Ottawa’s latest budget shows no signs of pumping the brakes on electric vehicle (EV) sales in the coming years. Instead, $5,000 rebates for EVs and other zero-emission vehicles (ZEVs) will keep being pumped into the auto market through to 2025, according to promises from the Canadian government this month.
The question for now is whether macroeconomic issues will continue to dampen federal efforts to require that 100 per cent of new passenger vehicles sales be ZEVs by 2035
“Canadian vehicle sales have started the year right where they left off in 2021, on a relatively somber note,” Thomas Feltmate, senior economist at Toronto-Dominion Bank (TSX:TD), said in a March study, noting monthly sales have been averaging 132,00 units through to February over the past year.
That’s down 21 per cent compared with levels seen in 2019, prior to the pandemic when many began eschewing public transit and working from home.
“Semiconductor shortages, the sharp spike in the Omicron variant, tight dealership inventory and even the border blockades are all to blame for the recent weakness,” Feltmate added.
Meanwhile, Russia’s brutal and prolonged invasion of Ukraine – now entering its eighth week after Moscow seemingly anticipated a quick conclusion – presents Canadian policymakers with another roadblock to its goal to reduce emissions through mass adoption of ZEVs.
Most of the world’s semiconductors are manufactured in Taiwan, but Ukraine and Russia are both major sources of the neon and palladium gases used in the manufacturing of the chips needed to make EVs run.
“Over 20 per cent of class 1 nickel – vital in the production of lithium-ion batteries – comes from Russia. Removing them from the global supply will not only lead to higher EV prices, but may also force automakers to rethink battery structure, which could delay model releases over the coming years,” Feltmate said, referring to potential sanctions against Russia.
“The Russia-Ukraine war may also slow electric vehicle market penetration over the near to medium term.”
Olivier Vincent , CEO of Vancouver-based online car sales platform Autozen Technology Ltd., said demand for EVs remains a lot higher than supply, pushing up their prices for consumers.
He said the number of EVs showing up on his company’s platform has more than doubled month over month as drivers realize they can sell off their wheels and upgrade to a new one.
“Tesla [Inc. (Nasdaq:TSLA)] in particular seems to have planned its chips needs quite well and does not seem to suffer as much from the shortage – they are able to deliver cars at a good pace,” Vincent said.
He expects the value of used cars to edge down later this year as the supply of new car inventories returns to normal with an easing of the semiconductor shortage.
But even the rising cost of gasoline, which smashed records last month as it went beyond $2 a litre in Metro Vancouver, is unlikely to further motivate potential buyers of new cars just yet, according to Feltmate.
“Consumer surveys have shown that range anxiety and higher entry level prices for EVs remain two of the biggest concerns among today’s buyers,” he said. “Neither of these issues are likely to abate anytime soon.”
Feltmate also emphasized that semiconductor shortages will continue to chip away at consumer interest in EVs.
“This is significant, as limited model selection for EVs – particularly across the light truck segment – has been widely cited as another reason for limited market penetration across North America. While there was supposed to be a significant increase in models over the coming years, timelines are likely to be somewhat delayed as a result of the ongoing supply disruptions,” he said.
“While we are still in the early days, the recent events have dealt a potential setback to decarbonizing passenger vehicle transportation. Higher prices and a slower rollout of new models will likely slow the pace of EV adoption.” •