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Tesla's China-made Model 3 vehicles during a delivery event at its factory in Shanghai, China, on Jan. 7, 2020.ALY SONG/Reuters

Canada’s auto parts industry is worried federal consumer incentives are fuelling a boom in imports of Chinese-made Teslas TSLA-Q, subsidizing a company with no manufacturing in this country at the expense of firms with domestic investments.

Flavio Volpe, president of the Auto Parts Manufacturers’ Association, said in an interview Tuesday that consumer incentives offered for the purchase of electric vehicles in Canada should be aligned with the United States, which does not offer rebates for EVs manufactured in China.

Purchases of Tesla’s Chinese-made Model 3 and Model Y vehicles qualify for federal government consumer incentives of $5,000 in this country, according to Transport Canada’s Incentives for Zero-Emission Vehicles (iZEV) Program website.

Mr. Volpe said by encouraging the purchase of Chinese-made EVs, Canada is helping China grow its EV capability. The danger with this, he warns, is China will increasingly be competing with Canadian and North American auto parts makers and assemblers.

“The profits go to help develop Chinese capabilities that will eventually be used to displace Canadian sources of vehicles and parts,” he said.

In the United States, EV buyers only qualify for a full US$7,500 tax credit for vehicles that undergo final assembly in the country and whose batteries are made with critical minerals “extracted or processed in the United States or a U.S. free-trade agreement partner.”

To qualify for a US$3,750 credit, 50 per cent of the value of battery components must be produced or assembled in North America and 40 per cent of the value of critical minerals sourced from the United States or a country with which it has a free-trade agreement – which excludes China. (Leased vehicles, however, enjoy less restrictive access to U.S. EV tax credits.)

Canada does not place similar restrictions on EV purchase incentives that tie the rebates to the assembly location or the source of battery materials.

There is no publicly available tracking of Tesla imports from its Shanghai factory into Canada. Reuters reported back in May that Tesla had begun listing China-made Model 3 and Model Y vehicles for sale in Canada, “confirming the electric car maker has completed its first shipments to North America from its Shanghai factory.”

Huw Williams, a spokesperson for the Canadian Automobile Dealers Association, said Tuesday that dealers in B.C.’s Lower Mainland have seen a “noticeable surge” of Chinese-made Teslas in the marketplace over the past eight to nine months.

A Globe and Mail analysis last week showed that Tesla’s Model Y version is currently the most popular EV in Canada. Earlier this year, Tesla rolled out a cheaper rear-wheel drive version of its mid-size electric SUV that qualifies for the federal government’s $5,000 rebate. Since that model became available in April, one out of every five EVs sold that qualify for the rebate has been a Model Y, according to the analysis.

Statistics Canada trade data show that the value of imports of EVs from China have jumped from $66.1-million to $1.8-billion – more than 2,700 per cent – for the January to October period in 2023 compared with the previous year. For this same January-October period, EV imports from the U.S. have dropped in value from $3.9-billion to $2.4-billion – nearly 40 per cent – over the year-earlier period.

Mr. Volpe asks why Canada offers consumer incentives for the purchase of Chinese-made Teslas “for a vehicle made in China, by an American company that has no footprint in Canada, on vehicles that have no Canadian content.”

The restrictions on U.S. tax credits for EVs, which aimed to shut out China, were an effort by President Joe Biden’s administration to reduce American dependency on Chinese supply chains.

For Canada, the money benefiting Chinese EV manufacturing contrasts with the country’s effort to building a homegrown EV industry.

Ottawa and Ontario have already doled out billions in help to two battery manufacturing plants in the province, including $13.2-billion in federal production subsidies for a new electric-vehicle battery plant to be built by Volkswagen in St. Thomas. Ottawa and Ontario have also announced subsidies for a Stellantis-LG STLA-N Energy Solutions EV battery manufacturing plant in Windsor, worth up to $15-billion.

Erik Johnson, senior economist at Bank of Montreal, said in an interview Tuesday that it’s likely that Tesla is reserving its U.S.-made vehicles for the American market – where consumers can take advantage of some of the U.S. tax credits – while relying on its Shanghai factory to supply several models to consumers in Canada, where there are no restrictions on incentives for Chinese vehicles.

Tesla doesn’t disclose its marketing strategies, but Mr. Johnson said this approach would give Tesla a “bigger pool of vehicles that are eligible for those incentives.” In today’s car market, he said, the availability of incentives “is a big determinant of what ultimately gets sold.”

He said that Canadian government consumer incentives, which don’t discriminate against Chinese EVs, are nevertheless designed “to encourage households to buy zero-emission vehicles as fast as possible.”

A statement provided Tuesday by the federal government says the Minister of Transport has been given a mandate to make zero-emission vehicles, including used vehicles, more affordable for Canadians. Federal incentives have significantly helped to increase iZEV market share from 3 per cent in 2019, when the program launched, to 11 per cent this year, the statement says.

With reports from Reuters

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