Canada’s electric vehicle market keeps getting bigger, but that’s not necessarily good news for consumers — or the environment.
Manufacturers are leaning heavily on electrified SUVs, trucks and large cars that mean high prices and profits for the automakers.
The trend has helped push the average price for an EV to almost $73,000, according to Canadian Black Book, making it well out of reach for most households. That’s true even with signs of downward pressure from Tesla price drops.
Experts say cheaper options will be crucial if Canada is to transition away from the combustion engine. They say Chinese automakers could fill the gap if established players don’t step up.
“We drastically have to figure out how to produce more affordable vehicles,” said Rebekah Young, head of resilience economics at Scotiabank.
In a recent report, her team calculated that EV prices will have to come down by about one-third to be affordable for middle-income households and by half for those in lower-income brackets.
The need for cheaper vehicles comes as Canadians are being squeezed elsewhere on costs like housing. But Young said lower EV prices won’t come easily: automakers face rising cost pressure on everything from materials and labour to the huge research efforts and plant retrofits required to transition to electric vehicles.
These, along with supply chain issues, have helped push automakers to focus on larger vehicles.
The options for Canadian EVs have increased to 32 models in 2022 from nine models in 2018, according to the International Energy Agency. In that same period, the number of SUV options grew to 19 from two while the number of small car models actually shrank, dropping to two from three.
The IEA warned in its latest EV outlook that the “overwhelming dominance of SUVs and large models” is a major concern in efforts to move away from fossil fuels.
Automakers argue they’re using higher-priced vehicles as a way to help fund the transition, and could roll out cheaper options in the future.
But North American companies might not have the luxury of time.
The European market is already under pressure from Chinese manufacturers increasingly looking to expand beyond their home market after years of intensive, state-sponsored growth at home that has led to radically cheaper vehicles.
BYD, backed by billionaire investor Warren Buffett, launched a hatchback called the Seagull at the Shanghai auto show in April. It starts at the equivalent of about $14,600 for a 305-km range version.
The company has been promoting its Dolphin model in Europe, though at a notably more mid-market rate of about 30,000 euros, joining a big push on the continent by MG, owned by China’s largest automaker SAIC Motor Corp., along with Volvo parent Geely and more recent entrants like NIO Inc.
The European Commission said last month that the market is being “flooded with cheaper Chinese electric cars” as it launched an anti-subsidy investigation.
It won’t be so easy to do the same in North America, however, because the U.S. government has a 27.5 per cent tariff on Chinese EV imports and its buyer incentive programs are linked to vehicles produced regionally.
Canada doesn’t have the same protectionist measures, but it’s likely not a big enough market for Chinese automakers to launch here alone, said Sam Fiorani, vice-president of global vehicle forecasting at AutoForecast Solutions.
But Chinese automakers are already gaining ground in Mexico, he said, which will likely lead to a production plant in the next few years that would give them access to the full North American market.
“The Chinese imports into Mexico have been growing at such a rate that it’s inevitable that we’ll see an announcement of a plant,” Fiorani said.
A wave of cheaper Chinese vehicles could help Canada reach its EV targets, but would mean the loss of the benefits of domestic production that the Canadian government is betting so heavily on, said Young.
Governments and companies have to use the time available now to figure out solutions, rather than just try to keep out the competition, she said.
“You can erect barriers and that buys you a bit more time, but it doesn’t necessarily accelerate, in a meaningful way, innovation.”
She said that BYD’s rivalling of Tesla on global EV sales shows there’s less time to respond than some expect.
“What was kind of a theoretical, down-the-road risk, it transpired into something looking pretty real.”
Tesla has for years promised a substantially cheaper EV is coming, possibly in the US$25,000 range, but it’s still not available.
Detroit automakers, however, have shown mixed signals in pushing toward more affordable vehicles.
General Motors will soon begin sales of an EV version of its Chevy Equinox SUV that should start at around $38,000, but it also announced earlier this year it would discontinue its Bolt EV, one of the cheapest electric cars on the market. The company did a U-turn in July, saying it would bring out a new version of the Bolt, but it’s still not clear what that will look like.
The industry push toward bigger vehicles has also made gasoline-powered options further out of reach, leaving the average cost for a vehicle in Canada up over a third since the start of the pandemic at $66,000.
Higher prices for conventional vehicles have helped narrow the gap with EVs, said Daniel Breton, head of industry association Electric Mobility Canada.
He said it’s still crucial for automakers to offer entry-level, smaller EV cars, but there are other barriers to get past too.
Supply shortages and long wait times are still the norm for most brands, and there are still misconceptions about charging needs, range, and the cost picture for electric vehicles, said Breton.
A soon-to-be released survey from Electric Mobility Canada, for example, found that the majority of Canadians don’t know there’s a $5,000 federal rebate on EVs, he said, which can be added on top of provincial incentives that can make a difference in the choice to purchase one.
“The key to me has to do with education, education and education, because there’s so much that people do not know about electric cars.”
This report by The Canadian Press was first published Oct. 22, 2023.
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