When Trevor Melanson arrived in Reykjavik, Iceland, last July to pick up his rental car, he was “pleasantly surprised” to be handed the keys to an electric vehicle that most North Americans could only dream of driving — a Chinese BYD.
Melanson, from Vancouver, B.C., was curious to try out a car he had heard so much about — in this case a silver hatchback — but had never seen. When he got behind the wheel of this “efficient car that checks all the boxes,” he realized it was a vehicle that many Canadians would like.
The BYD Dolphin was launched in Europe last May at a starting price of $36,094 (22,990 Euros). The fully electric 430-kilometre-range vehicle comes with a 10-inch touchscreen, ample cargo space, a backup camera and the zippy torque typical of an EV, a feature that came in handy when overtaking on Iceland’s single-lane highways.
According to Melanson, the Dolphin’s technology was not quite on par with the Tesla Model 3 he drove back home, but he said it was in the same league as Canada’s once most-affordable EV, the Chevrolet Bolt.
“I am excited about what Chinese EVs can mean for the Canadian market,” said Melanson, who works at the environmental think tank Clean Energy Canada. “It’s not that they’re 10 years ahead. These cars absolutely make sense for Canadians, most of whom just want a good, decent car with enough range that they could afford.”
Until a week ago, Canadians had virtually no shot at driving Chinese EVs — some of the world’s cheapest — after the federal government slapped on 100 per cent U.S.-aligned tariffs in 2024.
But the outlook has shifted dramatically with news that Prime Minister Mark Carney struck a deal in Beijing to cut tariffs to 6.1 per cent in exchange for China easing retaliatory tariffs on Canadian canola and seafood. Canada will now permit the import of up to 49,000 Chinese EVs annually, with vehicles priced under $35,000 expected to make up half of those imports within five years.
Allowing the entry of Chinese EVs is only the first step toward the long-term goal of enticing Chinese carmakers to invest in electric auto production in Canada, federal government officials said, and the annual quota could rise if the investment comes to fruition. The move would help Canada diversify its markets away from the U.S., the destination of 90 per cent of Canadian auto exports, while leapfrogging the Americans to become the first in North America to produce EVs using Chinese technology, the officials said.
While some fear the quota could rise quickly, unleashing a flood of cheap Chinese EVs on Canada without any real Chinese investment, experts told the Star that engaging with a rising automotive powerhouse like China is a necessary step to save Canada’s beleaguered auto sector, which has come under sustained attack from protectionist tariffs imposed by U.S. President Donald Trump.
But will Canada actually be able to attract investment from China? And if it does, could that help to rescue our troubled industry?
“Canada has already been told that the U.S. doesn’t need vehicles that are produced in Canada. So we can do nothing, and hope for the best to maintain the jobs that we have,” said auto industry analyst Ryan Robinson at Deloitte. “Or we can be strategic and look for new partners.”
We’ve done it before
This isn’t the first time Canada’s auto industry has faced the threat of a market shakeup from foreign entrants. In the 1970s, similar concerns arose over Japanese automakers, whose budget-friendly cars started gaining ground in the Canadian and U.S. markets.
The Canadian government of the time negotiated “voluntary automobile restraints” that capped Japanese passenger car imports at 174,000 units in 1981, followed by a duty remission program that reduced or removed tariffs for non-American automakers that invested in Canada or bought Canadian-made parts.
The approach was a success. It helped bring in Honda and Toyota manufacturing plants, which today produce about 900,000 vehicles annually — a full three-quarters of the country’s current auto production, said Greig Mordue, an associate professor of engineering at McMaster University.
As the federal government signals its intention to unveil an auto strategy in February, Mordue said he expects Canada will revisit such a tool to attract Chinese investment, likely alongside other financial incentives.
That investment is much needed because the American auto producers have been withdrawing from Canada for decades and now make up a much smaller percentage of the market than many Canadians think.
Mordue said Canada’s auto production has fallen from three million vehicles in 1999 to 1.3 million in 2024, largely due to reduced output from Detroit automakers Ford, General Motors and Stellantis.
It has become harder to retain foreign investment in Canada’s auto industry as lower-cost markets like Mexico have emerged, and the World Trade Organization declared the 1965 Auto Pact between Canada and the U.S. illegal in 2001, he noted.
The pact that engineered the North American integrated auto industry required U.S. manufacturers to maintain production levels in Canada and source a certain amount of Canadian parts in exchange for duty-free treatment.
Mordue said the policy tools then-federal trade minister Ed Lumley used to attract Japanese carmakers were “very aggressive, and ultimately, very successful.”
“If he hadn’t done that, there would be no industry in Canada,” Mordue said.
