On February 5, 20261, the Government of Canada unveiled a new national strategy for the automotive sector, signalling a shift in federal policy through a series of measures, including the reintroduction of purchase incentives for electric vehicles (EVs) and plug-in hybrid vehicles, while stepping back from previously announced mandatory EV sales targets for 2035. 2 Announced by Prime Minister Mark Carney, the strategy is intended to stimulate consumer demand, provide greater regulatory flexibility to automakers, and support the competitiveness of Canada’s automotive supply chain amid slowing EV adoption and broader economic pressures. The government further indicated that the strategy positions Canada to become a global leader in EV production, autonomous and self-driving technologies and the battery supply chains that will power the future of mobility. Here are the key takeaways that consumers, manufacturers, suppliers and investors should be aware of as Canada adjusts its approach regarding the electrification of the automotive sector.3
- Reintroduction of federal EV purchase incentives
As part of its revised automotive strategy, the federal government will allocate CA$2.3 billion over five years to reintroduce purchase incentives for consumers.4Beginning February 16, 2026, eligible buyers will receive rebates of up to CA$5,000 for new battery electric vehicles and CA$2,500 for qualifying plug‑in hybrid vehicles, largely mirroring the structure of the previous program that expired in 2024.5
The incentives will decline annually through 2030, with battery‑electric rebates falling from CA$5,000 in 2026 to CA$2,000 by 2030, and plug‑in hybrid incentives following a similar reduction, falling from CA$2,500 in 2026 to CA$1,000 in 2030. The government estimates the program will support approximately 840,000 EV and plug‑in hybrid purchases, positioning the incentives as a time‑limited tool to accelerate adoption and stabilize EV demand.6
- Eligibility limited to Canada and free‑trade partners
Only vehicles manufactured in Canada or in countries with which Canada has a free trade agreement, such as the United States, South Korea or European Union member states, will be eligible for the federal incentives. This eligibility requirement is intended to align consumer incentives with broader trade and industrial policy objectives.7
- Chinese‑manufactured EVs excluded from incentives
As a result of the eligibility rules, electric vehicles manufactured in China will not qualify for federal purchase incentives, notwithstanding the recent Canada-China agreement permitting the import of 49,000 Chinese‑manufactured EVs into Canada at an estimated average price of around CA$35,000. These vehicles will be subject to reduced tariffs of 6.1%, down from the 100% duties in place since 2024, in exchange for China’s commitment to gradually roll back punitive tariffs on certain Canadian exports, including canola and seafood products.8
- Price cap with a domestic manufacturing exception
For vehicles manufactured in free‑trade partner countries, the final transaction price must not exceed CA$50,000 to qualify for the rebate. Vehicles fully manufactured in Canada are exempt from this price cap, providing a competitive advantage to domestic production regardless of vehicle price.9
- Formal shift from mandatory sales targets to emissions‑based regulation
The revised strategy confirms the federal government’s decision to abandon mandatory zero‑emission vehicle sales targets. As part of this shift, the federal government has confirmed it will formally repeal the Electric Vehicle Availability Standard (EVAS), replacing prescriptive sales mandates with an emissions‑based regulatory framework.
- Significant investment in charging infrastructure
In support of increased EV adoption, the government will invest an additional CA$1.5 billion through the Canada Infrastructure Bank’s Charging and Hydrogen Refueling Infrastructure Initiative to expand charging infrastructure, including along major transportation corridors. 10
The initiative focuses on accelerating the deployment of public electric vehicle charging and hydrogen refuelling infrastructure across Canada to remove a key barrier to zero‑emission vehicle adoption and reduce transportation‑related greenhouse gas emissions. By supporting large‑scale, privately delivered infrastructure projects and sharing adoption risk, it aims to give developers and investors greater confidence to expand charging and refuelling networks in the public interest.11 This investment is positioned as a critical complement to purchase incentives and emissions standards.
