Canada’s push for 100% zero-emission vehicle sales by 2035 is hampered by trade disputes with the U.S., prompting strategic shifts towards localisation, mineral resource investment, and supply chain resilience.

Canada’s ambitious plans for 2025 concerning electric vehicles (EVs)—aiming for a full 100% zero-emission vehicle (ZEV) sales goal by 2035—signal a significant shift for its auto industry. However, the rollout of this policy is occurring amid escalating trade tensions with the U.S., complicating the sector’s transition. This situation necessitates a careful re-evaluation of strategic priorities, as the combination of aggressive climate targets, retaliatory tariffs, and supply chain disruptions both challenges and creates potential investment opportunities within Canada’s automotive landscape.

The federal government, under Prime Minister Justin Trudeau, initially announced a mandate to accelerate EV adoption, setting a goal of achieving 20% ZEV sales by 2026. However, in response to ongoing trade tensions, notably tariffs imposed by the U.S., the government has suspended this 2026 target. This suspension reflects a recognition of the economic pressures automakers are facing, including increased costs due to tariffs and supply chain uncertainties. In addition, Prime Minister Mark Carney, now in office, emphasized the importance of economic self-reliance and announced a 60-day review to explore measures to reduce costs associated with the emissions mandates. To support industries affected by trade disruptions, the government also introduced a C$5 billion fund aimed at aiding businesses, along with incentives such as a C$370 million biofuel production subsidy to support farmers. Despite these adjustments, challenges remain, particularly for steel and aluminum sectors, which are heavily impacted by tariffs, highlighting vulnerabilities within upstream supply chains.

Trade tensions extend beyond policy delays; they have directly influenced industry operations. Major automakers like Ford and Volkswagen have had to halt production and shipments due to tariff-related cost increases, leading to a shift towards localized production and resilient supply chains. Moreover, Canada faces infrastructure gaps; its EV charging network and domestic battery manufacturing capacity are still underdeveloped compared to the U.S., making it more difficult to meet the 2025 ZEV sales goals. Additionally, automakers often rely on purchasing compliance credits from EV leaders, raising questions about the practicality of current policies under economic and infrastructural constraints.

To counterbalance these challenges and seize strategic advantages, Canada is investing heavily in securing critical mineral resources such as lithium and nickel—key components for EV batteries. The country’s abundant mineral reserves position it well to benefit from global shifts in supply chains, especially as the U.S. seeks to reduce reliance on China-led production. Diversifying export markets is also a priority; by increasing trade with the UK, Netherlands, and Germany, Canada aims to lessen dependency on the U.S., thereby cushioning against political and trade disruptions and fostering new opportunities within the EV supply chain.

Amidst these dynamics, Canadian investors are advised to focus on enhancing domestic production and supply chain resilience, especially in sectors like defense and infrastructure. Dual-use investments—those serving both military and civilian needs— can mitigate geopolitical risks while promoting long-term growth. In response to tariffs, Canada has also implemented reciprocal measures, imposing tariffs on U.S. steel, aluminum, and other goods, underscoring a more assertive stance in protecting its industries. These tariffs, along with measures to support domestic manufacturing, illustrate the country’s efforts to safeguard essential sectors during a period of trade volatility. Additionally, green energy projects linked to EV infrastructure development could serve dual purposes by advancing climate objectives and bolstering national security.

Overall, Canada’s EV policy framework, combined with ongoing trade tensions, is reshaping the country’s automotive sector. While the decision to suspend the 2026 EV sales target reflects current economic realities, the overall push toward electrification remains active. Success will depend on close collaboration among policymakers, automakers, and investors to balance environmental goals with economic stability. For industry stakeholders, the evolving landscape underscores the importance of strategic diversification, localization, and resilience in supply chains. Those able to adapt to these changes are positioned to capitalize on Canada’s transition toward a more integrated and resilient EV ecosystem.


References:

  • - The policy shift is documented as a suspension of the 2026 EV sales target (see Reuters, September 2025).
  • - The initial 20% sales target, set for 2026, has been suspended to address economic pressures.
  • - Investment figures such as the C$5 billion support fund and C$370 million biofuel incentive are rooted in government announcements.
  • - Tariff levels—25% on U.S. goods and reciprocal tariffs on steel and aluminum—are confirmed by official Canadian government releases.
  • - Statements on trade disputes highlight Canada’s efforts to defend its industries under international obligations.

(Note: The attribution of the EV policy to Prime Minister Justin Trudeau has been corrected to reflect it as a government initiative, with the current Prime Minister Mark Carney overseeing recent policy adjustments.)

Source: Noah Wire Services