Canadian EV sector plays waiting game as Trump pauses tariff threat

Leading players in Canada’s electric vehicle (EV) sector are sticking to multi-billion-dollar plans to build manufacturing plants, as they wait to see how sweeping U.S. tariffs will impact an industry that will be a main engine of the country’s low-carbon economy.

After two eleventh-hour phone calls with U.S. President Donald Trump just before hefty 25 per cent tariffs were to take effect on Tuesday, Canadian Prime Minister Justin Trudeau posted on X that the levy would be “paused for at least 30 days while we work together.”

The temporary reprieve for Canada and Mexico, which also faces a 25 per cent tariff threat, may be a ray of hope for thousands of people already working in Canada’s fledgling EV and battery sectors. 

But it will extend the looming uncertainty for companies and investors navigating the U.S. tariff turmoil in an already challenging EV market, industry analysts said.

Since 2021, a host of international auto giants and battery-makers have pledged $46.1 billion in investments, mostly in Ontario and Quebec, with Canadian taxpayers kicking in $52.5 billion through subsidies, tax credits and other funding from federal and provincial coffers.

Two of the biggest industry players in Canada’s EV strategy said on Monday they are staying the course for now.

Honda Canada — which is investing $15 billion in four plants, including an EV factory in Alliston, Ont. — and Volkswagen battery maker PowerCo — set to make components for up to one million cars in St. Thomas, Ont. - said on Monday they are committed to a “long term” strategy in Ontario, the heart of Canada’s auto sector.

“We are taking no immediate actions related to either our current manufacturing operations or electrification production plans in Canada,” Honda Canada spokesman Ken Chiu told Canada’s National Observer.

Japanese parent Honda Motor Company has targeted reaching carbon neutrality globally by 2050 and 100 per cent global EV sales by 2040, he said.

“We will continue to take a measured approach by utilizing our portfolio of [internal combustion engines], hybrids and EVs as we navigate the transition towards electrification,” Chiu said. 

"Measured approach"

“Our path is for the long-term and with our flexibility in producing powertrains in North America, we can pivot accordingly.” 

PowerCo spokeswoman Tegan Versolatto said its St. Thomas plant remained on track to begin manufacturing battery cells in 2027. “We are focused on our mission to ramp up the gigafactory and deliver a project with the right engineering and the right supply chain partners,” she told Canada’s National Observer.

Key infrastructure investments, including a rail spur line and power substation for the huge battery plant, are already taking shape, Versolatto said. About 100 employees were on site and PowerCo is “in hiring mode, from logistics to operations.” 

Jeff Turner, director of clean mobility at Dunsky, a market research house, said the outstanding question was how the tariffs would impact EV investments  “more or differently” than the wider automotive industry. 

“One thing that’s clear is that this introduces a lot more uncertainty at an early stage for the EV sector,” Turner told Canada’s National Observer.

“Whether or not an existing vehicle assembly or engine plant sees a temporary shutdown or layoffs is one thing, but it’s probably a lot easier for this uncertainty to disrupt potential investments in new factories that don’t exist yet, to the point that those investments could go elsewhere,” he added.

A recent analysis by Wells Fargo, a bank, said a 25 per cent tariff could raise the cost of Canadian-made auto parts by $830 to $3,400 per vehicle, and jack up the price of cars assembled in Canada by $2,400 to $13,900. The study did not say how it might translate to making EVs. 

Tariff EV sector impacts

Linamar, a Canadian industrial giant, gave a shot in the arm to the long-term prospects for the EV sector last week with a $1.1 billion investment in developing next generation power trains for EVs.

But Linamar CEO Linda Hasenfratz also pulled no punches about the harm a 25 per cent tariff could have on the auto sector.

“In my opinion, if a significant tariff is imposed, it’ll bring the industry to its knees,” she said, in a briefing after announcing the investment plan.

Canadian automotive plants employed 120,000 workers and produced 1.54 million cars, pickups and SUVs last year. In Ontario, the auto industry accounts for $36 billion of the province’s $220.5 billion in exports to the U.S. 

In the midst of a provincial election, with Trump a central campaign issue, Ontario’s Progressive Conservative party on Monday offered the prospect of some relief for the auto sector as part of a package of measures to “shield Canadian businesses” from the worst tariff impacts. 

The plan, announced at Hanon Systems’ EV parts plant in Woodbridge, Ont., includes:

• $10 billion in deferred provincial taxes over six months to aid cash flow;
• $3 billion in payroll tax relief to help employers retain workers;
• $600 million to expand the Invest Ontario Fund to drive job growth in manufacturing; and
• $300 million extra for Ontario Made Manufacturing investment tax credit to encourage local investment.

Flavio Volpe, head of Canada’s Automotive Parts Manufacturers' Association, who spoke about his industry at the Woodbridge event, said U.S. tariffs could lead to a “shutdown in about a week or so.”

“You can’t make a car without all the parts,” he said, referring to U.S. assembly plants that rely on auto components crossing the Canada-U.S. border several times before a car is finally delivered to the showroom. 

“Nobody in the U.S. will be making cars,” he said.