Consumer demand for electric vehicles is falling. That’s not necessarily a bad thing.
Don’t get me wrong, the climate crisis is real. But we should be relieved that electric vehicles, or EVs, haven’t gained traction with the masses just yet.
Although EV prices have tumbled from their previous highs, they still create sticker shock for ordinary people. Those big-budget prices coupled with costly charges for insurance, repairs and maintenance suggest that Canada’s EV mandate risks stoking inflation at exactly the wrong time.
Canada, like many other countries, is planning to phase out the sale of cars, light trucks and SUVs with internal combustion engines. The federal government’s goal is to implement a ban on the sale of those vehicles starting in 2035, except for hybrid vehicles.
Recent industry developments, though, are proving the folly of EV mandates.
Ford Motor Co., which initially planned to produce EVs at its Oakville, Ont., plant, will now use the facility to produce its gas-powered Super Duty pickup trucks instead. In doing so, the company pointed to consumer preferences.
“Super Duty is a vital tool for businesses and people around the world and, even with our Kentucky truck plant and Ohio assembly plant running flat out, we can’t meet the demand,” stated Jim Farley, Ford’s chief executive officer, at the time.
Rival General Motors Co. is retreating from its previous target of producing one million EVs in North America by the end of next year. GM is also postponing its plans to open an EV truck factory in Michigan.
So much for U.S. President Joe Biden’s declaration back in 2021 that GM CEO Mary Barra had “electrified the entire automobile industry.” But I digress.
The slowdown in EV sales is also affecting ancillary companies.
Belgium-based Umicore is pausing construction on a $2.8-billion battery-materials manufacturing plant in Loyalist, Ont.
Swedish battery maker Northvolt AB created market confusion about the timeline for its planned Montreal factory after announcing a strategic review in July.
Car rental companies Hertz and Sixt, meanwhile, are weeding out EVs from their respective fleets citing factors such as the higher cost of repairs and lower resale values.
“The elevated costs associated with EVs persisted,” Hertz chief executive Stephen Scherr said in January. “Efforts to wrestle it down proved to be more challenging.”
The outcome of this year’s U.S. presidential election could prove to be another wildcard for EV pricing.
Donald Trump, the Republican presidential nominee, recently vowed to “end the electric-vehicle mandate on day one” – of his presidency if he wins the Oval Office in November.
Under the Biden administration, the U.S. Environmental Protection Agency imposed stricter tailpipe pollution limits that put pressure on auto manufacturers to boost EV sales.
Mr. Trump, though, could do more than just scrap those requirements. There is worry that he could also pull the plug on EV tax credits and subsidies provided by Mr. Biden’s signature Inflation Reduction Act.
Moreover, Mr. Trump’s proposal to slap a 10-per-cent tariff on all imported goods, no matter the country of origin, could potentially hike the price of foreign-made EVs.
These gathering headwinds should prompt the Canadian government to hit pause on its plans to phase out gas-powered cars. Ottawa’s itinerary to implement a ban is simply too aggressive.
This is not the time to push cash-strapped consumers to adopt costlier cars. Inflation may be easing but ordinary people are still coping with a cost of living crisis.
Recent interest rate cuts by the Bank of Canada have only provided limited relief to homeowners with variable-rate mortgages. What’s more, a large swath of mortgages are coming up for renewal at higher interest rates by the end of 2026.
Debt-laden Canadians have increasingly opted for longer-term auto loans in recent years to lower their monthly payments. Six-, seven- and eight-year auto loans have become the norm even though they inflate overall borrowing costs and significantly increase negative equity risks.
Given the relatively high price of EVs, longer amortizations on auto loans would most certainly leave consumers deeper in hock.
Sure, the cost of EVs could eventually fall. There’s industry buzz that new technologies, such as solid-state batteries, could be game changers for affordability.
But until EV prices come down to earth, our legislators have a responsibility to see past the hype.
There’s an inconvenient truth about electric cars: They’re inflationary.