A Tesla electric vehicle is charged up at a dealership in Durango, northern Spain, on Oct. 30.VINCENT WEST/Reuters
Ashley Nunes is director for federal policy, climate and energy at the Breakthrough Institute and a senior research associate at Harvard Law School.
Canadians got a jolt Tuesday when Ottawa released new electric-vehicle regulations. The move, called the “Electric Vehicle Availability Standard,” aims to dramatically accelerate EV sales. Meeting the standard will require EVs to constitute 20 per cent of new vehicles sold by 2026, 60 per cent by 2030 and 100 per cent by 2035. For reference, EV market share has been less than 10 per cent in recent years. But not complying with the proposed rule risks drawing the ire of regulators – along with potentially hefty fines.
The motivation for such action is public health. Traditional gasoline-powered autos produce dangerous toxins, which can harm lungs, worsen medical conditions and, most importantly, contribute to global warming. EVs? Not so much. From the assembly lines to the scrap yard, EVs typically produce less global-warming pollution than gas guzzlers. Banning the latter, Ottawa says, would force automakers to produce more EVs, curbing pollution and solving what the government calls “one of the greatest barriers to EVs uptake: that wait times (to buy an EV) are too long.”
Wait times to go electric have, in some cases, indeed been long. In 2022, Volkswagen Canada stopped taking orders for its ID.4 all-electric SUV, citing wait times of nine to 12 months. Some consumers report waiting up to a year and a half before their vehicle of choice came in. But fixing wait times won’t address the real impediment to widespread EV adoption: higher manufacturing costs.
Building an EV isn’t cheap. Although EVs don’t have conventional engines, they need an electric battery to work. The battery relies on pricey minerals such as cobalt, manganese and nickel (to name a few), which drive up manufacturing costs. Higher manufacturing costs mean higher sales prices for consumers. This is why EVs can cost tens of thousands of dollars more than comparable gas-powered autos.
Price concerns surrounding EVs are often dismissed on two grounds. First, government subsidies are available that make EVs more affordable. Ottawa, for example, offers $5,000 to Canadians keen to go electric. Provinces offer additional incentives of their own.
Yet, while these programs narrow the price burden of going electric, they do not eliminate it because that burden is sizable to begin with. A 2022 Hyundai Kona powered by gasoline cost $26,044. Its electric counterpart: $45,851. I don’t know of any government programs that offer $20,000 in EV subsidies to consumers. Do you?
A more common argument over EV prices surrounds what’s called “learning.” When technology is in its infancy, it’s pricey. As production volume increases, prices drop. Adjusted for inflation, the first generation of cellphones cost more than $10,000. Cellphones today cost far less. Technology can get cheaper. But what’s true of one part of the economy often isn’t true of another – or the economy as a whole. In the case of EVs, prices – adjusted for inflation – have gone up, even though the number of EVs manufactured has soared.
Worryingly, higher prices have also failed to bolster the bottom lines of EV manufacturers. Consider Ford Motor Co. Despite selling twice as many EVs in 2022 as it did in 2021, the company’s EV division continues to hemorrhage money. By one estimate, Ford loses more than US$30,000 on every EV it sells. Hardly chump change, despite the automaker’s financial heft.
Which brings me to Ottawa’s proposed electrification push. Canadians are clearly reticent to go electric. Nearly two-thirds of consumers – citing price – say they are either “very unlikely” or “somewhat unlikely” to choose an EV as their next car. At least consumers have a choice. Automakers? Not so much. For the likes of Ford, complying with Ottawa’s policies means stimulating demand (via price drops) for a product that, as is, remains unprofitable to manufacture.
A pragmatic approach would be to adopt EV sales targets that reflect market constraints: standards that consider an EV’s manufacturing costs, profits a firm must deliver to shareholders, and the number of consumers who are willing and able to bear the ensuing upfront price. EV fans may balk at such a proposal. They will argue an electrified future is all but inevitable. Signals from the market clearly suggest otherwise.