Divergent Auto Market Dynamics: Canada’s Slump and the US EV Resilience

The North American auto market in 2025 is defined by stark contrasts: while the United States demonstrates resilience in electric vehicle (EV) adoption and manufacturing, Canada grapples with a sharp decline in zero-emission vehicle (ZEV) sales and stalled electrification projects. These divergent trajectories present both risks and opportunities for cross-border investors, particularly in electrification infrastructure, supply chain resilience, and policy-driven innovation.

Canada’s ZEV Slump: Policy Shifts and Trade Tensions

Canada’s ZEV market share plummeted to 8.7% in Q1 2025, a 50% drop from its 2024 peak of 18.9% [3]. This decline is attributed to the phase-out of federal subsidies and a lingering trade war with the U.S., which imposed 25% tariffs on Canadian vehicles under Trump-era policies [5]. These tariffs, though not applied to auto parts, have incentivized automakers to shift production south, exacerbating Canada’s manufacturing challenges. For instance, Honda delayed its $15 billion EV supply chain investment in Ontario by two years, while Northvolt’s $7 billion battery plant near Montreal faces uncertainty after the company’s bankruptcy in Sweden [1].

Despite these setbacks, Canada’s EV adoption rate (1.2% of all vehicles) remains slightly higher than the U.S.’s 0.9% [2]. Provinces like Quebec, with a 25% ZEV market share in 2024, demonstrate localized success, but national sales in Quebec fell 50% in Q1 2025, underscoring the fragility of Canada’s EV ecosystem [3].

U.S. EV Resilience: Tax Credits and Market Competition

The U.S. market, by contrast, has shown greater resilience. In 2024, EV sales reached 1.6 million units, driven by the Clean Vehicle Tax Credit, which offered buyers discounts of up to $7,500 [2]. While growth slowed to 10% in 2024 (down from 40% in 2023), the U.S. maintained a 9.6% EV market share in Q1 2025 [1]. Tesla, despite losing ground to new entrants like Rivian and Hyundai, retained 46% of U.S. EV sales in Q2 2025 [2].

However, the U.S. faces its own challenges. The Inflation Reduction Act’s stringent battery sourcing rules and proposed ELITE Vehicles Act threaten to disrupt supply chains, forcing automakers to reshore production. General Motors, for example, invested $4 billion to bring battery cell production back to the U.S. [4]. Meanwhile, the lack of affordable EV models and sparse charging infrastructure (only one public charger per 42 new EVs in Q1 2025) remain barriers [1].

Cross-Border Investment Opportunities

The divergence between Canada and the U.S. creates unique investment opportunities in three areas:

1. Supply Chain Resilience and Critical Minerals
   Canada’s abundant critical minerals (lithium, nickel, cobalt) position it as a strategic partner for U.S. automakers seeking to localize supply chains. The Canadian government’s $169.4 million investment in Linamar Corporation’s EV battery semiconductor project highlights this potential, aiming to create 2,000 jobs and bolster domestic battery production [2]. Investors could target Canadian mining and processing firms, such as Lithium Americas or Neo Lithium, which are expanding capacity to meet U.S. demand.

2. Cross-Border Electricity Trade and Grid Infrastructure
   Droughts in western Canada reduced hydropower exports to the U.S. in 2025, reversing a decades-old trend and increasing U.S. electricity exports to Canada by 70% [4]. This shift underscores the importance of grid infrastructure investments, particularly in Ontario and Quebec, where transmission lines could facilitate bidirectional energy flows. For example, Ontario exported 12 terawatt-hours (TWh) to the U.S. in 2023 but saw its leverage decline amid drought-driven production cuts [2]. Cross-border projects like the proposed Atlantic Wind Connection could stabilize energy trade and support EV charging networks.

3. Policy-Driven Innovation in Battery Technology
   Both countries are pivoting toward lithium-iron-phosphate (LFP) batteries, which rely less on restricted minerals like cobalt. U.S. firms like Tesla and Canadian startups such as Echelon Innovation are leading this shift. Investors could also capitalize on U.S. tax credits for recycling facilities, which are critical to reducing reliance on foreign materials.

Strategic Considerations for Investors

For investors, the key lies in balancing Canada’s policy-driven innovation with the U.S.’s market scale. While Canada’s EV manufacturing sector faces headwinds, its critical minerals and government incentives make it a vital node in North America’s electrification supply chain. Conversely, the U.S. offers robust demand and tax incentives but requires navigating regulatory volatility.

A diversified approach—investing in Canadian battery material suppliers while targeting U.S. automakers adapting to Inflation Reduction Act requirements—could mitigate risks. Additionally, infrastructure projects that enhance cross-border electricity trade, such as smart grid technologies, present long-term value as both nations strive for energy security.

Conclusion

The divergent paths of Canada and the U.S. in the EV transition highlight the complexity of North America’s auto market. While Canada’s challenges are significant, its strategic assets in minerals and policy support offer a foundation for recovery. Meanwhile, the U.S. must address infrastructure gaps and regulatory uncertainty to sustain its EV momentum. For investors, the opportunity lies in bridging these gaps through cross-border collaboration, positioning themselves at the intersection of innovation and resilience.

Source:
[1] Canada's multibillion-dollar bets on the EV industry aren't ... [https://www.cbc.ca/news/canada/ev-investments-canada-facts-1.7533719]
[2] Government of Canada further strengthening the electric vehicle manufacturing sector [https://www.canada.ca/en/innovation-science-economic-development/news/2025/01/government-of-canada-further-strengthening-the-electric-vehicle-manufacturing-sector.html]
[3] EV Sales Data Tracker [https://electricautonomy.ca/data-trackers/ev-sales-data/]
[4] U.S. electricity exports to Canada have increased since ... [https://www.bicmagazine.com/industry/powergen/us-electricity-exports-to-canada-have-increased-since-september-2023/]
[5] Trump Policies Stall Honda EV Investment, Threaten ... [https://kingsvilletimes.ca/2025/05/trump-policies-stall-honda-ev-investment-threaten-canadian-auto-jobs/]