The uneven road to zero emissions

On December 20, 2023, the Canadian federal government released its long-awaited final draft of the zero-emission vehicle (ZEV) regulations. While there wasn’t much in the regulations that could be considered a surprise, it was an important development because it signalled a definitive direction for the federal Liberals.

The regulations form a sales mandate that effectively requires manufacturers to increase the availability of ZEVs to Canadians or face penalties. For the record, this is one of the most challenging times in the history of the automotive industry. The transition to electrification has required immense investment; it’s also been made more difficult by the supply chain issues that occurred in the wake of the COVID-19 pandemic.

These and other factors have conspired to create turmoil in the industry, forced new car prices for both EVs and more traditional vehicles to reach eye-watering levels, and caused knock-on effects all over the place, including upheaval to rental car fleets and wild fluctuation in used car prices. 

Essentially, what we have in North America is increasing government interest in EVs, reduced interest from consumers due to high sticker prices and higher interest rates, and general confusion from carmakers as they consider how to best maintain profit margins. The only thing missing from this combustible mixture is the threat of lower-priced Chinese EVs being allowed to enter the market free of all encumbrances. This is the main issue impacting Elon Musk’s sleep these days as he struggles to keep Tesla in the green while firing off angry Xs to whomever might be inclined to listen.

‘If the government really wants consumers to adopt zero emissions vehicles in a big way, there would be charging stations exactly where gas stations are today’

Now, to be sure, automakers don’t really deserve our collective pity on this issue. They’re in the business of selling cars at a profit. They would ultimately be happy if everyone replaced his or her fossil fuel powered vehicle with something shiny, new and electrified. But this is definitely a transition period, and all signs are it’s going to be a rocky one for years to come.

“Look at the situation through the lens of what’s driving the costs; it’s a huge cost to convert entire factories over to electrification—you’re developing a whole new ecosystem,” says David Adams, president and CEO of Global Automakers of Canada (GAC), a not-for-profit that represents 21 different manufacturers operating in this country. “EVs are only about 3% of vehicles on the road today. It’s a new technology with a battery that’s responsible for thirty percent of the cost of the vehicle. Scale of production is the only way to lower the cost, aligned with the cost of the battery.”

While the GAC recognized that the inclusion of certain plug-in hybrid vehicles (PHEVs) in the revised ZEV mandate was somewhat positive, Adams isn’t sure the government listened to all their concerns. That carve out for PHEVs, for example, covers only those vehicles that can travel on electric propulsion alone for 80 kilometres or more. As of right now, the only vehicles that make the grade are a handful of big-ticket models such as the Land Rover Range Rover Sport.

“We’ve been supportive of the federal government and other governments putting in rebates,” Adams says, “But the gap is still about $14,000 between a comparable EV and ICE (internal combustion engine) vehicle. We don’t see price parity happening until beyond 2035 for all segments, apart from compact vehicles.”

READ:  Parkland adds three new EV charging locations in Ontario

While the affordability of EVs seems like a manufacturer issue, things aren’t quite that simple. The Ford F-150 Lightning, easily one of the best EV pickup trucks on the market, is a victim of its own success. Ford Motor Company estimates that it loses between $34,000 and $36,000 (all figures in USD) on every Lightning sold. It’s a rough business to be in.

The GAC also pinpoints the lack of charging infrastructure as another key reason why an aggressive EV mandate is premature. “If the government really wants consumers to adopt zero emissions vehicles in a big way, there would be charging stations exactly where gas stations are today,” says Adams. “The assumption is that most charging would be at home, but 40% of the population doesn’t live in a single-family home.”

It’s clear that there aren’t enough high-speed charging stations to meet future demand. But this is another area where companies operating in a free enterprise are asking for government assistance. It’s kind of like the richest man in the world asking for tariffs on Chinese EVs.

Regardless of the charging infrastructure or the cost of building electrified vehicles, it’s nevertheless up to manufacturers to meet the Electric Vehicle Availability Standard—or risk penalties and fines. The standard targets at least 20% of new vehicle sales by EVs/PHEVs by the year 2026, 60% by the year 2030 and 100% by 2035. 

Manufacturers that fail to meet these targets will be in a credit deficit, a situation that must be remedied within three years. If they can’t comply within the time allotted, they will then face government fines. The race is well and truly on.

This article first appeared in the March | April edition of Octane magazine.