As gas prices spike upward following Russia’s invasion of Ukraine, so is Canadians’ interest in purchasing an electric vehicle.
But this sudden enthusiasm is unlikely to translate into sales in the near future, or for prices to still be that high when buyers receive their EVs, experts say. But supply chain backlogs mean buyers might not take delivery of their new EVs for quite some time, experts say, and there’s no guarantee that fuel prices will remain that high when they do.
According to a March survey by audit firm KPMG, 61 per cent of Canadians say soaring gas prices and vulnerability in the oil supply have convinced them it’s time to buy an EV.
Almost half of those surveyed, 47 per cent, said they “are buying an EV or a plug-in hybrid EV (PHEV) right away” even though it might take a year before they receive it, owing to supply chain backlogs. Six per cent said they’d ordered an EV in the past month, and half (51 per cent) said they’d never buy a gas-powered vehicle again.
While EV sales have been growing over the past few years in Canada, they still only accounted for 5.6 per cent of new vehicle registrations in 2021, according to IHS Markit. But steep increases in the price of gas over the past month or so are prompting far more Canadians to cry uncle.
“This is unlike anything we’ve ever experienced,” said Dan McTeague, president of Canadians For Affordable Energy. After two years of pandemic lockdowns, when demand was artificially low, drivers are now faced with soaring prices just as they’re resuming their commutes. “These high prices happening in the middle of winter are both unprecedented and really a harbinger of what we can expect for summer pricing, which is going to be extraordinarily painful.”
Plug‘n Drive chief executive officer Cara Clairman is seeing direct evidence of greater interest in electric vehicles. The Toronto-based non-profit, which was founded to accelerate the adoption of EVs, has seen an uptick in visitors and potential EV buyers to its website and Electric Vehicle Discovery Centre since gas prices began to spike a few weeks ago.
“There are a lot of Canadians who are thinking about an EV for their next car and the high gas prices pushed them over the top, especially if they drive a lot,” said Clairman.
But whether such interest will translate to a flood of EVs on Canadian streets in the short term is less certain, owing to a number of factors that include the high upfront cost of EVs, supply chain delays, the rising cost of minerals needed to produce EV batteries and the long-term price of gas, which could fall if Russia leaves Ukraine or the Organization of Petroleum Exporting Countries decides to increase supply.
Andrew King, managing partner at DesRosiers Automotive Consultants Inc., doesn’t anticipate that rising gas prices will increase EV market share in the short term because the market is so undersupplied for all vehicles owing to the microchip shortage. But over the longer term, it’s a different story.
“If gas prices go up, it’s going to help EVs,” he said.
That said, the price of gas isn’t the only consideration when people are buying a car. The price of nickel – “hugely important for batteries in EVs” – has doubled in price lately, King said, and that’s going to push up the price of electric vehicles.
Laura Zanchin, principal of Zanchin Automotive Group, one of the largest dealer groups in Ontario with 38 dealerships and 19 brands that range from mainstream to luxury, said she doesn’t see much evidence that high gas prices are driving the majority of buyers into dealerships to ask about EVs. And when it comes to those in the market for luxury brands like Mercedes-Benz, “the price of gas is almost irrelevant” to their decision.
She said her customers “understand that EVs will be the future and so they want to be educated about their next vehicle purchase.” However, even if shoppers were ready to commit to buying an EV today, most models have wait times from six months to a year, and everything that is coming in has already been sold.
It’s a wait that may not deter some buyers. According to the KPMG survey, 51 per cent of Canadians say they’re willing to wait four to 12 months for an EV because they believe it’ll pay off in the long run.
Energy price watcher James Williams, president of WTRG Economics in Arkansas, isn’t so sure. He says the Organization of Petroleum Exporting Countries (OPEC) – whose members account for about 40 per cent of the world’s oil supply – does not want prices to remain high over the long term, so it may act to increase supply. “They’re worried about people fuel switching – in other words, that you go out and buy an electric vehicle,” he said.
While Russia is not an OPEC member, it is both a major producer and part of the OPEC+ alliance, a larger group of oil-producing countries that co-ordinates its supply with OPEC.
In December, Russia sent nearly eight million barrels of oil and other petroleum products to global markets, including five million barrels of crude. But sanctions and de facto bans on Russian oil have basically shut Russia out of the world oil market. JPMorgan estimates that more than four million barrels have been effectively sidelined.
With all that in mind, Williams is forecasting volatile oil prices for the next month. But longer term, he said it’s more difficult to predict because of three main questions: Will Russia stay in Ukraine? Will OPEC risk its relationship with Russia and other countries in the OPEC+ coalition by increasing supply to reduce prices? And will the global economy come under such strain “that prices are going to crash anyway?” he said.
If Russia backs out of Ukraine and sanctions are lifted, Williams expects the price of crude to drop by about US$10 a barrel. (If crude prices move by US$10 in either direction, Williams says gas prices typically change by about 7 cents a litre in the same direction.)
But if that doesn’t happen, things could change on March 31. That’s when OPEC leaders will decide whether to increase production by about three million barrels a day. If they do, that would probably bring the price of crude back to below US$90 a barrel, he said. But it’ll still be a tight market, he warned.
Whatever happens between now and then, Williams said it is not “a rational, financial decision” to go out and buy an electric vehicle based on the price of gasoline because it will take a long time to recoup your investment. “But people will do it anyway.”