A BYD Seal car in a BYD Auto company and Autotorino store in Milan, Italy, on March 20, 2024.Claudia Greco/Reuters
Europe and the United States are both taking aim at China’s electric vehicle sector with higher tariffs to protect their own industries, investments and jobs. Canada is considering similar tariffs, but hasn’t committed to anything.
As China is rapidly scaling up and producing much cheaper EVs, we still aren’t seeing any Chinese brands for sale in Canada. That is because the quality isn’t there yet, said one expert. But once the quality improves, it could be devastating for our EV and battery industry if Canada doesn’t take action.
“China controls the global supply chain for making EVs, they make more EVs than anyone else on the planet, and they can make them at significantly less cost,” said car industry analyst Robert Karwel, a senior manager at J.D. Power’s Canadian office. “But the reason we haven’t been flooded with Chinese EVs yet is because they don’t meet the quality, reliability and durability standards expected by [Canadian] consumers.”
So far, Chinese automakers have focused on making mostly small, lower-quality city cars mainly for the Chinese market – and not the well-equipped SUVs that most Canadian buyers want, he said.
Chinese automakers won’t start selling EVs here until they can offer good-quality compact and mid-sized SUVs, Karwel said.
He said Chinese companies don’t want to risk having their name associated with subpar vehicles in the minds of Canadian consumers – that happened in the past with new-to-Canada automakers including South Korea’s Hyundai (which faced a reputation for low quality for years after launching with the Pony in 1983) and Russian brand Lada.
“If you are going to the expense of launching a brand here from nothing, you need to meet base expectations,” Karwel said. “They’re on the cusp of making vehicles that are quite good, so they’re not going to ruin those prospects by jumping the gun.”
But Chinese EVs are getting better – and Chinese companies are making more electric sports cars, SUVs and luxury vehicles.
“They’re [mainly] building for themselves now – they’re looking at what they can do in the export market next,” Karwel said. “They’re not worrying that much about us yet, but that’s going to come.”
Although Volvo and Polestar, Swedish brands owned by Chinese automaker Geely, sell EVs here, we haven’t yet seen cars from Chinese companies like MG (owned by Chinese state-owned SAIC motors) and BYD (Build Your Dreams).
A third of the price?
While about a third of drivers looking for a new car say they would consider buying a fully electric vehicle, according to a survey of Globe and Mail readers, one of the top reasons people say they won’t is cost.
The average price of an EV in Canada is about $70,000. Typically, EVs still cost about $20,000 more, before rebates, than comparable gas-powered vehicles in the same segment, Karwel said.
But with access to cheaper raw materials, lower labour costs, and allegedly illegal subsidies from the Chinese government, some EVs made in China can sell for about a third of their counterparts here, Karwel said.
For example, BYD sells the Seagull – a compact hatchback with up to 405 kilometres in range, depending on the battery size – for about 74,000 Chinese yuan ($14,000) in China. In Mexico, where it’s sold as the BYD Dolphin, it starts at 358,000 Mexican pesos (about $26,000).
Compare that with Canada, where there’s one 2024 EV, the Fiat 500e, with a retail price under $40,000, before fees, taxes and rebates.
While Chinese companies face added costs to meet North American and European safety standards, prices can still be comparatively low – even with potential tariffs, Karwel said.
In Germany, a Chinese MG4 EV starts at about $42,000, compared with a similar Volkswagen ID.3 EV, which starts at almost $60,000, the Canadian Press reported last month.
BYD’s Seagull is expected to launch in Europe next year and before the new European tariffs were announced, BYD executives said it would sell for less than €20,000 ($29,700).
Chinese EV sales are already growing in Europe, where there’s a market for smaller vehicles. There, Chinese car brands accounted for 4 per cent of EV market share in 2022, up steeply from 0.5 per cent in 2019.
Transport and Environment, a European advocacy group, predicts Chinese brands will see 11 per cent EV market share in Europe this year and 20 per cent by 2027.
The Canadian market is relatively small, so would Chinese companies want to sell here?
“If we have Chinese brands in Mexico, well guess what? Eventually, they are going to start trickling into the Canadian market,” Karwel said. “[Chinese automakers] may establish a beachhead [in Canada and Mexico] before entering the U.S. market. … We’re not huge globally, but, strategically, we have importance for Chinese companies.”
‘Potentially devastating’
If Chinese companies start selling cheaper EVs that Canadians want, it will be good for buyers and could help speed up EV adoption. But it would be “potentially devastating” for the fledging EV and battery industry here, Karwel said.
Just in the past two years, Canada has committed more than $30-billion for EV battery and manufacturing plants owned by Stellantis, Volkswagen and Honda.
“We’re investing in these plants, mining and infrastructure,” he said. “Why do you think the Biden administration [in the United States] is putting a 100-per-cent tariff on these things? They also have a nascent green vehicle manufacturing industry … and they don’t want to wreck that either.”
Right now, Canada imposes a 6-per-cent tariff on vehicles built in China. Prime Minister Justin Trudeau said last month that Ottawa is considering raising tariffs.
The Canadian Vehicle Manufacturers’ Association (CVMA) worries that immediately matching U.S. tariffs could spark a trade war with China.
“We don’t need to see a knee-jerk reaction from [our] government in response to this U.S. tariff,” CVMA president Brian Kingston said. “[The tariff] is a very blunt instrument that could be used, but there are other tools you can launch.”
For example, Ottawa could investigate alleged illegal subsidies by the Chinese government, as the EU has done, he said.
“We just need to look at the series of options available to make sure that we’re prepared for this,” Kingston said. “And at the end of the day, it needs to be clearly communicated to our American partners that … we’re going to stand shoulder to shoulder in support of the creation of this North American electric vehicle industry.”