Canada's EV Future

January 2026 marked a significant shift in Sino-Canadian relations, as Prime Minister Mark Carney became the first Canadian prime minister to visit China since 2017. During the trip, the two countries reached a new trade agreement allowing 49,000 Chinese electric vehicles (EVs) into the Canadian market at a most-favoured nation tariff rate of 6.1% (Prime Minister of Canada, 2026). While the quota of 49,000 vehicles represents less than 3% of the Canadian market for new vehicles, it is set to increase by 6.5% annually until a maximum of 70,000 vehicles (Logan & Bland, 2026). The decision to let Chinese EVs into Canada denotes a dramatic change in Canadian EV policy since Prime Minister Justin Trudeau’s enactment of a 100% tariff on Chinese EVs in 2024. What does this policy reversal reveal about Canada’s approach to EVs and what should we expect for the future of EVs in Canada?   

Similar to many other Western countries, Canada has sought to develop a secure supply-chain capable of meeting demand for clean technologies while also being resilient to geopolitical shocks. One key component for clean-technologies, and EVs in particular, are critical minerals. If current policies hold, critical mineral demand will double by 2040, and if sustainable development goals are met, quadruple by 2040 (International Energy Agency [IEA], 2026). Due to their mineral-intensive nature, EV supply chains are particularly difficult for a country to fully integrate. A single electric car requires more than 200kg of different critical minerals, whereas an internal combustion engine (ICE) vehicle requires just 35kg (Arsenault et al., 2025). Not only does Canada seek to expand critical minerals mining due to their crucial role in various clean technologies, but it also wants to increase sovereignty over its critical mineral supply chain to insulate itself from geopolitical disruptions. Hence, critical minerals are understood to have both environmental sustainability benefits and national security benefits, a phenomenon which has been called the "security-sustainability nexus" (Riofrancos, 2023). This security-sustainability nexus has driven Canada to prioritize the onshoring of critical mineral mining. 

National sovereignty and security concerns are primarily tied to China’s dominance over critical minerals refining and EV production. In 2025, China accounted for 70% of EV production and over 80% of battery cell production (IEA, 2026). The country’s dominance in this field is most evident in its refining capacity – China alone accounts for “...50% of global copper refining capacity, 70% of lithium refining, 75% of cobalt refining, 85% of magnet rare earth separation and over 90% of battery-grade graphite production” (IEA, 2026). This dominance reflects how China’s EV supply chain is uniquely "tightly clustered", meaning that all parts of the supply chain are located in close proximity to one another. This provides significant cost and innovation advantages to Chinese firms (IEA, 2026). Hence, Canada's ability to develop its own EV supply chain is challenged by China's preeminence across all parts of the supply chain.

Even in the face of China's EV dominance, Canada has devoted major government resources towards onshoring the EV supply chain. In 2024, the Parliamentary Budget Office estimated that the government had provided $52.5B of support for the EV supply chain, while the private sector had provided just $46.1B of capital investments (Giswold, 2024). Despite the government’s strong support, a competitive Canadian EV supply chain has failed to materialize. Given Canada's natural abundance of various minerals, many have been optimistic about critical minerals mining. To support this industry’s development, the government has introduced various forms of preferential tax treatment. However, these efforts have been challenged by the lack of skilled labor willing to relocate to the mines’ highly remote locations. There's also concerns about the large amounts of capital these projects require amid the significant fluctuations in the price of critical minerals. Some mining operations have also been opposed by First Nations due to mining’s history of industrial contamination, divestments in public infrastructure and socio-economic marginalization (Arsenault et al., 2025). 

Efforts to build the second part of the EV supply chain, critical minerals processing, have been hindered not only by First Nation opposition (due to risks of air, water, and soil contamination) but also from the lack of raw materials resulting from the shortage of critical minerals mining (Arsenault et al., 2025). Also, as a result of China’s market control over critical mineral refining, it “....can effectively set prices”, which makes it difficult for domestic projects to compete (Arsenault et al., 2025, p. 5). While Canadian policymakers have underestimated the importance of mineral processing, the Chinese government has invested heavily in this sector. As a result, refining capacity is currently the starkest gap from China (Arsenault et al., 2025). 

The third part of the EV supply chain, Battery and EV manufacturing, has received the most government support out of all parts of the supply chain. This support has mainly come through various tax incentives and direct financial transfers. While it's too early to assess the impact of most of this support, the sector increasingly faces challenges from U.S. tariffs to Chinese price manipulation (Arsenault et al., 2025). Thus, the development of a strong and independent Canadian EV supply chain has structural challenges that go beyond the reach of government subsidies.

The vastly different geopolitical position that Canada finds itself in since the Trump administration came to office has had major consequences to the country’s approach to EVs. The US-Canada trade war and the volatile CUSMA negotiations have strained relations and pushed Prime Minister Mark Carney to expand Canada's trading partnerships. This recalibration led Canada to strike the January 2026 trade deal with China, where Mark Carney said that the two countries' trade relations are more predictable than Canada's and the US (Radio Canada International, 2026). Thus, shifting relations with the US has contributed to Canada’s engagement with China, thereby helping to alter the country’s former hostile Chinese EV stance.  

