Canadian tariffs on Chinese EVs should look like the United States’, not Europe’s

From the Macdonald Laurier Institute

By Heather Exner-Pirot

It is clear that China’s green manufacturing subsidies are not merely levers to promote their domestic economy at the expense of their competitors, but part of a larger strategic plan to control parts of the global energy and transportation system.

China is now, beyond a doubt, engaged in dumping and subsidizing a range of clean technologies to manipulate global markets. The remaining question is: How should Canada respond?

The Finance Minister’s consultations on China’s unfair trade practices in electric vehicles is welcome, if belated. Canada should closely follow the United States’ lead on this matter, and evaluate the extent to which other Chinese products, from lithium-ion batteries to battery components, should also be sanctioned.

The New Trio

A key plank of China’s economic growth strategy is manufacturing and exporting the “new trio”: solar photovoltaics, lithium-ion batteries, and electric vehicles. These are high value-add, export-oriented products that China is hoping can compensate for domestic economic weakness driven by a property market crisis, poor demographics, and insufficient consumer demand.

To solidify its role in green technology manufacturing, the Chinese government has provided enormous industrial subsidies to its firms; far higher than those of western nations. According to analysis by Germany’s Kiel Institute, the industrial subsidies in China are at least three to four times – or even up to nine times – higher than in the major EU and OECD countries.

Washington-based think tank CSIS conservatively estimates industrial subsidies in China were at least 1.73 percent of GDP in 2019. This is equivalent to more than USD $248 billion at nominal exchange rates and USD $407 billion at purchasing power parity exchange rates – higher than China’s defense spending in the same year.

On top of state subsidies, Chinese green technology manufacturing companies also benefit from preferential access to critical mineral supply chains (many aspects of which China dominates and manipulates the global market), weak labour and environmental standards, and economic espionage (including stealing technology from western firms and using Chinese-made products to gather intelligence from their western consumers). This green tech espionage includes Chinese-made electric vehicles which are widely suspected of collecting users’ data and sending it back to China in ways that violate their privacy and security.

It is clear that China’s green manufacturing subsidies are not merely levers to promote their domestic economy at the expense of their competitors, but part of a larger strategic plan to control parts of the global energy and transportation system.

European and American Response

In response to these blatantly egregious practices, both the European Commission and United States have recently announced tariffs on Chinese-made electric vehicles.

The European Commission announced their tariffs on July 4, 2024, following a nine-month anti-subsidy investigation. Individual duties were applied to three prominent Chinese producers: BYD (17.4%); Geely (19.9%); and SAIC (37.6%).

Other Battery Electric Vehicle (BEV) producers in China, which cooperated in the investigation but were not sampled, are subject to a 20.8% duty. Non-cooperating companies are subject to a 37.6% duty.

The United States policy was announced on May 14, 2024, and is both more comprehensive and more punitive than the European Commission’s. It covers not only electric vehicles, which face an increase in tariffs from the previous 25% to 100% as of August 1, 2024, but lithium-ion batteries (from a 7.5% to 25% tariff) and battery parts (from a 7.5% to 25% tariff). Natural graphite and permanent magnets will also face a tariff of 25%, starting in 2026.

Canada’s Response

Minister Freeland’s determination that Canada “does not become a dumping ground” for subsidized Chinese-made EVs, and commitment that Canada “will not stand” for China’s unfair trade practices, is very welcome.

To that end, Canada’s tariff policy on Chinese-made EVs should closely match the United States’, rather than Europe’s.

Canada’s auto industry is highly integrated with the United States, and our EV and battery supply chain, to the extent consumers will demand them, will be no different. Official Washington is seized with the threat China poses to the liberal world order and their position atop the global hierarchy. The United States will have little tolerance for Canada as a back door for Chinese-made EVs and battery parts. The growth and penetration of Chinese-made EV imports in Canada from 2022 to 2023 – an increase of 2500% year over year, now representing 25% of our imported EVs – shows that this is not a theoretical problem, but an existing one.

A soft touch on Chinese EV tariffs would likely create worse economic consequences for Canada in the North American context – in terms of impact to our domestic auto manufacturing industry, extensive battery supply chain investments, and CUSMA renegotiations – than it would confront from China, though these may indeed be painful.

For all these reasons, Canada should extend tariffs to lithium-ion batteries and battery parts as well, as the United States has done. This is fully with precedent. Canada has already applied extensive duties to Chinese-made photovoltaics and wind towers, and has put heavy investment restrictions on Chinese ownership of critical minerals production and miners in Canada.

Long-term Thinking

Free trade is a cornerstone of the liberal world order. It has improved the material well-being of billions of people. Restrictions on trade should not be taken lightly.

But Chinese dumping, subsidies, and market manipulation mean that the global market is not free for many critical minerals, EVs, solar panels, wind towers, lithium-ion batteries, and other green technology components. Canada cannot ignore that fact for a perceived short-term gain from cheaper products.

