It’s not yet clear what Canada’s decision to slap a 100 per cent surtax on Chinese-made electric vehicles does for Tesla, the top-selling EV car brand in Canada.
Tesla brings its Tesla Model 3 and Model Y cars to Canada from its factory in Shanghai, said University of B.C. economist Werner Antweiler. So, it is likely the company will have to switch to cars made in its U.S. plants if it wants to avoid doubling the price of vehicles it sells in Canada after the tariff takes effect on Oct. 1.
Prime Minister Justin Trudeau’s government launched the tariffs, in addition to 25 per cent tariffs on Chinese steel and aluminum, to protect Canada’s $46-billion investment in a nascent EV sector from a flood of cheap imports from China.
Chinese EV giant BYD, which stands for Build Your Dreams, established a Canadian corporate entity last spring and has indicated it intended to try to enter the Canadian market with its EV cars as early as next year.
“The reality is China has an intentional state-directed policy of overcapacity and oversupply designed to cripple our own industries,” said Finance Minister Chrystia Freeland as the policy was announced.
How does this change things for Tesla?
Antweiler, chair of international trade policy in UBC’s Sauder School of Business, said he found it “interesting that there’s no carve-out for Tesla here, even though [its cars compete primarily in the premium segment of the market.”
Tesla’s Shanghai Gigafactory can produce 950,000 cars a year, some of which have found their way to Canada over the past two years, including 37,000 in 2023, according to Antweiler.
However, Antweiler added that the rest of Tesla’s manufacturing capacity is at plants in Fremont, California, Austin, Texas, and Berlin, Germany.
Tesla did not respond to a Postmedia inquiry, but Antweiler said: “My sense is that this will not be a capacity problem, but they may need to raise prices to cover the higher cost of producing in the U.S. compared to China.”
Also, if “reshuffling production” results in delayed deliveries and longer waiting times, consumers might shift their intentions to other brands, Antweiler said.
Why is Canada slapping 100 per cent tariffs on Chinese-made EVs?
Canada’s new 100 per cent surtax will be added to the existing 6.1 per cent import tax already on Chinese-made imports as a measure to protect Canada’s own developing EV sector.
“There is a case to be made that the Chinese manufacturers are getting an advantage from the lower cost battery suppliers that are available because China has actually invested heavily in these plants,” Antweiler said.
Freeland was more pointed in accusing China of achieving its advantage through “abysmal” environmental and labour standards.
Canada’s tariff, however, seems more aligned with the U.S. to “remove any potential trade frictions with the United States,” than dealing with “levelling the playing field” with China, Antweiler said.
Antweiler added that Canada could have taken the European Union’s approach, where countries have experienced a surge of Chinese imports. The EU targeted tariffs on Chinese-made EVs based on more specific calculations of each manufacturers’ advantage: 38 per cent on state-manufacturer SAIC vehicles, 20 per cent on those made by Geely and 17.4 per cent on auto giant BYD.
What does this mean for consumers?
“The main impact on Canadian consumers will be long-term, as more competition from China could have sped up the pace of innovation and cost reductions in the automobile sector,” Antweiler said.
BYD’s ambitions included a two-pronged approach: sales through retail dealerships in Canada and a partnership with the ride-hailing service Uber. The Uber deal could put 100,000 BYD vehicles into service in key markets including in Europe, Canada, the Middle East and Australia.
BYD also has a reputation for economical pricing, with the company unveiling its Atto 3 model for overseas markets with a sticker price of US$16,444, compared with $50,000 for a standard Tesla Model 3 or $41,000 for a Chevrolet Bolt LT.
Antweiler, however, noted that manufacturers such as BYD designed cars for the Chinese market and they would have to be upgraded to North American standards, which would add to their cost.
“So it’s not really clear that they’re going to be that competitive and should be feared as much as some likely claim to be the case,” Antweiler said.
The bigger threat would be if BYD and other manufacturers “tariff-jumped” into North America by setting up factories in Mexico within the Canada, U.S., Mexico free-trade region, Antweiler added.
How easy is it for new car brands to break into North America?
On a global scale, Chinese manufacturers are “huge,” with China accounting for half of all of the world’s EV sales, said Simon Fraser University economist Jon Axsen.
“The majority of battery cells are being made there, the majority of EV production is occurring there, and then the majority of sales are occurring there,” he added.
When it comes to exports, however, while BYD has made some inroads into Europe, Axsen is less certain whether its models, which are smaller cars designed for China’s domestic market, will be all that attractive in North America.
Axsen said that on a “level playing field” he doesn’t have a sense of how big a market share Chinese manufacturers could win in the North American market, which is dominated by SUVs and pickups, and where consumers have expectations for vehicle longevity.
“I think Chinese manufacturers would have a long road to go really to meet the consumer needs in North America,” Axsen said.
— With files from The Canadian Press
