the Beatty Blog

Here we are weeks away from a formal review of the USMCA/CUSMA free trade pact that is likely to include demands for further constraints on auto exports to the United States, including protections around the transshipment of Chinese vehicles through Canada.  Meanwhile Canada has opened a new quota inviting imports of Chinese built electric vehicles and holding out the prospect of possible joint manufacturing ventures between Canadian and Chinese auto companies. I can’t help but think that we are headed toward a political and economic mess. Faced with US intransigence as well as promises made to China, we can’t move forward and we risk a severe reaction from China if we retreat. 

Meanwhile, a proposal that seems to tick all the right boxes has been met with a knee jerk reaction from the Canadian public sector, lobbyists and some commentators.  When it was revealed that Stellantis was thinking of starting assembly of Completely Knocked Down (CKD) vehicles from its Chinese partner, Leapmotor, using available Canadian plant capacity, the result was more of the moral indignation we Canadians are so good at.  In my view, the greatest failing of this venture is that it simply doesn’t tell the story everyone wants to tell. 

Putting the best gloss on that reaction, I think this is really a matter of Canadians hoping beyond hope that the Stellantis Brampton plant will be restored to full production and life can go back to the way it once was.  But let’s ask ourselves how likely that is to happen.

The reality of the situation is that the US and Canadian governments have drastically changed the competitive landscape since the Brampton plant was last in operation and the factors that caused it to close have simply gotten worse.  The US, the primary market for the vehicles planned for Brampton, has slapped tariffs on exports of vehicles from Canada and gutted the environmental regulations and incentives designed to support the adoption of electric vehicles. In other words, the market for the vehicles that would have been produced in Brampton was effectively terminated.

Meanwhile, Canada has reduced the number of vehicles that Stellantis is permitted to import duty free from the US under the automotive duty remission program and has opened a quota that will newly allow electric vehicles to be imported from China (49,000 this year, rising to 70,000 over 5 years).  The effect was to introduce new competition while simultaneously raising the cost of doing business in Canada for Stellantis. And even outside of Canada, Stellantis continues to struggle, having incurred a net loss of €22.3 billion in 2025 attributed to both restructuring and the need to write off its electrification plans.

So the notion that Stellantis would have a sudden epiphany and propose a new product mandate for traditional assembly in Brampton seems particularly far fetched.  But that hasn’t prevented some people from dreaming.

I do understand why parts makers and union leaders would see a proposal to bring CKD production to Canada as small beer. After all, CKD vehicles are essentially car kits that are shipped by an originating manufacturer for final assembly in another location. Although this type of assembly has been used in many countries (including Canada) over the years, it is a simple form of processing that only uses some local labour and limited local parts and materials. As a driver for the local economy it doesn’t compare to the traditional assembly operations that Stellantis (and the rest of the Canadian auto industry) has established here. So why settle for half measures when you could have the real thing?

But if Canada wanted to reinforce domestic manufacturing, why open up an import quota that requires no Canadian content? And why would the government justify the quota on the basis that it will lead to joint ventures that will look strikingly like the arrangement that Stellantis is proposing?

The reality is that full scale manufacturing is unlikely to return to Brampton under the current trade, regulatory and economic conditions so it is time to reset our expectations. Surely rather than leaving a plant empty and importing vehicles with no Canadian content it would be better to have a simple assembly operation in Canada. Some people will be employed in assembly, others in support services for the plant and yet others in transportation and logistics for the assembly program. As for the future, it is much easier to scale up an existing facility than to justify reopening a plant or building a new one. But those may not be the real benefits.

The Canadian government opened the import quota with China to solve a problem of its own making. When Canada decided to follow the US and Europe by hiking tariffs on imports of Chinese electric vehicles, it provoked the Chinese to slap retaliatory tariffs on Canadian agricultural and seafood products. Feeling the heat from Canadian exporters in those sectors, Ottawa sought a renewed trading relationship with China, from which the EV quota was born.

While one might argue that opening the door to Chinese vehicles would provide a consumer benefit (time will tell as the experience in other markets is mixed), new competition at a time when Canadian vehicle exports were under threat could hardly be seen as a good thing for the auto sector.

Let’s get something straight, it is difficult enough to export a fully USMCA/CUSMA qualifying vehicle from Canada to the US let alone one with high levels of Chinese content. The White House has been very clear that it wants to shift Canadian production to the US and will place an absolute bar on Chinese vehicles being imported from Canada. Here’s the rub, the very things that can make Chinese EVs attractive — their advanced batteries and connected technologies — are the things most opposed by the US administration and least available from local suppliers in North America today. So no matter who shows up on our shores looking to assemble vehicles, they will likely have to rely heavily on imported Chinese parts. So whether you view this simply as a case of “the devil you know” or understand that Stellantis has been remarkably committed to manufacturing in Canada and supporting its supply base over the years, it hardly makes sense to condemn an existing manufacturer for proposing the same business model that any new entrant would also follow.

