Canada has taken a decisive turn in its electric vehicle strategy, scrapping a national sales mandate while sharply increasing financial incentives for buyers, charging infrastructure and automakers. Prime Minister Mark Carney said the shift is designed to support EV adoption without overburdening an auto industry already under pressure from slowing demand, rising costs and U.S. trade turbulence.
The policy reversal places Canada closer to Europe’s evolving approach to electric vehicles, even as it moves further away from the United States, which has rolled back key EV subsidies under President Donald Trump.
From Mandates to Market Signals
Under the new plan, Ottawa will abandon a requirement introduced under former prime minister Justin Trudeau that would have forced 20% of new vehicle sales to be emissions-free by 2026. Automakers had warned the mandate imposed unrealistic costs and risked disrupting production.
Instead, Carney’s government will focus on outcomes rather than quotas, introducing stronger vehicle emissions standards for the 2027–2032 model years. Ottawa says this approach will still allow Canada to reach 75% EV sales by 2035 and 90% by 2040, while giving manufacturers more flexibility in how they get there.
Carney framed the move as pragmatic climate leadership rather than retreat, arguing that mandates were becoming politically and economically unsustainable.
Big Spending to Keep EVs Moving
To compensate for the rollback, the government unveiled a sweeping incentives package. Ottawa will spend C$2.3 billion on purchase and lease rebates of up to C$5,000 for individuals and businesses, alongside C$1.5 billion to expand EV charging infrastructure nationwide.
A further C$3.1 billion will be directed at Canada’s auto-manufacturing sector to help cover the high costs of retooling factories for electric vehicles. Automakers welcomed the support, calling it essential to sustaining investment and consumer confidence.
Environmental groups, however, accused the government of capitulating to industry pressure and warned the changes could slow Canada’s transition away from fossil fuels.
China Enters the Equation
One of the most striking elements of the strategy is Canada’s growing openness to Chinese EVs. Carney confirmed that a recent partnership with China would encourage joint-venture investment in Canada and allow a fixed volume of Chinese-made EVs into the Canadian market.
Under a preliminary trade deal, Canada will allow up to 49,000 Chinese EVs at relatively low tariffs, rising to about 70,000 over five years. However, Chinese vehicles will not qualify for government incentives, a move designed to protect domestic producers while still boosting competition and supply.
The approach reflects Ottawa’s broader push to diversify trade ties as U.S. tariffs strain the deeply integrated North American auto sector.
Canada, Europe and a Diverging U.S.
Canada’s policy pivot closely mirrors Europe’s recent decision to dial back rules that would have effectively banned combustion-engine vehicles from 2035. Both moves reflect a growing recognition that consumer adoption of EVs has been slower than policymakers expected.
By contrast, the United States has gone in the opposite direction. Washington ended its $7,500 EV tax credit last year and has moved aggressively to ease restrictions on gas-powered vehicles, creating a widening policy gap between the two neighbours.
Carney has cited U.S. trade actions as a catalyst for change, arguing that Canada must insulate its economy and manufacturing base from political shocks south of the border.
Analysis
Canada’s new EV strategy is less a retreat from climate goals than an admission that the first phase of the transition overshot political and market realities. Mandates look bold on paper, but when consumers hesitate and automakers balk, they can quickly become liabilities.
By shifting from compulsion to incentives, Carney is betting that carrots will work better than sticks. The risk is that without firm sales targets, momentum could fade especially if fuel prices fall or charging rollout lags. The upside is flexibility: automakers get breathing room, consumers get financial nudges, and Ottawa avoids a direct clash with industry.
The China angle adds another layer of complexity. Allowing Chinese EVs in limited numbers may help lower prices and speed adoption, but it also introduces geopolitical sensitivities and domestic backlash risks.
Ultimately, Canada is choosing pragmatism over purity. Whether that keeps the country on track for deep decarbonisation or merely delays hard choices will depend on whether incentives can succeed where mandates failed.
With information from Reuters.