The Canadian government views the partnership with the vertically-integrated and technologically adept Chinese EV companies as a plausible way for Canada to develop a notoriously difficult-to-build EV industry while also obtaining beneficial trade diversification. In their efforts to justify the decision, Canadian officials have underscored Chinese investment and partnership as one of the primary benefits of granting market access to Chinese EVs. The Prime Minister’s Office emphasized that “...this agreement will drive considerable new Chinese joint-venture investment in Canada with trusted partners to protect and create new auto manufacturing careers for Canadian workers, and ensure a robust build-out of Canada’s EV supply chain”  (Prime Minister of Canada, 2026, para. 4). In light of the government enthusiasm about the potential benefits of increased collaboration with Chinese EV companies, it’s worth assessing how realistic they actually are.   

Fortunately, the European Union offers a useful case study, showing how opening market access to Chinese EVs can affect EV adoption and the development of a local EV supply chain. After initially adopting a liberalized framework to incoming Chinese investment and maintaining relatively receptive policies to Chinese EVs, the European car market has experienced Chinese vehicle growth at an unprecedented scale (Williams, 2026). For 2025, 6.4% of all car sales in the EU and 12.1% of all car sales in the UK were Chinese-made vehicles (Williams, 2026). The growth of Chinese vehicles in the EU has occurred even alongside tariffs on Chinese EVs ranging from 7.8% to 35.3% since 2024 (Logan and Bland, 2026). Concerned over its growing trade imbalance with China and its desire to capture the economic benefit of Chinese investments, the EU is advancing a new legislative proposal: The Industrial Accelerator Act (IAA). The IAA would require investments in strategic sectors (such as EVs) from countries with more than 40% manufacturing capacity in that sector to qualify under certain conditions aimed at boosting local content requirements (Logan and Bland, 2026). These qualifications could include joint partnerships, technology transfers, investment into European research and development, and local sourcing (Logan and Bland, 2026). If the legislation is passed, it would largely affect China. However, China's Chamber of Commerce warned that if the EU adopts a policy phasing out the use of Chinese equipment, it could cost the bloc $400B over the next five years in efficiency losses. Thus, it's clear that the EU's initial openness has not captured the economic benefits it hoped for, nor did it eliminate strategic dependencies. Current policy proposals indicate a more protectionist approach to Chinese EVs, however these will also have to reckon with the economic and political realities of China’s EV dominance. Considering its goal of cultivating a local EV supply chain, Canada must take note of these developments as it approaches partnerships with Chinese EV companies.

The future of EVs in Canada remains uncertain. The government has prioritized the development of critical technology on both security and sustainability grounds, however, actual efforts to develop a supply-chain face significant challenges that cannot fully be addressed by government subsidies. The future of EVs in Canada has become unavoidably entangled in geopolitics, as the US-Canada trade war and CUSMA's unstable future brought about Canada's January 2026 engagement with China that partially opened the Canadian market to Chinese EVs. Canadian officials have justified this decision as a means to develop meaningful partnerships with Chinese EV firms that will help build Canada's own EV manufacturing and supply chain capabilities. However, as the EU has demonstrated, attempting to leverage partnerships with Chinese EV companies that develop local manufacturing capacity has yielded limited results and has not eliminated strategic dependencies. Thus, onlookers should pay attention to any future policy conditioning Chinese investment, any concrete deals with Chinese EV companies, and how Canada’s geopolitical position continues to evolve.

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Reference

Arsenault, C., Deberdt, R., & Le Billon, P. (2025). Onshoring low-carbon supply chains: Can subsidies meet the challenge? Earth System Governance, 26, Article 100286. https://doi.org/10.1016/j.esg.2025.100286

Radio Canada International.(2026, January 16). Carney, reaching trade deal with China, says country is more “predictable” than U.S. https://ici.radio-canada.ca/rci/en/news/2221259/carney-reaching-trade-deal-with-china-says-country-is-more-predictable-than-u-s

Giswold, J. (2024). Tallying government support for EV investment in Canada. Office of the Parliamentary Budget Officer. https://www.pbo-dpb.ca/en/additional-analyses--analyses-complementaires/BLOG-2425-004--tallying-government-support-ev-investment-in-canada--bilan-aide-gouvernementale-investissement-dans-ve-canada

International Energy Agency. (2026a). Global critical minerals outlook 2026. https://www.iea.org/reports/global-critical-minerals-outlook-2026

International Energy Agency. (2026b). Global EV outlook 2026. https://www.iea.org/reports/global-ev-outlook-2026

Logan, K., & Bland, T. (2026). Plugging in, charging ahead: Comparing EU and Canadian approaches to Chinese investment in the electric vehicle sector. Asia Society Policy Institute. https://asiasociety.org/policy-institute/plugging-charging-ahead-comparing-eu-and-canadian-approaches-chinese-investment-electric-vehicle

Prime Minister of Canada. (2026, January 16). Prime Minister Carney forges new strategic partnership with the People’s Republic of China focused on energy, agri-food, and trade [News release]. https://www.pm.gc.ca/en/news/news-releases/2026/01/16/prime-minister-carney-forges-new-strategic-partnership-peoples

Riofrancos, T. (2023). The security–sustainability nexus: Lithium onshoring in the global North. Global Environmental Politics, 23(1), 20–41. https://doi.org/10.1162/glep_a_00668

Williams, G. (2026). Don’t stop me now: Chinese cars are having a good time in Europe. Rhodium Group. https://rhg.com/research/dont-stop-me-now-chinese-cars-are-having-a-good-time-in-europe/