Here’s the thing about CKD production: when successful, it has historically led to expansion of the business and growth of local sourcing as the economics supported replacing imported parts and materials with locally sourced goods. Because Stellantis already has those relationships, the path forward should be easier for them than for an altogether new entrant to the market.

But forget all of those factors. Stellantis offered Canada an elegant way of getting out of the box we had created for ourselves. There were other ways to achieve market openings with China while limiting the damage to the domestic market but somebody chose the ham-handed approach of offering quota on a first come, first served basis. So now it is time for damage control.

Some of the quota is likely being absorbed by traditional importers from China like Tesla and the Geely brands (including Volvo, Polestar and Lotus). The remainder may go to the sorts of brands that the Canadian government hopes to interest in Canadian joint ventures — but there is no requirement for anyone to actually form such a business partnership.  So we are likely to be left with imported vehicles having no Canadian content. 

But let’s suppose that Canada could interest a new Chinese player to establish Canadian vehicle assembly. Because, without access to the US, the Canadian market is not large enough to support full-scale automobile manufacturing any joint venture vehicles produced here would need to lean heavily on imported parts and components.  The result is that they would be unlikely to qualify as products of Canada and certainly would not meet USMCA/CUSMA requirements. In fact, a careful reading of the Canadian quota program notes that the country of origin of a vehicle will be determined by Canada’s non-CUSMA marking rules. Those rules stipulate that the country of origin of goods is the country in which the goods were substantially manufactured. In other words, simple assembly of the vehicle in Canada would not change the vehicle’s country of origin from China. So it would be a Chinese vehicle with the addition of limited Canadian labour content.

Back to the Stellantis proposal. The same is true for the CKD vehicles that Stellantis might import. Each kit represents a Chinese vehicle that would require quota under Canadian rules. So, in effect, Stellantis, would chew up available quota, provide some Canadian value-added and still produce a vehicle that could not be exported to the US, solving a number of problems at once. What this program might also do is offer an alternative line of products for Stellantis’ Canadian dealers at a lower price point and establish a base for Stellantis to build upon over time. 

If Stellantis can create a sustainable business model in Canada, it will firm up their other business operations. And I suppose we can dare to dream and say that a proven business model offering CUSMA qualifying vehicles in future might be able to open a window to the US market in a post-Trump world. It is worth noting that Stellantis is pursuing a very similar venture with Leapmotor at an unused Stellantis plant in Spain. So lessons learned could be shared between facilities in Europe and Canada to the benefit of both Europe and Canada.

Why Canada would think that encouraging BYD, Chery or some other Chinese company to invest in assembly in Canada would be preferable to a similar Stellantis proposal is completely lost on me. For one, BYD’s previous attempt to test out the Canadian market with taxis and buses was largely unsuccessful and certainly did not create either a lasting footprint or one that was even temporarily competitive with other automotive OEMs. At least Geely’s Volvo could claim a history of vehicle assembly in Canada and might be more deserving of consideration.

As Canadians we should want to carry on our traditionally strong contribution to global automotive production. And we should be attempting to create a competitive alternative to China in strategic minerals and battery precursors. But that requires a concerted effort to develop a market for the types of electric vehicles that will pull the supply chain forward.

Stellantis, with its proven Canadian track record, offers a clearer path forward than any promises from companies with no prior experience here. And if simple assembly of vehicles allows Stellantis to regain some percentage of its lost remission benefits, that seems an appropriate outcome and one of the few things that Canada could do to make this whole China issue more palatable to the US.

Let’s see: 

• Doesn’t threaten the US market, in fact might earn some additional duty free imports from US plants; 
• Ensures some Canadian value added in Chinese electric vehicles sold in Canada and gets some Canadians back to work in otherwise idled manufacturing;
• Doesn’t end run the federal electric vehicle rebate rules because the vehicles would still be of Chinese origin and therefore ineligible to participate;
• Sets up the potential for future supply opportunities for Canadian parts makers; and
• Most importantly would help to stabilize the existing Canadian operations of a company that is a major contributor to the Canadian economy.

Can CKD assembly in Brampton replace what was once there? Certainly not in the short term. But it beats the alternative and it offers hope that what once was could be again in future.