As tariffs reshape the automotive landscape, Canada is aggressively courting Chinese manufacturers with a new electric vehicle (EV) deal. Stellantis NV is reportedly in discussions with Zhejiang Leapmotor Technology Co. regarding potential EV production in Canada, signaling a significant shift in the industry.

Canada-China EV Deal: Early Stages

These talks are still in their early stages, according to sources familiar with the matter. The discussions follow an agreement reached in January between Prime Minister Mark Carney and President Xi Jinping to reduce tariffs on Chinese-made EVs. Canada aims to attract new Chinese joint-venture investments within three years.

Ripple Effects of US Tariffs

The potential for Chinese-led vehicle production in Canada highlights the consequences of President Donald Trump’s tariffs on foreign-made cars and trucks. These tariffs have disrupted the North American auto sector and resulted in billions of dollars in costs for automakers.

US Concerns and Potential Retaliation

U.S. officials have repeatedly warned Canada about the risks of becoming a conduit for Chinese vehicles into the U.S. market. Former President Trump even threatened a 100% tariff on all Canadian goods if such a deal were to materialize.

Focus on Brampton, Ontario Plant

Discussions are centered around an idle Stellantis assembly plant in Brampton, Ontario. The plant, a suburb of Toronto, has been without production for years, despite previous commitments for a new Jeep SUV. However, those plans were canceled after Trump’s tariff announcements, with production moved to a U.S. facility.

Stellantis and Leapmotor Collaboration

Stellantis acquired a 20% stake in Leapmotor in 2023, and the companies subsequently formed Leapmotor International, focused on global EV production and sales. They plan to begin producing Leapmotor electric SUVs in Spain later this year, alongside a battery factory built with Contemporary Amperex Technology Co.

Expanding Global Production

Beyond Spain, Leapmotor and Stellantis are also planning EV production in Brazil and Malaysia, initially utilizing “knockdown kits” assembled in China. The specifics of any potential Canadian venture remain unclear, with negotiations still preliminary.

Industry Concerns and Local Supply Chains

The Canadian government faces delicate negotiations with labor unions and parts suppliers. Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, emphasized the need for full vehicle assembly with local suppliers. He cautioned against simply importing Chinese knockdown kits.

Stellantis' Position

Stellantis spokesperson LouAnn Gosselin stated the company is actively evaluating future programs for the Brampton plant, aiming for a sustainable, long-term commitment to workers and suppliers. They are engaged in discussions with government officials and stakeholders.

Future Prospects and US Border Restrictions

While Industry Minister Melanie Joly has expressed interest in Chinese auto production in Canada, she envisions joint ventures utilizing Canadian parts and software. However, the possibility of these vehicles crossing the Canada-U.S. border remains uncertain.

US Regulations and Potential Barriers

The U.S. government is implementing regulations to restrict connected vehicles with technology from China and Russia. U.S. Ambassador to Canada, Pete Hoekstra, suggested that Chinese-made EVs imported to Canada may be blocked at U.S. ports of entry.