Canada’s $73 billion automotive sector is facing its toughest test in decades. A toxic combination of aggressive U.S. tariffs and collapsing electric vehicle demand has created what Allan Rutman, a restructuring expert at Zeifman in Toronto, calls a “dramatic punch in the gut” for the country’s industrial heartland.

The numbers tell a sobering story. What was projected to be a 17% EV penetration rate across North America has been slashed to just 8%. Meanwhile, U.S. President Trump’s tariffs on Canadian-made vehicles and parts (now sitting at 35%) have forced manufacturers into an impossible calculation: absorb crippling costs or abandon production north of the border entirely.

For Canada, which employs 125,000 people in automotive manufacturing and has wagered an astonishing $100 billion in public and private investment on an EV-centric future, the stakes couldn’t be higher.

The EV Mirage

The grand vision was simple: position Canada as North America’s battery and EV manufacturing hub. Billions poured into battery plants, EV assembly facilities, and supply chain infrastructure. Stellantis, General Motors, Volkswagen and Honda all announced ambitious projects, backed by generous government incentives.

Then reality intruded.

“The conundrum is the combination of the slowdown in EV take-up in conjunction with the tariffs,” explains Rutman. Consumer enthusiasm for EVs has evaporated faster than anyone predicted. High upfront costs, expired subsidies, expensive battery replacements and inadequate charging infrastructure have all conspired to dampen demand.

It turns out North American consumers, particularly in truck-and-SUV-obsessed regions, still prefer internal combustion engines or hybrids to pure electric vehicles.

“People here are still much more inclined to either want what they refer to as an ICE-type product or a hybrid than they are towards a full EV model,” Rutman observes. “They kind of see the capacity constraints still with EV. So, they want the best of both.”

The result? More than half of the 13 EV supply chain or battery-related projects announced in Canada have been scrapped, scaled back or delayed. The rest remain largely conceptual, with construction yet to begin.

Plant Closures and Strategic Retreat

The human cost is mounting. GM has discontinued BrightDrop electric van production at its Ingersoll, Ontario facility, affecting over 1,000 employees. Stellantis has shifted production of its Compass model to Illinois, leaving its Brampton, Ontario plant, which once produced three different models, sitting empty for two years with no clear replacement plan. Ford, which initially committed to building a three-row electric SUV at its Oakville plant, pivoted to producing heavy-duty conventional pickup trucks instead.

“You have to make a decision five years in advance in terms of what the economy is going to look like,” Rutman points out. “Two years ago, three years ago, the economy was looking EV. So GM and a lot of the other companies invested huge amounts of money in EV. And the truth is, you can’t put all your eggs in one basket.”

The Japanese manufacturers, he notes, showed more prudence. “They invested some monies in EV, but they also continued with the ICE production and hybrids. A little more astute.”

The Tariff Trap

Compounding the EV headache are Trump’s punishing tariffs. While manufacturers have so far absorbed the costs rather than passing them directly to consumers this strategy is unsustainable.

“All of a sudden you’ve got a market which has been dramatically reduced or will be over time,” says Rutman. “You’ve got to find new customers or you’ve got to get out of that business and into another business. Well, how practical is that? In the short term, it’s not very practical.”

For the tier one, two, and three suppliers who form the backbone of Canada’s automotive ecosystem, the impact is existential. These companies operate massive facilities with fixed overhead costs. When volume drops, as it inevitably does when their OEM customers relocate production stateside, they face a brutal mathematics.

“You have less volume to amortize your costs over that plant because your production volume has dropped and demand has dropped for your product,” Rutman explains. When you add a 35% tariff to exports destined for U.S. assembly plants, the business case for Canadian operations collapses.

The Political Fallout

Canada’s frustration with U.S. industrial nationalism is palpable. Foreign Affairs Minister Melanie Joly has threatened legal action against Stellantis over its production shifts. But such sabre-rattling does little to address the fundamental economic reality: U.S. policy is actively incentivizing manufacturers to consolidate production south of the border.

The broader implication is clear. America’s “industrial policy first” approach, championed by both Trump and Biden administrations in different forms, treats Canada as a competitor rather than an integrated partner, despite decades of North American automotive integration under NAFTA and its successor, USMCA.

With the USMCA up for renegotiation in 2026, the uncertainty is likely to deepen before it improves.

The Economic Ripple Effects

The impact extends far beyond assembly plants. Ontario and Quebec, home to most of Canada’s automotive sector, face significant employment shocks.

Consumers are shifting to cheaper models and used cars. Manufacturers are compressing margins and repricing entire product lines. Stellantis, for instance, has reintroduced its Compass model, previously eliminated in favour of fully loaded, near-$100,000 vehicles, because consumers simply won’t pay premium prices in the current environment.

“They’ve had to reprice all of their vehicles and lower the cost and provide their retail dealers with rebates in order for them to basically move the product,” notes Rutman.

An Uncertain Path Forward

In the short term, hybrids look set to dominate. Investment in pure EV production is being quietly shelved in favour of more flexible platforms that can accommodate both electric and combustion powertrains. Joint ventures are proliferating as manufacturers seek to spread risk.

But the longer-term outlook remains clouded. Tariff uncertainty, capital flight risk, and the fundamental question of whether Canada’s $100 billion EV bet can ever pay off hang over the industry.

Canada faces a stark choice: double down on an EV strategy that consumers have yet to embrace, or pivot towards a more diversified approach that acknowledges the enduring appeal of traditional powertrains. The cost of getting it wrong, as the current crisis demonstrates, is measured not just in billions of dollars, but in livelihoods, communities, and the future of a sector that has been integral to Canada’s prosperity for generations.

As Rutman puts it bluntly: “You can’t put all your eggs in one basket.” Whether Canada’s policymakers and manufacturers heed that lesson may determine the industry’s survival.

Questions and comments can be shared at info@zeifmans.ca.
A sincere thank you to Nexia, our global network of member firms, for producing this piece.