The move by Canada to cut its sharp tariffs on Chinese-made electric cars has silently changed the competitive situation, and Tesla seems to be better positioned than usual to capitalize on the change. As the policy change opens the gate to the flood of Chinese producers who would love to expand their business overseas, the previous strategic steps, production flexibility and the Canadian presence of Tesla gives the company a very unique edge at the starting line.
Over the years, Tesla has been functioning not so much as an American automaker but as a manufacturer that has global integration. That strategy is now yielding fruits. By the year 2023, as most of the automakers were still arguing whether exporting out of China would be politically or economically viable, Tesla had already repurposed its Shanghai Gigafactory to make a variant of the Model Y specifically to fit the Canadian market. It was an inspiring move at that time that appeared to be non-hysterical but practical. Today, it looks prescient.
According to a new accord declared by Ottawa, Canada will permit a specified amount of the cars produced in China to be brought in the country at a much-reduced tariff of 6.1 percent per year as an alternative to the current tariff of 100 percent imposed in 2024. The yearly production size starts with 49,000 vehicles, and it can increase to 70,000 vehicles in a span of five years. The change indicates the rebalancing of the Canadian trade strategy in the face of the global supply chain stress and the increasing consumer demands about cheaper electric vehicles.
In the case of Tesla, the shift of the policy eliminates a major barrier which has pushed the company to enter into less efficient logistics. When the 100 percent tariff was instigated, Tesla suspended the exportation of the merchandise in China and turned Canadian provision to the plants in the United States and Berlin. Although that maintained the flow of cars, it also resulted in increased prices and less customization, especially when it comes to those models that are built mostly in China. The way to exports out of Shanghai now seems to be clearer.
Sam Fiorani, a vice president of the researching company, AutoForecast Solutions, said that it might be possible to resume such exports quite soon with this new deal.
That speed matters. Tesla is not venturing into new territory. In 2023, Tesla vehicle shipments out of China assisted in causing an epic increase in automobile imports into Canada over the port of Vancouver, with the volumes increasing by 460 percent between years to over 44,000 vehicles. These figures did not represent a partial market experiment, but of a firm that was already at ease functioning on a large scale.
It is not only the production preparedness, but market infrastructure that makes Tesla different than the Chinese competitors. The company has 39 retail stores in Canada, with a wide network of charging systems and brand awareness, which is difficult to imitate by other electric vehicle manufacturers. Comparatively, Chinese brands like BYD and Nio, which are market leaders in their home market, are not present in Canada directly as a sales channel. It is a time consuming process to build consumer trust, distribution channels and after sales products and Tesla has already done the job.
It is true that Tesla has an edge, with its proposal to offer a small number of models, versions and light production lines to enable the company to be adaptable to sell cars manufactured in a certain country at any markets to ensure the maximum cost efficiency, according to Yale Zhang, managing director at Shanghai-based consultancy AutoForesight.
That is simplicity, which is frequently neglected. The worldwide product range of Tesla is also deliberately small, which provides it with the ability to change manufacturing within plants rather easily. A Model Y assembled in Shanghai, Berlin or Texas is essentially the same vehicle, with a few local requirements and local market tastes and preferences. This modular strategy enables Tesla to react quickly to the changes in the trade conditions something that most of the traditional auto makers are not able to do.
The new policy is however not a simple victory to Tesla. A provision in the agreement sets aside one half the annual quota as being reserved to cars that sell below 35,000 Canadian dollars. Currently, the cost of all Tesla models sold in Canada exceeds that point. This practically gives a shield to the cheaper Chinese electric vehicles that may attract new EV consumers and those who are price sensitive.
The customers of the Chinese car manufacturers and the Canadian consumers seeking an entry-level car will be the most probable beneficiaries, Fiorani explained.
Such a dynamic creates an interesting conflict. Tesla is likely not the first company to do so, but it will not stay alone. Chinese manufacturers have established a reputation of manufacturing competitively priced electric powered vehicles of progressively advanced technology. To them, Canada is not only a testing ground when it comes to sales but also strategically. This population diversity of Canada with its large number of Chinese-Canadian population provides a ready cultural familiarity and a ready market to new brands.
John Zeng, who is the head of market forecast in China at GlobalData is of the view that the quota system allows the Chinese automakers to be in a controlled environment where they learn the Canadian market without incurring huge investments. That education may become essential in case Canada pursues actual intentions to consider joint ventures with Chinese companies to create domestically manufactured electric cars with Chinese technology.
The Canadian policymakers have a greater objective than just imports in the short term. The government has indicated that it is interested in investment, transfer of technology and capacity to produce locally. Limited importation of Chinese goods can be a calculated move towards the creation of a more robust local EV ecosystem that does not entirely open the gates.
Tesla, in its turn, is placed in the borderland of such interests. It is a creation of Americans, a production mass of the Chinese and a strong presence in the Canadian consumer market. That combined identity can protect it against some of the political criticism of Chinese brands that are pure Chinese, and yet still enable it to take advantage of the cost-efficient production of China.
Yet uncertainties remain. Although trade policies are not fixed, the opinion of the population regarding foreign-made vehicles can change rather rapidly, when the topic of economic nationalism is brought up. The pricing strategy of Tesla will also be observed. Provided that the company will be able to use the cost of production to sell the models at a more competitive price without compromising on margins, its competitive edge may be further increased. Otherwise, space can be left open to competitors who will cutthroat over price.
