Electrification is still, of course, the dominant topic of concern for car-company executives and dealers in 2024. But challenges brought on by the switch from gas to electricity aren’t the only issues faced by the industry this year.
In chats with industry insiders and analysts around this year’s Canadian International AutoShow, experts were eager to talk about continuing supply constraints, the need to battle EV misinformation, questions of affordability, the impending zero-emission-vehicle (ZEV) sales mandate, high interest rates and the high cost to dealers who have cars sitting on their lots. If there’s one unifying message here, it’s that the auto industry seems to know where it wants to go, but isn’t quite sure how to get there.
Andrew King, managing partner at DesRosiers Automotive Consultants, on the continuing appeal of “build-to-order” inventory management and the shortage of compact SUVs:
The [manufacturers] have talked a lot about being disciplined on production and not allowing inventories to return to their prepandemic levels. The move to more of a “build-to-order” system with low inventories during the [era of] vehicle shortages was very profitable and opened their eyes to a different way of doing business – being able to sell at suggested retail prices, low inventory costs and minimal incentives. Whether they will be able to maintain this discipline or return to their old habits will be key for 2024.
The second issue is [the short supply of] compact SUVs. Vehicle availability has improved dramatically over the past six months in most segments. However, there are still shortages in compact SUVs. Compact SUV is the largest vehicle segment in Canada, accounting for approximately 470,000 sales and 28.2 per cent of the market in 2023. What happens in this segment will go a long way to determining how the market performs in Canada this year.
John Krsteski, senior chief designer at Genesis North America, on emerging trends and opportunities for automotive design:
Industry wide, car designers, us included, are reckoning with EV platforms. It brings us another level of creativity and an opportunity to create new archetypes. So you’re not limited to this idea of ‘Oh, here’s a sedan’ in the traditional sense, or ‘Here’s just an SUV.’ I think there’s a whole range of cars you could develop that use the same platform but offer a completely different experience for the users. I think that’s the beauty of where we’re going; you don’t have to fit everything into one specific type of silhouette.
Christopher Pfaff, chief executive officer of Pfaff Automotive Partners dealership group, on challenges around electrification:
We’re at a point now where consumers are not embracing EVs as quickly as maybe the manufacturers thought.
Some EV inventories are just too high and dealers are paying high interest rates on that inventory right now.
Sales were up last year because of the greater number of products available. It doesn’t mean necessarily that electrified cars are selling as fast as manufacturers would want. Toyota, for example, they’re having great demand and success for their hybrid vehicles. They’re selling out for sure. Hyundai, with their electric vehicles at very attractive price points, I think they’re doing fairly well. But most of the manufacturers I’m involved with, it’s been a bit of a struggle for sure.
It’s almost all about the market size. There’s too many products for the market size for electric vehicles today. As well, if you’re extremely uncompetitive price-wise with your electric [vehicle], it makes it even worse.
Daniella D’Souza, brand director for Buick and GMC, on the increased importance of strong residual values in 2024:
I think the market’s going to be a little bit tougher, because of everything around mortgage payments and interest rates, and that’s across the industry.
Financing and leasing are a big part of how we sell to the Canadian market. So for us, absolutely, the economic issues are of concern. What I think works in our favour is that we have – on the trucks – some of the best residuals in the market. [The residual value is an estimate of what a car will be worth at the end of the lease.] So, payment wise, we’re able to really get a great monthly payment versus the competition. Residual values will definitely be more important.
Matt Girgis, managing director of Volvo Car Canada, on preparing customers for the electric shift and affordability:
With the move to electrification, it’s very important to have the product – which we have with the EX90 and EX30 coming this year – but then also that we’re getting our consumers prepared for what we know are issues around range anxiety and charging infrastructure.
The other issue on our radar for 2024 is affordability. You’re probably hearing that from a lot of the other manufacturers, too. We need to make sure we’re meeting Canadians where they need to be met, not just from a product standpoint, but also from a competitive value standpoint as well.
John Cappella, chief executive officer of Porsche Cars Canada, on the technology adoption curve and the need for more electric SUVs:
In any new technology there’s a standard adoption curve, whether it’s an electric washing machine or the car itself. First you get the innovators, who don’t care if that technology is still developing. Then you get the early adopters, and that gets you to around 13 or 14 per cent of market share, which is essentially where we are now with zero-emission vehicles. Then you get the early majority, who tend to ask a few more questions. They want to see proof of concept. They want to see the experience out with other people. And it takes a little bit longer for that group to transition, but they are going to transition.
The bigger trend that’s happening is the ongoing – this has been happening for a while now – shift to SUVs. That has an impact in electrification as well. SUV sales last year were up 14 per cent. Cars were down 2 per cent. So then the key is: Are there EVs in the SUV segment? In our case, with the Macan EV coming, that’s the perfect segment for an EV in my view.
Dan Guatto, director of business consulting and energy transition at consulting firm EY Canada, on the need to battle misinformation:
One of the biggest challenges we’re seeing for EV uptake is a true understanding of what it means to own an EV. While many individuals acknowledge the environmental advantages, there appears to be a gap in their awareness of other benefits, such as significantly reduced ownership costs.
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Unfortunately, we are not seeing as many positive EV stories in the media, creating an imbalance, and misunderstanding of the various benefits of being an EV owner. In addition, misinformation on social media and by groups with vested interests have further compounded this issue, leaving potential buyers feeling uncertain and discouraged about making the switch to an EV because of misconceptions about ownership realities.
Our primary challenge – and indeed, our responsibility – is to educate the public. For instance, on the fact EV batteries are lasting up to 300,000 to 600,000 kilometres, which is the entire lifespan of the vehicle.
Stephen Beatty, vice-president and corporate secretary at Toyota Canada Inc., on the urgent need to build EV charging infrastructure:
This is our last year before the federal zero-emission vehicle (ZEV) sales mandate in Canada, because by this time next year, the industry will be selling 2026 model-year vehicles. So you have one year to get yourself ready for the future, folks. I think it’s everybody’s job to build out that EV infrastructure.
With the federal ZEV mandate, car companies can build early action credits by building charging infrastructure. The problem with that is – and this is the thing that’s driving me slightly crazy – is the federal government tilted those credits toward building DC fast chargers along major corridors when the problem is charging at home. For so many Canadians, they just don’t have access to charging at home.
I think this is the critical issue for the year: We know where we have to go, so enough kidding around. We have to actually have the products and the infrastructure and the public education to be able to make that leap.
These interviews have been condensed and edited for clarity.
Matt Bubbers