- New emissions standards
The federal government also plans to introduce new emissions standards broadly aligned with those in the European Union for light‑duty vehicles of model years 2027 to 2032. Federal officials indicate these standards are intended to deliver emissions reductions equivalent to approximately 75% EV adoption by 2035, while preserving technological flexibility.12 By comparison, the European Commission reports that EU emissions‑performance standards reduced emissions from new passenger cars by 28% between 2019 and 2024.13
- A strategy aimed at positioning Canada as a global leader in EVs and related technologies
Leveraging new investments in EV production, consumer purchase incentives and charging infrastructure, Ottawa has also articulated an aspirational target equivalent to 90% EV adoption by 2040, positioning electrification as a central pillar of Canada’s long‑term automotive and industrial policy. Moreover, the strategy aims at positioning Canada as a global leader in vehicle electrification, autonomous and self-driving technologies, as well as the battery supply chains that will power the future of mobility.14 With respect to efforts to attract new investment into the country, Canada has confirmed that the strategy will prioritize attracting new entrants that are leaders in EV manufacturing and connected vehicle technologies to strengthen the sector's resilience.15 This approach was also showcased in the context of the positive statements made further to Prime Minister’s recent trip to China in favour of joint venture investments by Chinese firms for production of EVs in Canada.16
- Broader industrial support amid trade uncertainty
Beyond consumer incentives, Ottawa has committed up to CA$3 billion from the Strategic Response Fund and up to CA$100 million from the Regional Tariff Response Initiative to help the automotive industry adapt to changing market conditions and diversify export markets. The federal government has emphasized domestic manufacturing, innovation and supply‑chain resilience as central pillars of its long‑term automotive strategy.17
- Establishment of a federal automotive task force
To support the implementation of the revised automotive strategy, the federal government announced, on January 26, 2026, the creation of a new automotive task force bringing together federal and provincial governments and key industry stakeholders. The task force is mandated to facilitate coordinated action on investment attraction, electrification, workforce transition and trade‑related challenges, including issues arising from the upcoming CUSMA negotiation. For automotive manufacturers and suppliers, this signals a new formal channel for engagement with governments, as the revised EV and emissions framework is rolled out.18
- Workforce support measures
To shield the automotive workforce from immediate disruption while supporting longer‑term adjustment, the federal government is rolling out targeted labour measures tied directly to employment outcomes. A new Work‑Sharing grant will allow employers facing temporary slowdowns to reduce employee hours rather than proceed with layoffs, with income support helping workers remain attached to their jobs.19 In parallel, a workforce alliance, bringing together industry, labour and training institutions, will address workforce challenges in the automotive and manufacturing sectors. The government will also expand employment assistance and reskilling programs for up to 66,000 workers across Canada, including displaced auto workers.20
- Potential reforms to automotive import rules and duty remission
Beyond tariffs and purchase‑incentive eligibility, the federal government has announced planned public consultations regarding reforms to Canada’s automotive duty remission framework, which currently governs the volume of vehicles manufacturers may import into Canada without incurring counter tariffs. As part of these consultations, Ottawa is considering the introduction of a tradeable import credit system, under which manufacturers could earn import credits by producing vehicles, batteries or key automotive components in Canada. These credits could then be used or transferred to facilitate vehicle imports. If implemented, such a system would directly link import flexibility to domestic investment, production activity and job creation, introducing new compliance and strategic planning considerations for original equipment manufacturers (OEMs) operating in Canada.21
- Concluding thoughts
Canada’s revised automotive strategy reflects a deliberate effort to balance climate objectives with industrial competitiveness in an increasingly uncertain global market. By moving away from prescriptive sales mandates toward a mix of targeted consumer incentives and emissions‑based regulation, the federal government has signalled a more flexible and outcome‑oriented approach to vehicle electrification. For automotive businesses, the coming months may prove pivotal in assessing compliance obligations, investment decisions and engagement with policymakers as Canada advances its next phase of automotive electrification.
