Governments at Canada’s federal and provincial levels need to “rethink plans” to end subsidies for zero-emission vehicles (ZEVs) to avoid a dramatic slowdown in market growth in the years ahead, a new report from TD Economics says.
Subsidies have helped push ZEV market share in Canada from “virtually nothing just a few years ago” to over 12 per cent in the first half of this year, write economist Likeleli Seitlheko and research analyst Mekdes Gebreselassie. But outcomes in the U.K. and Germany, which both recently phased out incentives, suggest that growth could stall or even reverse, they say.
After the U.K. got rid of a grant for individual buyers, ZEV growth there “has been driven by fleets and businesses, for whom subsidies are available, while sales to individuals have declined,” Seitlheko and Gebreselassie write.
“In Germany, the first phase of subsidy removal applied to plug-in hybrids in early 2023 led to a 50 per cent drop in plug-in hybrid sales that year, which in turn contributed to a 16 per cent fall in total ZEV sales,” the report said. “Additionally, the market share of ZEVs declined from 31 per cent to 24 per cent, the first such drop based on records going back to 2010.”
In Canada, a federal $5,000 rebate, for which demand has set records in recent months, is set to expire on March 31, 2025. Most provinces, with the exception of Alberta and Saskatchewan, offer rebates, with fixed end dates in the next few years in Nfld., Manitoba and Quebec. Quebec’s $7,000 rebate — the most generous provincial incentive — will be cut in half at the end of this year and will be completely phased out at the end of 2026.
“The biggest challenge for ZEV adoption in Canada is the rolling back of incentives,” said Jimmy Hearn, an associate director at S&P Global Mobility, noting slowing growth in B.C., which recently adjusted its rebate program to make it income-based and also limited the price of qualifying vehicles.
Seitlheko and Gebreselassie say B.C. could serve as a model, suggesting that instead of eliminating rebates, they “could be restructured to provide support to lower-income buyers who are least likely to be able to afford the high upfront prices of ZEVs.”
While B.C.’s ZEV growth has slowed, that province and Quebec remain “the primary markets driving national numbers,” the TD report notes. Market share in those two provinces was nearly triple that in Ontario and P.E.I. the next highest-ranked provinces. The authors note that prior to Ontario cancelling its EV rebate in 2018, new ZEV registrations there were roughly the same as in Quebec.
“As a result of the change in policy, sales in Ontario diverged from Québec’s and have consistently remained lower in subsequent years,” they wrote. “It is likely that the decline would have been steeper and the recovery slower without the federal rebate, which became available starting May 2019.”
In the past five years, B.C. and Quebec “accounted for more than 60 per cent of national ZEV sales while representing just 36 per cent of the population,” the report says.
Both provinces have also been at the forefront of developing charging infrastructure, the report observes, and they are the only provinces with sales mandates for car companies. The authors theorize that these sales requirements have contributed to larger inventory numbers, which may also result in higher adoption. “This data suggest that sales in British Columbia and Quebec could also be helped by the availability of more vehicles for potential buyers to choose from, while insufficient supply in other regions could be a hindrance to sales.”
The authors use the gas and electric versions of the Hyundai Kona to illustrate the impact of the government incentives. Although the sticker price on the gas vehicle is significantly lower than its EV counterpart, savings on fuel accrue over a period of time that varies according to local fuel and electricity costs. Without rebates, the time to break even would be six years in Vancouver and 10 years in Calgary. With rebates, the payback times drop to about a year in Vancouver and under six years in Calgary.
The authors note that ZEVs have become more affordable, but the price difference compared to gas-powered vehicles remains significant — battery-electric vehicles are around 31 per cent more expensive and plug-in hybrids 23 per cent more, they say. They also note the lack of options for ZEVs priced below $30,000.
“Given the existing sticker price premium on ZEVs, it is doubtful that sales can grow at levels commensurate with targets set for the next decade without the rebates,” they wrote.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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