkswagen Canada, for example, halted ID.4 orders in 2022 due to 12+ month delays. Some buyers waited up to 18 months for delivery.
SUVs dominate Canada's vehicle sales, giving an edge to Chinese brands known for affordable electric SUVs.
Chinese Footprint in Canada: While direct investment and factory presence are limited, some Chinese firms have established operations. BYD built an electric bus assembly plant in 2019. Tesla, Polestar, and Volvo—all manufacturing in China—sell in Canada.
Companies like Great Wall Motors have R&D centers in Canada, while Zhejiang Wanfeng and Sichuan Bohong previously invested nearly USD $500 million in manufacturing.
Outlook: Though Canada may eventually adopt U.S.-style restrictions, its immediate focus is on boosting EV adoption and infrastructure. Its credit-score-based EV policy rewards manufacturers for selling EVs and building charging stations, suggesting short-term openness to imports.
For Chinese EV companies, Canada presents a window of opportunity. Familiar with navigating trade barriers in the U.S. and Europe, they are well-equipped to tailor their playbook for Canada.
Where there's demand, Chinese manufacturing is never far behind.
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