Just as Europe learned that relying on Russia for cheap natural gas was expensive, relying on China for our energy transition will not move Canada to a lower carbon energy system easier, faster or cheaper. It will impose different costs that Canadians will pay in a multitude of ways.

This may disappoint those that prioritize renewables and EV deployment over national security and domestic economic growth. The good news is that Canada has good options that satisfy climate goals as well. Canada is rich in oil, gas, uranium, and water. We are independent in fossil fuels, nuclear and hydroelectric energy. Let us build on those strengths and invest in green technologies that leverage them, including carbon capture, utilization and storage (CCUS), third and fourth generation nuclear reactors, pumped storage hydropower, and hydrogen.

Canada needs to focus on decarbonization efforts in areas in which we can both be energy independent and protect Canadian consumers and workers from unfair trade practices. To do this, Canada should apply appropriately punitive anti-dumping subsides on Chinese-made EVs, lithium-ion batteries, and battery parts.

Heather Exner-Pirot is director of energy, natural resources and environment at the Macdonald-Laurier Institute.

Related Topics:#ElectricVehicleSales #EVSales #HeatherExnerPirot #MacdonaldLaurierInstitute CanadianEVTariffs ChineseEVTarrifs

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Electric-vehicle sales show modest spark

Published on December 2, 2024

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From Resource Works

Fuel-powered cars still outsell EVs in Canada by almost 7:1

While the federal government pushes electric vehicles (and other zero-emission vehicles), Canadians seem to be somewhat less enthusiastic about them.

Ottawa calls them all ZEVs and says: “Canada is committed to decarbonizing the country’s transportation sector and becoming a global leader in ZEVs. As such, the Government of Canada is aiming for 100% of new light-duty sales to be zero-emission by 2035.”

However, even with rebates offered by Ottawa and eight provinces and territories, Canadians are proving a little reluctant to make the switch—especially to pure battery-only electric vehicles (EVs).

For example, in the second quarter of this year, Statistics Canada reported sales of 511,173 new motor vehicles, the largest number since the third quarter of 2019, prior to the COVID-19 pandemic.

Of those 511,173 vehicles, 445,231 (87.1%) were traditional carbon-fuel cars, vans, and light trucks. Meanwhile, 65,733 were EVs (12.9%). Thus, fuel-powered cars outsold EVs by a ratio of 6.8 to one.

Among the 65,733 EVs sold, 48,511 were pure battery-only vehicles, while 17,222 were hybrid models with both electric and carbon-fuel drives.

This is not quite what Ottawa had hoped for.

(Incidentally, 51.6% of all new EV registrations were in Quebec, followed by Ontario at 21.9%, and British Columbia at 18.5%. In the Statistics Canada survey, the numbers for BC also include the territories.)

When market research company J.D. Power surveyed new-vehicle shoppers in Canada, respondents who said they wouldn’t consider an EV cited high prices, concerns about travel range, and challenges with charging the battery as key reasons.

J.D. Ney of J.D. Power notes that mainstream vehicle buyers are less wealthy and more practical, making them harder to persuade to switch from gas-powered cars.

“If I make a mistake buying an EV or it doesn’t suit my lifestyle, that’s a $65,000 problem. It’s the second-biggest purchase that most Canadians will make. And so, I think they are rightfully cautious.”

As of March 1 (the latest figures available), Canada had 27,181 public charging ports located at 11,077 public charging stations across the country.

Of those 27,181 charging ports, 22,246 are “standard” Level 2 chargers, while 4,935 are fast chargers.

This means Canadians with battery-electric vehicles often face challenges finding an available public port, and, if they do find one, it could take hours to recharge their car from low to 100%. Most ZEV drivers opt instead to “top up” their batteries, but even that can take many minutes.

The availability of fast chargers in Canada is on the rise, with EV manufacturer Tesla adding more “superchargers” that can be used by non-Tesla owners if their vehicles are equipped with the right plug-in adapter or if the owners purchase a suitable adapter.

Electric vehicles are also improving their range, with some models now able to travel as much as 800 km before needing a major recharge. The average range is 435 km, although some older ZEVs still have ranges in the low hundreds.

Potential ranges drop, however, in Canadian cold weather. Some EVs can lose up to 30% of their range in freezing temperatures, and charging times can also increase in the cold.

The concerns and caution of customers have resonated with EV manufacturers.

As CBC News reported: “Just a few years ago, carmakers were investing billions of dollars into their electric lineups and pledging they would soon stop building gas-powered cars.

“But customers aren’t going fully electric as quickly as predicted, so many companies are making adjustments to better meet demand.

“General Motors has scaled back its electric vehicle production this year and will build an estimated 50,000 fewer EVs. Ford is shifting its strategy, stalling plans for an electric SUV and building a hybrid version instead.

“These companies are still losing money on EVs. Despite all that, the carmakers insist they’re still committed to the cause.”

In April, Honda announced plans to invest $11 billion in electric vehicle and battery plants in Ontario. The project aims to produce 240,000 EVs annually, with production expected to begin in 2028.