Running out of options
Lowering tariffs on Chinese imports was not Canada’s proactive choice, but rather a response to the “destructive trade policy” of the Trump administration, said Dimitry Anastakis, the L.R. Wilson and R.J. Currie chair in Canadian business history at the University of Toronto.
The U.S.‘s 25 per cent tariffs on auto parts and 50 per cent tariffs on steel and aluminum have dealt an unprecedented blow to Canada’s auto industry, which directly employs some 125,000 workers. The tariffs have triggered widespread layoffs and production shutdowns. General Motors halted production of its electric delivery vans in Ingersoll, Ont.; Honda postponed its $15-billion EV supply chain project in Alliston, Ont.; and Stellantis delayed the electric Dodge Charger in Windsor.
While most auto parts qualify for tariff-free travel under the Canada-U.S.-Mexico Agreement (CUSMA), which is up for review this year, Trump dismissed the agreement’s relevance in January, insisting that the U.S. doesn’t need cars made in Canada.
“Trump is going to tear up the integrated North American auto industry, which has existed since 1965,” said Anastakis. “I find it kind of ridiculous for people to say that the government should do nothing and just simply accept this kind of treatment by the United States.”
Anastakis noted that the 100 per cent tariffs on Chinese EVs were meant to give North American automakers time to catch up with the electric vehicle movement. However, the Trump administration’s retreat from the EV revolution has set back the momentum of Canada’s shift.
“Canada doesn’t have a lot of options,” said Mordue. “If it wants to continue to evolve and grow its auto industry … it has to look to the ascendant actors, and the main ascendant actor is China.”
China produced 12.4 million EVs in 2024, accounting for 70 per cent of global output that year. In 2025, BYD surpassed Tesla as the world’s top EV seller.
What if China doesn’t invest?
It’s true that Canada’s auto industry could benefit from Chinese investment, but whether that investment will happen is another matter. There are good reasons why China may never invest in a Canadian auto plant.
Industry analysts told the Star that China has little incentive to build cars in Canada, given Canada’s significantly higher labour costs and China’s excess auto capacity, which can produce more than 50 million vehicles per year — roughly double its domestic sales.
“Even if investment does materialize, the record in other markets is clear: the supply chain stays in China, backed by heavy state subsidies and low wages, while parts are shipped in for minimal local assembly that creates few jobs and no lasting industrial base,” said Unifor National President Lana Payne. “Once the EV market is lost, there is no turning back.”
Jim Stanford, an economist with the Centre for Future Work and former director of policy with Unifor, said access to the entire North American market is usually what attracts carmakers to Canada. If Chinese EVs continue to be shut out of the U.S., their investments simply won’t add up.
He added that letting Chinese automakers in without locking down investment commitments would repeat a troubled pattern that has contributed to the decline of auto production in Canada.
Australia serves as a cautionary tale for Canada — its auto industry fell apart a decade ago after the government eased rules that once tied preferential market access to local vehicle production, Stanford said.
“I’ve worried about Canada following in Australia’s footsteps for many years,” said Stanford. “And the China thing is just one more hurdle for our industry to try to survive.”
Last week, Ontario Premier Doug Ford lambasted the trade EV deal as “a terrible, terrible, miscalculated decision,” warning it would gut Ontario’s auto sector and invite so-called “spy cars” that funnel data back to Beijing.
The Carney government brushed off those concerns on Tuesday, saying any vehicles allowed into the country would have to meet Canadian standards.
Still worth a shot
While acknowledging the challenges ahead in attracting Chinese investment, some experts told the Star that dire geopolitical risks from the U.S. leave Canada no choice but to give China a chance.
Clouds are on the horizon as U.S.-based manufacturing operations in Canada gradually withdraw, said Peter Frise, an automotive engineering professor at the University of Windsor. Canada must make plans and explore other opportunities, he said.
“We have experience with how China does business. I think we have to go into this with our eyes wide open,” Frise said, adding that time will tell whether Chinese EVs are suitable for Canadians — and can survive a Winnipeg winter.
“Chinese EVs are happening, whether or not someone likes it,” said Melanson. “It’s a question of how we deal with this reality and use it to our advantage, as opposed to just walling ourselves off.”
Melanson added that if the BYD Dolphin he drove in Iceland were sold for $35,000 or less, he feels it would find a market in Canada.
It is still unclear how the 49,000-vehicle quota will be allocated among Chinese EV brands. Mordue said it takes time and money to build dealerships, so in the early phase, Canadians are likely to see made-in-China EVs from companies that are already equipped with sales networks in Canada such as Tesla and Volkswagen.
Allowing the 49,000 EVs into the market, Mordue said, is a good first step to reset relations between the two countries and kick off discussions on investment.
“If we wait until 2029, there won’t be an auto industry left. We won’t be having a discussion about saving the auto industry. We will have a discussion about the industry in the past tense.”
