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Tesla is now selling two Chinese-made cars in Canada — here's why you won't find them in the U.S.

Canadian consumers can receive up to 5,000 CAD (about $3,700) through federal incentives for purchasing an electric vehicle.

Tesla fully-electric SUV charger

Photo Credit: iStock

Tesla's best-selling Model Y fully-electric SUV and groundbreaking Model 3 compact sedan are making their way from Shanghai to Canada, according to Reuters. Still, we won't likely see China-made versions of these popular electric vehicles (EVs) available in the U.S. anytime soon.

Due to varying incentive programs, complicated tax situations, and tense relations between China and the U.S., EVs manufactured at Tesla's Gigafactory Shanghai face some pretty big hurdles before hitting the streets in the United States. 

The Shanghai facility made headlines with its Model 3 leading the way in quality over its American-made counterparts in 2020, and recent price cuts give Canadian consumers a slight edge over American buyers.

After attracting Tesla in 2018 with a favorable market for growth and supportive policies toward EVs, the Chinese government helped the company's first Asian facility quickly become its most productive, manufacturing more than half of all Tesla's sold in 2022.

CNN Business notes that the Shanghai location offers further perks for Telsa, such as cost savings associated with labor, local sourcing, and production, as well as tax breaks, such as bypassing import tariffs for certain parts.

The Tesla factory soon began exporting across Asia, Europe, and Australia, and despite initial statements from CEO Elon Musk that North America would not be receiving vehicles from Shanghai, two of the company's most popular models have started shipping to Canada.

Like the clean vehicle tax credits introduced as part of the U.S.'s Inflation Reduction Act, Canadian consumers can receive up to 5,000 Canadian dollars (about $3,700 as of early June) through federal incentives for purchasing an EV.

Crucially for Tesla, the Canadian incentive program does not specify the region of manufacturing, allowing both the China-made Model 3 and Model Y to qualify for the credits. But, in the U.S., the Internal Revenue Service specifies that "final assembly occurred in North America" for vehicles to qualify.

In addition, increasing tension between China and the United States has caused further roadblocks for Tesla. Vehicles imported from the Shanghai facility to the U.S. were recently subject to a 27.5% tariff, according to The Japan Times, and must meet rigid safety standards and federal testing requirements for general road vehicles as well as EV-specific regulations.

However, there is some silver lining for American consumers. With two manufacturing facilities in North America, more tax-credit qualifying Teslas will be available to meet domestic demand instead of sending American-made cars to the Canadian market.

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