At the same time, construction of a $7-billion EV battery plant in Quebec could take up to 18 months longer than originally planned, according to the Quebec government.

Production at the Northvolt plant was slated to begin in 2026 to compete with Chinese-made batteries. However, while construction continues, a review by Northvolt could result in a reassessment of the timetable. This review followed Northvolt’s bankruptcy filing in the U.S.

Here in Canada, Ottawa began in August imposing a 100% tariff on Chinese-made EVs. The aim is to protect the domestic EV market from inexpensive Chinese imports. But President-elect Donald Trump proposes a 25% tariff on all imports from Canada, including Canadian-made EVs and parts. This is causing huge concern for firms planning to build EVs and/or EV parts in Canada for export to the U.S.

Returning to EVs: The federal government’s goals are for 20% of new cars sold to be ZEVs by 2026, 60% by 2030, and 100% by 2035.

Carmakers, however, have said those goals won’t be achievable unless Ottawa does more to boost charging infrastructure and address EV affordability.

“We have all of the ingredients for Canada to succeed in this sector,” says Brian Kingston, president of the Canadian Vehicle Manufacturers’ Association. “I’m convinced we’ll continue to see growth in EV adoption, but we do have to address some of those barriers to demand.”

Automotive

Northvolt bankruptcy ominous sign for politicians’ EV gamble

Published on December 2, 2024

Todayville

From the Canadian Taxpayers Federation

By Jay Goldberg

Northvolt’s bankruptcy and the heavy losses traditional auto manufacturers are seeing on EVs is evidence that betting billions on the industry was a terrible gamble for Trudeau, Legault, and Ontario Premier Doug Ford.

Politicians love to gamble with your cash, but, based on their record, you’d think they were rookies getting fleeced by a card shark at a shady bar.

The latest epic failure is the gamble on electric vehicle battery manufacturer Northvolt.

The Legault government bet buckets of cash. And now the company is broke.

“Northvolt’s liquidity picture has become dire,” reads the Swedish EV battery manufacturer’s bankruptcy protection filing.

It turns out Northvolt accumulated $5.8 billion of debt. It’s CEO just resigned. The company’s future is bleak. New leadership is hoping it can remain afloat with the help of a $100-million loan from one of its shareholders.

Both the government of Quebec and the province’s pension fund bet hundreds of millions of dollars on Northvolt. They bought stakes in the company worth a combined $470 million.

That’s money Quebec taxpayers and pensioners may never get back.

Quebec Economy Minister Christine Fréchette admitted the money is “at risk” and taxpayers will only know if that investment remains intact after the company goes through its bankruptcy process.

As bad as the loss is for Quebeckers, Canadian taxpayers might also soon be facing billions in losses. That’s because Northvolt has a Canadian subsidiary that also received buckets of taxpayer cash.

Northvolt’s Canadian subsidiary is currently building a $7-billion EV battery plant in Quebec. Quebec Premier Francois Legault and Prime Minister Justin Trudeau gave a combined $2.4 billion to Northvolt to build it.

Northvolt says its Canadian subsidiary is funded separately from the global company that was forced to file for bankruptcy and will “operate as usual outside the Chapter 11 process.”

But if the parent company’s finances have spiraled out of control, there’s every reason for taxpayers to worry its Canadian operation will too.

Northvolt repeatedly missed its in-house global production targets this year and curtailed some of its operations in Sweden.

If Northvolt is cutting back on global production, what reason does it have to ramp up production on a new facility in Canada?

With Northvolt’s global finances on the rocks, Canadian politicians might be tempted to throw even more cash at the company’s Canadian operation to keep the company afloat.

But throwing good money after bad isn’t a solution. Politicians in Ottawa and Quebec City need to stop gambling with taxpayers’ money.

Sadly, the implications for taxpayers are much wider than the future of one EV battery company.

Canadian politicians bet $57 billion of taxpayer cash on the EV industry.

But the entire industry is in jeopardy. Other than Tesla, every EV manufacturer is losing money making them.

General Motors lost $3.5 billion on EVs in 2023. The Ford Motor Company lost $7.7 billion. And both of those companies received billion-dollar handouts from the Trudeau and Ford governments to build EVs here in Canada.

The only reason GM and Ford aren’t in Northvolt’s position is because they have gasoline-powered cars to sell that turn a profit, allowing them to balance out their earnings (or lack thereof).

But there are signs of a pull-back.

Ford, for example, cancelled plans to produce two different models of electric SUVs, which were supposed to be built in Canada. This is costing the company billions. Meanwhile, the Canadian plant is pivoting back to building gasoline-powered cars.

Northvolt’s bankruptcy and the heavy losses traditional auto manufacturers are seeing on EVs is evidence that betting billions on the industry was a terrible gamble for Trudeau, Legault, and Ontario Premier Doug Ford.

This is a very expensive lesson: politicians should never gamble with taxpayer dollars by throwing billions at corporations. Businesses don’t need handouts to make investments that make sense.

In all these cases, the financial well-being of Canadian taxpayers should never have been at risk.