Owning a battery-powered electric car has been all about fighting climate change, saving on fuel and maintenance costs, and experiencing the thrill of driving a quiet, speedy ride that represents the future. However, one of the main roadblocks for Canadians looking to buy a new battery-electric vehicle (BEV) is the higher purchase costs compared to traditional gas-powered cars. The recent announcement about the Canadian federal government's potential changes to its import tariffs on Chinese-made BEVs, which could make these vehicles more expensive, is significant to consumers, Canadian BEV manufacturers, and environmentalists.
Reasons for the High Costs of EVs
One reason for BEVs' high costs is that they are typically produced in low volumes on assembly lines shared with gas-powered cars. This is less efficient than dedicated EV production setups and supply chains (like Tesla or Rivian) designed for higher volumes. For example, while the $40,000 2024 Nissan Leaf (that benefits from a $5,000 Canadian federal government rebate) is Canada's most affordable new BEV, a similar-sized gas-powered 2024 Nissan Sentra starts at around $25,000.
Moreover, the higher manufacturing costs have made it challenging for some North American automakers to transition to competitive and profitable EVs. In the U.S., Ford reportedly loses US$100,000 on every Mach-E, F-150 Lightning, and E-Transit BEV. That's not the case in China. The country's domination of battery minerals mining and refining and commitment to electric car development by generous government subsidies allows Chinese EVs to be sold cheaper worldwide. In the last quarter of 2023, China's BYD dethroned Tesla as the leading manufacturer of EVs in the world.
Current Tariffs on Imported Chinese Cars
The Canadian government imposes a 6 per cent tariff on imported EVs from China, which is considerably lower than the American government's new 100 per cent tariff but still less than the European Union's (EU’s) range of tariffs at 17 to 38 per cent. In Canada, Chinese-made EVs are still relatively new compared to Mexico and some European countries. The only Chinese-made EVs currently imported into Canada are the $53,000-plus Tesla Model Y and the Polestar 2. With no tariffs, EVs from Japan and Korea continue to be popular.
The key difference between EU and American tariffs may prevent affordable EVs from being sold in North America. The Chinese-built $53,000-plus Volvo EX30 compact BEV has been delayed in the US until 2025, almost certainly because of the tariff.
While Chinese car companies have yet to sell in North America, their lower-priced EVs have significantly increased market share in Europe. For instance, a Chinese MG4 in Germany starts at about $42,000 after the currency conversion to Canadian dollars, compared to a similar Volkswagen ID.3 that starts at almost $62,000.
Canada's EV Investments in the Auto Sector
While EV enthusiasts look forward to cheaper cars, higher tariffs act as economic protectionism with benefits that ripple throughout the economy. Canada's EV initiatives are expected to employ 250,000 Canadians by 2030, with recent investments totalling $30 billion in EV battery and vehicle manufacturing sites for Honda, Stellantis, and Volkswagen. In addition, the federal and provincial governments have offered these projects up to $53 billion through tax credits, production subsidies, and capital investments.
These efforts have paid off, as Canada has surpassed China for the first time this year in Bloomberg's annual ranking of countries' potential in the lithium-ion battery supply chain.
Do Canadians Want Cheaper EVs or More Jobs?
The potential introduction of cheaper Chinese EVs in the Canadian market could bring about a new era of EV affordability. As the Canadian government considers potential tariffs or trade measures on more affordable Chinese-made models, it's crucial to remember to balance the value between consumer choice, industry needs and jobs, and environmental impacts.
Still, despite the potential for more affordable EVs, some challenges would need to be overcome before Chinese EVs can be sold in Canada.
Although there are lingering perceptions that Chinese cars are low quality, the BYD Seagull entry-level EV, which sells for around US$12,000 in China, drives well and is assembled to the same level of quality as U.S.-made EVs that cost three times as much. Partnering with Chinese EV makers to build their vehicles in Canada, as they do in Europe, could also create more jobs and manufacturing opportunities while giving Canadian buyers more affordable EVs.
Making electric cars more affordable isn't just a goal; it's a necessity. It would greatly increase the number of buyers opting for zero-emission vehicles, promoting a shift toward a more sustainable future. On the other hand, if no one can afford to buy the product, potential tariffs or trade measures may not protect Canada's growing EV industry.
