China’s carmakers rush to Canada as a ‘practice run’ for US sales

Just two weeks after Canadian Prime Minister Mark Carney announced in January he would allow limited electric-vehicle imports from China, that country’s biggest auto exporter, Chery, held its first meetings in Canada with car dealers.

China’s national champion BYD, now the world’s largest EV maker, is already planning to open six dealerships in Canada, an advisory firm scouting locations for BYD told Reuters. BYD has also started compliance procedures to import two passenger cars to Canada, regulatory records show.

Lotus, a luxury-sports carmaker owned by China's auto giant Geely, also plans to open a half dozen Canada dealerships this year – just to sell a few hundred cars, Lotus CEO Qingfeng said in an interview. And state-owned automaker Changan has a team working on a Canada launch, according to design chief Klaus Zyciora.

These automakers’ aggressive moves into Canada, detailed here for the first time, come despite the meager prospects for sales and profits here anytime soon: Canada approved imports of only 49,000 cars annually at a low tariff rate of 6.1%, rising to just 70,000 cars over five years. So there’s little money in it – especially once that small pie is split many ways.

But Canada offers something far more valuable: The perfect beachhead for what many industry experts view as the inevitable invasion of Chinese cars into the United States, despite current U.S. policies effectively banning them.

"We definitely have the idea of selling cars in the United States," Chery International president Zhang Guibing told reporters in May at the company’s Wuhu headquarters. "Everyone definitely has that idea."

Canada offers more than proximity to advance Chinese automakers’ U.S. ambitions. Unlike Mexico, where cheaper cars rule, Canada’s car market is almost identical to the United States in consumer tastes and industry regulations. Shifting to the United States later would be like “flipping a switch," said Dan Hearsch, global co-leader of consultancy AlixPartners' automotive practice.

"Canada is the practice run for the U.S.," says Robert Kerwal, director of automotive solutions at JD Power Canada.

The only major difference is market size: 1.9 million cars sold last year in Canada, compared to more than 16 million in the United States.

Chinese competition terrifies automakers in the U.S. industry who have seen their sales plunge in China, the world’s largest car market, in recent years as China’s subsidized, innovative industry exploded EV-and-hybrid sales. China has also emerged from nowhere to become the world’s largest auto exporter, surpassing Germany, Japan, Mexico, South Korea and the United States, largely on the strength of gasoline cars displaced from China’s rapidly electrifying market.

Chinese carmakers are currently blocked by steep U.S. tariffs and a ban on Chinese connected-car hardware and software. U.S. lawmakers are working to codify that ban, fearing that U.S. President Donald Trump might strike a grand trade bargain with China's government involving cars. Trump has publicly suggested several times that he might allow Chinese carmakers into the country if they build U.S. factories.

For now, as Chinese cars stream into Canada, Americans eager to buy them will likely seek ways to bring one across the border and put it in their driveway, said Hearsch, of AlixPartners: “There will probably be an early run of people who want to buy those cars.”

The Alliance for Automotive Innovation, a U.S. industry group, said the Canada-China trade arrangement “creates a potential backdoor for Chinese brands to enter the U.S. market,” where they would pose economic and national-security risks. The group also strongly opposes allowing U.S. factories for Chinese brand cars.

“The market distortions and risks to the auto industry in the U.S. are fundamentally the same whether these vehicles are imported or produced domestically,” the organization said in a statement.

The White House did not respond to a request for comment.

THE DIPLOMATIC RIFT BEHIND CHINESE CARS IN CANADA

Canada’s acceptance of Chinese cars reflects its growing diplomatic rift with the United States, which has pressured Canada and Mexico to erect trade barriers on Chinese cars.

Canada’s Prime Minister Mark Carney has publicly distanced his country from its formerly friendly neighbor as Trump hit Canada with aggressive trade actions, public insults and threats to annex the country.

But even as Carney pushes to reduce Canada’s heavy economic dependence on the United States, Canada still uses its proximity and access to the U.S. market as a selling point to trading partners.

Canada so far has opened cautiously, allowing Chinese cars only in small volumes. But even an unrestricted Canadian market would have far less appeal to Chinese carmakers without eventual access to the United States, said Daniel Ross, director of strategic market insights at Canadian Black Book, which works with auto finance companies to estimate residual car values. Canada's smaller car market and unfavorable exchange rate make it "one of the least profitable markets for manufacturers to sell into globally."

"It just doesn't make financial sense to do Canada without the U.S.," Ross said.

Chinese brands also will have to share the limited market with made-in-China cars from Tesla and possibly Geely unit Volvo Car, which have established North American brands.

In early May, Tesla started selling a Chinese-made Model 3 at about C$40,000 ($29,148), about half the price it charged in Canada for U.S.-made version. The U.S. EV maker imported over 44,000 Chinese-made cars into Canada in 2023, the year before tariffs were imposed.

Tesla did not comment. Volvo said it has not yet decided whether to export Chinese-made EVs to Canada.

Records from Transport Canada show BYD, China’s largest automaker and EV seller, has started procedures to import two passenger cars – one from Shenzhen, where the company makes various plug-in hybrids and luxury Denza brand models, plus a car from Xi'An. BYD plans to open the six Canada dealerships this year, said Farid Ahmad, CEO of Dealer Solutions Mergers & Acquisitions (DSMA), the advisory firm scouting locations for BYD.

BYD’s No. 2 executive, executive vice president Stelli Li, told Reuters at a recent London event that the company is still deciding which models to launch in Canada and would likely start sales next year. She dismissed the notion that BYD is using Canada as a training ground for the U.S. – saying it’s already well-prepared to launch there.

“I don't need to practice,” said Li, who has a Los Angeles home. “I lived in the U.S. for 15 years.”

Before the Biden and Trump administrations cut off China’s access to the U.S. car market, both Chery and BYD had planned to sell cars there.

In 2022, BYD studied setting up a U.S. distribution network, engaging a Detroit-based consultancy. Now BYD aims to increase its overseas sales to half of all vehicles, up from 23% of the 4.6 million cars it sold globally last year - a goal experts say BYD will find hard to meet without U.S. market access.

CANADIAN CAR DEALERS IN WUHU

Among the crowd gathered in Wuhu in late April to admire the Freelander 8, a freshly unveiled SUV from Chinese automaker Chery and joint-venture partner Jaguar Land Rover, were about 20 Canadian car dealers. Chery had invited them to the Beijing car show that month and then to its Wuhu headquarters to talk business and see its vehicle lineup.

Steve Alizadeh, CEO of Ontario-based Performance Auto Group, which has 39 dealerships, was impressed.

“I could certainly see an opportunity in Canada for the products we've seen here so far,” he said.

Chery is road testing vehicles in Canada to assess how its cold climate will impact warranty costs, and it plans to launch sales there in the fourth quarter, company officials said.

Large Canadian dealer groups also own dealerships in the United States, while U.S. groups like Lithia own dealerships in Canada. So building dealer relationships now should help once the U.S. market eventually opens up to Chinese automakers.

That could take years, but Chinese firms are renowned for taking a long view of business opportunities. Last month, Chery International President Zhang Guibing told reporters the automaker hopes to enter the U.S. market at a "suitable time."