Canada’s national auto dealer association is warning that without addressing issues with charging infrastructure and financial incentives aren’t fixed, the federal plan to mandate EV sales could backfire.
Last month, Liberal Environment Minister Steven Guilbeault unveiled Ottawa’s ambitious plan to completely phase out the sale of new gas and diesel cars by the year 2035 within Canada.
Canadian Automobile Dealers Association lead economist Charles Bernard told True North that the industry is excited about electrification but disagreement remains about the role government should play in the matter.
“This is where we are in disagreement with the government, they tend to believe that because EVs will be eventually be the sole purchase option, well (manufacturers) will produce the amount needed and consumers will go the dealerships and buy them,” said Bernard.
According to Bernard, the government’s imagined outcome likely won’t pan out if a sustainable vision for demand and supply aren’t taken into account. Consumers still have many worries about EVs, including their high costs, lack of range and sparse charging infrastructure.
“To remove or reduce these worries – which I like to call behavioral and financial barriers – governments need to create the proper environment for consumers to think that is essentially logical, and financially sustainable, to go along with the policy and purchase an EV,” explained Bernard.
If these aspects are not taken into account, every party involved – including policy makers, auto dealers and manufacturers – would face failure.
“All in all, dealers see this as a new business opportunity and can see the potential, but it has to be done right,” he said.
“It is evident that there are structural elements that need to be fixed (investments in charging and financial incentives) for this policy to work and create the ‘’buzz” within consumers re: the EV transition. If not, this policy could quickly become inflationary and generates frustration among consumers.”
In its plan, the federal government claims it has provisions to require manufacturers to supply more EVs while also offering incentives to bring the price of EVs closer to those of traditional gasoline or diesel vehicles. Additionally, Ottawa has pledged to build 85,000 public EV chargers across the country by 2027.
However, the reality of the market might not necessarily comply with the federal government’s vision for how the transition will play out.
“There might be environments where manufacturers believe there is a better chance for vehicle (X) to be sold: consumer adaptation, charging infrastructure, incentives, regional dynamics, energy access, etc,” said Bernard.
“If (manufacturers) do not prioritize Canada within their own global supply and production chain, they might have to reduce their total of vehicles sold in Canada to meet the threshold.”
Depending on the scenario, a potential outcome could be a drastic reduction in inventory provided to Canada as more countries compete to achieve electrification all at once, which could lead to even higher prices.
The Canadian Automobile Dealers Association is not the only industry group expressing concerns about the direction Ottawa has taken with its EV plan. In a press conference last month, they were joined by the Canadian Vehicle Manufacturers’ Association and the Global Automakers of Canada in demanding that the government address the pervasive underlying barriers preventing more consumers from adopting EVs as their preferred method of transportation.
According to Bernard, EV adoption could be easier, but with current inflation and interest levels, it is harder to sell for consumers.
“If we were in an environment with low interest rates, I think consumers wouldn’t be as worried about the purchase of an EV with the current prices (there are savings to be made in the long run),” Bernard told True North.
“But with high interest rates and economic uncertainty, we could very well see loans getting longer with higher average interest rate. That underlines one of our main requests: federal and provincial incentive programs must be a) sustained and b) improved.”
Additionally, an EV mandate could have consequences for the used car market with prices remaining high for the near future.
“In provinces where the EV transition takes more time (colder and more rural parts of Canada), I suspect that the turnover of new EVs might take more time as well resulting in less residual inventory on the used side,” said Bernard.
Ultimately, the 2035 target year for 100% new EV sales is unlikely, remarked Bernard, pointing to other countries and US states adjusting their targets further into the future.
“I am an optimist, so I think changes in the approach could lead to significant progress – but so far, the federal government seems to be stuck on promoting the potential end result without actually explaining the crucial step-by-step on how to get there.”