Canada's Green Light For Chinese EVs Could Give Tesla a Lift

Canada’s move to ditch 100% tariffs on Chinese-made EVs could open the door for Tesla to be a beneficiary of Ottawa’s new trade deal with Beijing.

Experts say Tesla may be one of the first carmakers to benefit from the deal, thanks to its early efforts to ship cars from its factory in Shanghai and the fact it has an established sales network in Canada.

Under the deal announced last Friday, Canada will allow up to 49,000 vehicles to be imported annually from China with a tariff of 6.1% on most-favoured nation terms. Canadian Prime Minister Mark Carney said the quota could rise to reach 70,000 vehicles within five years.

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However, under one clause in the agreement, half of the quota will be reserved for vehicles under 35,000 Canadian dollars (US$25,189). Tesla model prices are all above that amount.

While many Chinese automakers will be keen to seize the opportunity as they expand exports, Tesla has an advantage because in 2023 it equipped its Shanghai plant – its biggest and most cost-efficient factory globally – to build and export a Canada-specific version of its Model Y.

And in the same year, the US automaker started shipping the car from Shanghai to Canada, boosting Canadian imports of automobiles from China to its largest port, Vancouver, by 460% year over year to 44,356 in 2023.

But, it was forced to stop in 2024 and switched to shipping from its US and Berlin factories after Ottawa imposed 100% tariffs, citing a wish to counter what they called China’s intentional state-directed policy of overcapacity.

Now, it ships Model Ys produced in Berlin to Canada, but more variants, such as the cheaper Model 3s, are mostly built in China.

“This new agreement could allow resumption of those exports rather quickly,” said Sam Fiorani, vice president of research firm AutoForecast Solutions.

39 stores in Canada

Tesla has an existing network of 39 stores in Canada, whereas Chinese rivals such as BYD and Nio do not yet have a sales presence there, and it can also likely move faster with marketing plans, as it only has four core models, far fewer than its Chinese competitors.

“Tesla indeed has an advantage with its offering of a few models, versions and simple production lines so that it can be flexible to sell cars produced in any country in any markets to achieve the best cost efficiency,” Yale Zhang, managing director at Shanghai-based consultancy AutoForesight, said.

Tesla did not immediately respond to a Reuters’ request for comment.

Other brands that exported cars made in China to Canada before the tariffs included Volvo and Polestar, which are both owned by China’s automaking group Geely.

Volvo and Polestar also did not immediately respond to requests for comment.

BYD bus plant in Ontario

However, the clause on price will likely give Chinese brands some breathing room.

“The beneficiaries are likely to be Chinese automakers and the Canadian customers looking for an entry-level vehicle,” Fiorani said.

John Zeng, head of market forecast for China at London-based consultancy GlobalData, said that the quota also would likely offer Chinese carmakers an opportunity to test the waters in Canada, where there’s a large population of Chinese Canadians.

Canada wants to look at joint ventures and investments with Chinese companies within the next three years to build a Canadian electric vehicle with Chinese knowledge, the public broadcaster CBC reported, citing a senior Canadian official.

China’s top EV maker BYD currently has an electric bus assembly plant in Ontario, Canada.

Trump administration officials have criticized Canada’s decision. The former Biden administration quadrupled tariffs on Chinese EVs to 100% in 2024 too, all but blocking such exports to the United States.