Automakers are going all in on EVs. But is it a good bet?

Peter Holle lives in one of the coldest battery-killing cities in Canada, yet a year ago he laid out $65,000 to buy an all-electric Tesla Model 3. And he loves it, making regular 150-kilometre trips to his cottage, and even a 3,000-km round trip to Banff.

“Would I ever buy another conventional car? No, I wouldn’t,” says Mr. Holle, who is president of a conservative think tank in Winnipeg. A climate-change skeptic, he bought the car not for its zero emissions, but for its performance chops, advanced technology and low operating costs.

Fred Kerr, a Calgary stand-up comic, however, thinks electrical vehicles (EVs) are a bad joke. Like many wary Canadians, he says the vehicles are too expensive to buy, have heavy batteries, short range and poor winter performance.

“It may take a long time for an electric car to make economic sense to me,” he said.

There are a lot more consumers like Fred Kerr than Peter Holle in Canada. In the first quarter of this year, just 8,412 battery-electric and 3,586 plug-in hybrid vehicles were sold in Canada – 3.8 per cent of total light vehicles sold, according to IHS Markit data provided to Transport Canada.

Yet, the world’s big automakers have gone all in with a shift to electrification – unveiling model after model and investing billions of dollars on an ever-expanding array of partly or fully electric vehicles.

Major automaker investments in EV are staggering. The total investments announced by global manufacturers for North America between 2020 and 2025 is estimated at US$300-billion. German automaker Volkswagen alone has said it will spend $66-billion through 2024 on digital technologies and electric cars.

General Motors is developing more than 20 plug-in models, and the company announced on Sept. 8 it will work with electric-truck startup Nikola Corp. to build electric pickup trucks and fuel-cell commercial trucks. It will also soon roll out an all-electric Hummer. In April, GM announced it would partner with Japan-based automaker Honda to make two new EVs for the 2024 model year using GM’s Ultium battery technology.

Ford Motor Company, meanwhile, will this fall roll out the Mach-E, an all-electric SUV version of the iconic Mustang brand, which in the 1960s and ’70s drove the Detroit obsession with gas-guzzling V8 muscle cars. An electric version of the F-150 pickup will also be on sale by mid-2022. In 2019, Ford invested more than US$500-million into Rivian, a Michigan-based EV startup, and said it will use the company’s battery architecture in an electric Lincoln.

Even internal-combustion holdouts such as FCA – a carmaker that has built its brand on brawny, gas-guzzling 4x4s such as Ram pickup trucks and Jeep Wranglers – has embraced the shift to electric vehicles with the zeal of a religious convert.

“We will be the greenest SUV brand in the world,” Christian Meunier, global president of FCA’s Jeep division, said during a recent online roundtable with Canadian automotive journalists.

Drivers might rightly wonder why. Analysts point to a combination of competitive pressures and government emissions regulation.

“What Tesla’s really done is forced everybody’s hand, making them go to market with products that wouldn’t normally be ready,” said John Bardwell, Toronto-based analyst with Bond Brand Loyalty.

This year also proved to be a watershed moment for regulation in Europe. The EU mandated that, by 2020-21, average emissions for new cars sold there must be 95 g CO2/km – the equivalent of 4.1 L/100 km for gasoline engines and 3.6 L/100 km for diesel. The market share of plug-in EVs in the EU reached 8.2 per cent this June, and fully battery electric (BEVs) hit 4.4 per cent, according to industry publication CleanTechnica.

China, meanwhile, introduced its New Energy Vehicle mandate in 2017, using incentives and regulation to encourage the growth of EVs, and saw 1.2 million of them sold in 2019.

In Canada, two provinces have set aggressive ZEV (zero-emissions vehicle) targets: British Columbia introduced regulations in July that require 30 per cent of vehicles sold in that province to be ZEV by 2030 and all new vehicles by 2040; Quebec, whose ZEV law expires in 2025, is said to be planning similar targets.

“The industry knows it’s on a glide path to zero emissions,” Mr. Bardwell said.

Yet the wild card for automakers is what consumers are willing to buy, says Stephanie Brinley, principal automotive strategist with IHS Markit, in Michigan.

“It’s the consumer,” she said. “If consumers don’t ultimately buy them, that’s just money gone.”

The COVID-19 pandemic has wreaked havoc with EV strategies, according to a Sept. 16 report from McKinsey & Co. It noted that the pandemic caused oil (and therefore gasoline) prices to drop, reducing the cost to operate conventional vehicles. While demand for EVs remains strong in China and the EU, demand has dropped in the United States, the report stated.

Ms. Brinley noted that EVs comprised just 1.5 per cent of new vehicle registrations in the U.S. in 2019, and IHS Markit projects that by 2025, that number will have grown to only 8 per cent. A major barrier to consumer acceptance is the price premium EVs command, and it’s only partly offset by government rebates and incentives, Ms. Brinley said. “Ultimately, the EV market will have to stand on its own without these.”

Mr. Holle is already there with his Tesla. “This car doesn’t need a $10,000 subsidy,” he said, noting that, over the long term, its cost of ownership will be lower than a conventional gas-powered vehicle.

Bloomberg New Energy Finance predicted in 2017 that falling battery prices will push EVs to price parity with internal-combustion vehicles sometime between 2025 and 2029, depending on the segment. That’s because as batteries get cheaper, it’s becoming even more expensive to squeeze more kilometres out of a litre of gasoline, Mr. Bardwell said. Yet, broad consumer acceptance of EVs will depend on the emergence of batteries that last longer and go further.

“To really break through, you need that battery technology,” Mr. Bardwell said. “Whoever that person is who has the eureka moment on the battery? That’s the Messiah.”

So, are gas-powered vehicles nearing the end of the road? “We’ve shifted from ‘EVs might be good’ to ‘it’s a foregone conclusion that EVs are the solution,’ ” said Ms. Brinley. "We’ll see.

“We’re talking decades and decades,” she said. “The adoption of electric vehicles is going to be really slow. … It’s a marathon.”

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