Canada EV deal with China boosts investment potential but U.S. access question looms

TORONTO — The trade deal between Canada and China has experts saying it could lead to Chinese electric vehicle firms producing vehicles in Canada, but much depends on the trade talks ahead with the United States.

Critics including Ontario Premier Doug Ford and Unifor leader Lana Payne panned the deal as an attack on workers and Canadian manufacturing, while Prime Minister Mark Carney said the government has already spoken with Chinese companies interested in investing in Canada.

The deal has the federal government lowering tariffs to 6.1 per cent from 100 per cent on 49,000 Chinese EVs a year, with a ramp-up to 70,000 within five years, while China has agreed to reduce tariffs on a range of Canadian goods.

It comes as Chinese manufacturers are already adapting globally to trade restrictions and are moving toward local production where they sell, said automotive consultant Sam Fiorani in an interview.

“Once they get a foothold in Canada, the idea that they could build plants locally, the odds of that jump dramatically.”

Fiorani, vice-president of global vehicle forecasting at AutoForecast Solutions, said Chinese firms need to test the waters first, but once they establish a brand, they look to invest where they sell.

“Build locally is the long-term plan for any Chinese automaker.”

China has been ramping up exports, estimated at around 6.5 million units lasts year, as its domestic industry has capacity to produce millions of more vehicles than it can sell locally, but firms have still been investing heavily abroad, said a report out last November from S&P Global Mobility.

“Along with avoiding tariffs and shipping costs, building close to where you sell improves market potential inherently,” said S&P analyst Abby Chun Tu in the report.

“In most cases, consumers are more open to automakers who invest locally, regardless of where a brand’s home market is.”

However. the chances Chinese firms will set up shop in Canada without guaranteed access to the U.S. market is unrealistic, said Andrew King, managing partner of DesRosiers Automotive Consultants Inc.

“The Canadian market itself is just too small to justify an assembly plant – which is why the auto industry established an efficient North American assembly system – a system that the current U.S. administration seems determined to destroy,” he said by email.

It’s not necessarily a question of full Chinese production in Canada or not.

Chinese firms could do a less costly modular production, putting together pre-assembled pieces in Canada, if access to the U.S. becomes unlikely, said Ryan Robinson, automotive research lead at Deloitte Canada, but some form of investment is possible.

“I think there’s a potential for it, for sure,” said Robinson.

There’s certainly demand potential on the consumer side as buyers confront the reality of current vehicle prices, he said, while noting the policy could also help Canada get closer to emission reduction goals.

The investment potential in Canada comes as Chinese firms have increasingly been building capacity outside of their home market. Chinese EV producers have built at least 15 facilities across Southeast and Central Asia since 2022, the S&P report noted, including in countries like Malaysia that has a vehicle market less than half the size of Canada’s.

The wave of investments come as Chinese firms look to expand from an already saturated domestic market, leading to them collectively spend more abroad than at home in 2024 for the first time, according to a report out last year from the Rhodium Group.

Europe has also seen a jump in manufacturing capacity with Chinese giant BYD building plants in Hungary and Turkey, while Chery has entered a joint venture with Spanish automaker Ebro-EV Motors.

Stellantis, meanwhile, has partnered with Leapmotor for the Chinese to firm build its vehicles at Stellantis’s Poland plant, and was set to start producing in Malaysia at Stellantis’s Gurun facility at the end of 2025, the report noted.

Meanwhile, the future of the Stellantis plant in Brampton, Ont., remains an open question after the automaker moved production slated for it to the U.S. last year.

The Canadian government said in announcing the deal with China that it expects within three years it will “drive considerable new Chinese joint-venture investment in Canada,” creating new auto manufacturing career for Canadian workers.

TD chief economist Beata Caranci said in a report last September that Chinese EV production in Canada is unlikely given concerns about market access to the U.S., but that there are still areas for partnership.

“Given the EV technology gaps that remain between China and other nations and China’s desire to expand globally, some form of partnership could aid Canada in improving its EV ecosystem,” she said in the report.

Speaking in Doha, Qatar, on the weekend, Carney said there is interest in Chinese companies producing “affordable” electric vehicles in Canada.

“We’ve had direct conversations directly from the Chinese companies … with explicit interest and intention to partner with Canadian companies.”

Ford said it was terrible deal for the auto sector and a miscalculated decision by the prime minister, while Payne, Unifor’s national president, said it was a self-inflicted wound to an already injured Canadian auto industry.

Fiorani said that while investment in Canada is possible, it’s unlikely Chinese firms would partner with the Detroit Three, as they’re all unionized and Chinese producers will be looking to be union-free.

He said the small volume of low-tariff vehicles will mean producers will, however, want to find some way to invest in Canada if they want to grow in the market.

“It should not take very long for some of those brands to become accepted in the Canadian market, and that will lead to local production of those vehicles as the manufacturers want to expand beyond the current limits.”

— With a file from Kyle Duggan.

This report by The Canadian Press was first published Jan. 20, 2026.

Ian Bickis, The Canadian Press