TD chief economist Beata Caranci argues that Canada should pursue pragmatic partnerships with Chinese automakers through licensing agreements and joint ventures rather than maintaining strict trade barriers, as China's advanced battery technology and cost advantages could help lower EV prices and accelerate domestic adoption.
- Canadian EV registrations plummeted to 8.7% in Q1 from 15% in 2024 due to high prices and dried-up consumer subsidies following tariff policies
- Electric SUVs cost only 2% more than gas vehicles in China but carry 26% premiums in the U.S. and 20% in Germany
- Chinese firms dominate lithium iron phosphate battery production with 35% lower costs than traditional nickel, manganese, and cobalt alternatives
- Canada could unlock cost efficiency by pursuing targeted licensing agreements and joint research partnerships similar to Ford's CATL deal and Stellantis' Leapmotor investment
- Ultrafast charging infrastructure poses grid challenges, with 500 simultaneous BYD charges equivalent to 10% of Toronto's peak power demand
Canadian policymakers must move past blanket trade restrictions and embrace pragmatic partnerships with Chinese automakers or risk throwing "the baby out with the bath water," according to a comprehensive economic analysis by Beata Caranci, senior vice-president and chief economist at TD Economics, alongside economists Andrew Foran and Likeleli Seitlheko.
Examining the fallout of rigid defensive trade walls, the TD economists argue that while Ottawa and Washington imposed a 100% tariff on Chinese electric vehicles to counter roughly US$230 billion in state-directed subsidies that fueled massive manufacturing overcapacity, the policy has backfired by locking out the world's most advanced and affordable battery technology. Domestic adoption has stalled sharply, with first-quarter battery and plug-in hybrid vehicle registrations dropping to 8.7%—down from nearly 15% in 2024—as consumer subsidies dried up and high sticker prices persisted.
As Caranci, Foran, and Seitlheko emphasize, China's two-decade head start has created an immense cost and engineering chasm. Highlighting the severe price disparity, the report notes that "electric SUVs were only 2% more expensive than ICE SUVs in 2024 in China," whereas western markets face steep penalties, with "electric SUVs [carrying] a price premium of 26% in the U.S. and 20% in Germany while cars had a 21% and 38% premium in the U.S. and Europe, respectively". Furthermore, Chinese firms dominate low-cost lithium iron phosphate battery production—slashing output costs by roughly 35% compared to traditional nickel, manganese, and cobalt alternatives—while achieving vertical integration that puts companies like BYD miles ahead of legacy western automakers.
The authors also underscore mounting infrastructure hurdles tied to emerging technology, warning that upcoming ultrafast charging architectures will place unprecedented strain on municipal grids: "To contextualize this, the new BYD 400km/5min Super e-Platform has a maximum charging power of 1 megawatt (MW), which means the power demand of charging just 500 vehicles simultaneously would be equivalent to about 10% of Toronto’s peak demand!"
Yet, Canada faces an acute structural bind because roughly 95% of its automotive exports head south to the United States. Because U.S. regulations strictly ban Chinese connected-vehicle software from operating on American roads, producing Chinese-reliant vehicles north of the border remains commercially unviable if they cannot cross into the U.S.
To break the deadlock without compromising trade alignment or national security, Caranci, Foran, and Seitlheko argue that Canada should look to global models where western giants are already collaborating with Chinese leaders—such as Ford licensing battery manufacturing technology from CATL for its Michigan facility, and Stellantis acquiring a 20% stake in Leapmotor.
By pursuing targeted licensing agreements, joint research in battery chemistry, and shared charging infrastructure development, Canada can inject cost-efficiency and advanced technology back into its domestic automotive ecosystem.
